RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY COLLECTED-
Pursuant to the separate [m]anagement and [d]istribution
PROPER PARTY TO FILE CLAIM FOR REFUND OR TAX CREDIT
G.R. Nos. 156637/162004 December 14, 2005
PHILAM ASSET MANAGEMENT, INC., Petitioner,
COMMISSIONER OF INTERNAL REVENUE,Respondent.
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, J.:
Under Section 76 of the National Internal Revenue Code, a taxable corporation
with excess quarterly income tax payments may apply for either a tax refund
or a tax credit, but not both. The choice of one precludes the other. Failure to
indicate a choice, however, will not bar a valid request for a refund, should this
option be chosen by the taxpayer later on.
The Case
Before us are two consolidated Petitions for Review[1] under Rule 45 of the
Rules of Court, seeking to review and reverse the December 19, 2002
Decision[2] of the Court of Appeals (CA) in CA-GR SP No. 69197 and its
January 30, 2004 Decision[3] in CA-GR SP No. 70882.
The dispositive portion of the assailed December 19, 2002 Decision, on the
one hand, reads as follows:
WHEREFORE, the petition is hereby DENIED. The assailed decision and
resolution of the Court of Tax Appeals are AFFIRMED.[4]
That of the assailed January 30, 2004 Decision, on the other hand, was
similarly worded, except that it referred to the May 2, 2002 Decision of the
Court of Tax Appeals (CTA).[5]
The Facts
In GR No. 156637, the CA adopted the CTAs narration of the facts as follows:
Petitioner, formerly Philam Fund Management, Inc., is a domestic corporation
duly organized and existing under the laws of the Republic of the Philippines.
It acts as the investment manager of both Philippine Fund, Inc. (PFI) and
Philam Bond Fund, Inc. (PBFI), which are open-end investment companies[,]
in the sale of their shares of stocks and in the investment of the proceeds of
these sales into a diversified portfolio of debt and equity securities. Being an
investment manager, [p]etitioner provides management and technical services
to PFI and PBFI. Petitioner is, likewise, PFIs and PBFIs principal distributor
which takes charge of the sales of said companies shares to prospective
investors.
agreements between the [p]etitioner and PFI and PBFI, both PFI and PBFI
[agree] to pay the [p]etitioner, by way of compensation for the latters services
and facilities, a monthly management fee from which PFI and PBFI withhold
- versus - the amount equivalent to [a] five percent (5%) creditable tax[,] pursuant to the
Expanded Withholding Tax Regulations.
On April 3, 1998, [p]etitioner filed its [a]nnual [c]orporate [i]ncome [t]ax [r]eturn
for the taxable year 1997 representing a net loss of P2,689,242.00.
Consequently, it failed to utilize the creditable tax withheld in the amount of
Five Hundred Twenty-Two Thousand Ninety-Two Pesos (P522,092.00)
representing [the] tax withheld by [p]etitioners withholding agents, PFI and
PBFI[,] on professional fees.
The creditable tax withheld by PFI and PBFI in the amount of P522,092.00 is
broken down as follows:
PFI P496,702.05
PBFI 25,389.66_
Total P522,091.71
On September 11, 1998, [p]etitioner filed an administrative claim for refund
with the [Bureau of Internal Revenue (BIR)] -- Appellate Division in the amount
of P522,092.00 representing unutilized excess tax credits for calendar year
1997. Thereafter, on July 28, 1999, a written request was filed with the same
division for the early resolution of [p]etitioners claim for refund.
Respondent did not act on [p]etitioners claim for refund[;] hence, a Petition for
Review was filed with this Court[6] on November 29, 1999 to toll the running
of the two-year prescriptive period.[7]
On October 9, 2001, the CTA rendered a Decision denying petitioners Petition
for Review. Its Motion for Reconsideration was likewise denied in a Resolution
dated January 29, 2002.
In GR No. 162004, the antecedents are narrated by the CA in this wise:
On April 13, 1999, [petitioner] filed its Annual Income Tax Return with the [BIR]
for the taxable year 1998 declaring a net loss of P1,504,951.00. Thus, there
was no tax due against [petitioner] for the taxable year 1998. Likewise,
[petitioner] had an unapplied creditable withholding tax in the amount of
P459,756.07, which amount had been previously withheld in that year by
petitioners withholding agents[,] namely x x x [PFI], x x x [PBFI], and Philam
Strategic Growth Fund, Inc. (PSGFI).
1
In the next succeeding year, [petitioner] had a tax due in the amount of
P80,042.00, and a creditable withholding tax in the amount of P915,995.00.
[Petitioner] likewise declared in its 1999 tax return the amount of P459,756.07,
which represents its prior excess credit for taxable year 1998.
Thereafter, on November 14, 2000, [petitioner] filed with the Revenue District
Office No. 50, Revenue Region No. 8, a written administrative claim for refund
with respect to the unapplied creditable withholding tax of P459,756.07.
According to [petitioner,] the amount of P80,042.00, representing the tax due
for the taxable year 1999 has been credited from its P915,995.00 creditable
withholding tax for taxable year 1999, thus leaving its 1998 creditable
withholding tax in the amount of P459,756.07 still unapplied.
The claim for refund yielded no action on the part of the BIR. [Petitioner] then
filed a Petition for Review before the CTA on December 26, 2000, asserting
that it is entitled [to] the refund [of P459,756.07,] since said amount has not
been applied against its tax liabilities in the taxable year 1998.
On May 2, 2002, the CTA rendered [a] x x x decision denying [petitioners]
Petition for Review. x x x.[8]
Ruling of the Court of Appeals
The CA denied the claim of petitioner for a refund of the latters excess
creditable taxes withheld for the years 1997 and 1998, despite compliance with
the basic requirements of Revenue Regulations (RR) No. 12-94. The appellate
court pointed out that, in the respective Income Tax Returns (ITRs) for both
years, petitioner did not indicate its option to have the amounts either refunded
or carried over and applied to the succeeding year. It was held that to request
for either a refund or a credit of income tax paid, a corporation must signify its
intention by marking the corresponding option box on its annual corporate
adjustment return.
The CA further held in GR No. 156637 that the failure to present the 1998 ITR
was fatal to the claim for a refund, because there was no way to verify if the
tax credit for 1997 could not have been applied against the 1998 tax liabilities
of petitioner.
In GR No. 162004, however, the subsequent acts of petitioner demonstrated
its option to carry over its tax credit for 1998, even if it again failed to tick the
appropriate box for that option in its 1998 ITR. Under RR 12-94, its failure to
indicate that option resulted in the automatic carry-over of any excess tax
credit for the prior year. The appellate court said that the government would
not be unjustly enriched by denying a refund, because there would be no
forfeiture of the amount in its favor. The amount claimed as a refund would
remain in the account of the taxpayer until utilized in succeeding taxable years.
Hence, these Petitions.[9]
The Issues
Petitioner raises two issues in GR No. 156637 for the Courts consideration:
A. Whether or not the failure of the [p]etitioner to indicate in its [a]nnual
[i]ncome [t]ax [r]eturn the option to refund its creditable withholding tax is fatal
to its claim for refund.
B. Whether or not the presentation in evidence of the [p]etitioners [a]nnual
[i]ncome [t]ax [r]eturn for the succeeding calendar year is a legal requisite in a
claim for refund of unapplied creditable withholding tax.[10]
In GR No. 162004, petitioner raises one question only:
Whether or not the petitioner is entitled to the refund of its unutilized creditable
withholding tax in the taxable year 1998 in the amount of P459,756.07.[11]
In both cases, a simple issue needs to be resolved: whether petitioner is
entitled to a refund of its creditable taxes withheld for taxable years 1997 and
1998.
The Courts Ruling
The Petition in GR No. 156637 is meritorious, but that in GR No. 162004 is
not.
Main Issue:
Entitlement to Refund
The provision on the final adjustment return (FAR) was originally found in
Section 69 of Presidential Decree (PD) No. 1158, otherwise known as the
National Internal Revenue Code of 1977.[12] On August 1, 1980, this provision
was restated as Section 86[13] in PD 1705.[14]
On November 5, 1985, all prior amendments and those introduced by PD
1994[15] were codified[16] into the National Internal Revenue Code (NIRC) of
1985, as a result of which Section 86 was renumbered[17] as Section 79.[18]
On July 31, 1986, Section 24 of Executive Order (EO) No. 37 changed all net
income phrases appearing in Title II of the NIRC of 1977 to taxable income.
Section 79 of the NIRC of 1985,[19] however, was not amended.
2
On July 25, 1987, EO 273[20] renumbered[21] Section 86 of the NIRC[22] as
Section 76,[23] which was also rearranged[24] to fall under Chapter 10 of Title
II of the NIRC. Section 79, which had earlier been renumbered by PD 1994,
remained unchanged.
Thus, Section 69 of the NIRC of 1977 was renumbered as Section 86 under
PD 1705; later, as Section 79 under PD 1994;[25] then, as Section 76 under
EO 273.[26] Finally, after being renumbered and reduced to the chaff of a
grain, Section 69 was repealed by EO 37.
Subsequently, Section 69 reappeared in the NIRC (or Tax Code) of 1997 as
Section 76, which reads:
Section 76. Final Adjustment Return. -- Every corporation liable to tax under
Section 24 shall file a final adjustment return covering the total net income[27]
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[28] 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.
GR No. 156637
This section applies to the first case before the Court. Differently numbered in
1977 but similarly worded 20 years later (1997), Section 76 offers two options
to a taxable corporation whose total quarterly income tax payments in a given
taxable year exceeds its
total income tax due. These options are (1) filing for a tax refund or (2) availing
of a tax credit.
The first option is relatively simple. Any tax on income that is paid in excess of
the amount due the government may be refunded, provided that a taxpayer
properly applies for the refund.
The second option works by applying the refundable amount, as shown on the
FAR of a given taxable year, against the estimated quarterly income tax
liabilities of the succeeding taxable year.
These two options under Section 76 are alternative in nature.[29] The choice
of one precludes the other. Indeed, in Philippine Bank of Communications v.
Commissioner of Internal Revenue,[30] 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.[31] 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. Failure to signify ones intention in the FAR does
not mean outright barring of a valid request for a refund, should one still choose
this option later on. A tax credit should be construed merely as an alternative
remedy to a tax refund under Section 76, subject to prior verification and
approval by respondent.[32]
The reason for requiring that a choice be made in the FAR upon its filing is to
ease tax administration,[33] particularly the self-assessment and collection
aspects. A taxpayer that makes a choice expresses certainty or preference
and thus demonstrates clear diligence. Conversely, a taxpayer that makes no
choice expresses uncertainty or lack of preference and hence shows simple
negligence or plain oversight.
In the present case, respondent denied the claim of petitioner for a refund of
excess taxes withheld in 1997, because the latter
(1) had not indicated in its ITR for that year whether it was opting for a credit
or a refund; and (2) had not submitted as evidence its 1998 ITR, which could
have been the basis for determining whether its claimed 1997 tax credit had
not been applied against its 1998 tax liabilities.
Requiring that the ITR or the FAR of the succeeding year be presented to the
BIR in requesting a tax refund has no basis in law and jurisprudence.
First, Section 76 of the Tax Code does not mandate it. The law merely requires
the filing of the FAR for the preceding -- not the succeeding -- taxable year.
Indeed, any refundable amount indicated in the FAR of the preceding taxable
year may be credited against the estimated income tax liabilities for the taxable
quarters of the succeeding taxable year. However, nowhere is there even a
tinge of a hint in any of the provisions of the Tax Code that the FAR of the
taxable year following the period to which the tax credits are originally being
applied should also be presented to the BIR.
Second, Section 5[34] of RR 12-94, amending Section 10(a) of RR 6-85,
merely provides that claims for the refund of income taxes deducted and
withheld from income payments shall be given due course only (1) when it is
shown on the ITR that the income payment received is being declared part of
the taxpayers gross income; and (2) when the fact of withholding is established
3
by a copy of the withholding tax statement, duly issued by the payor to the
payee, showing the amount paid and the income tax withheld from that
amount.[35]
Undisputedly, the records do not show that the income payments received by
petitioner have not been declared as part of its gross income, or that the fact
of withholding has not been established. According to the CTA, [p]etitioner
substantially complied with the x x x requirements of RR 12-94 [t]hat the fact
of withholding is established by a copy of a statement duly issued by the payor
(withholding agent) to the payee, showing the amount paid and the amount of
tax withheld therefrom; and x x x [t]hat the income upon which the taxes were
withheld were included in the return of the recipient.[36]
The established procedure is that a taxpayer that wants a cash refund shall
make a written request for it, and the ITR showing the excess expanded
withholding tax credits shall then be examined by the BIR. For the grant of
refund, RRs 12-94 and 6-85 state that all
pertinent accounting records should be submitted by the taxpayer. These
records, however, actually refer only to (1) the withholding tax statements; (2)
the ITR of the present quarter to which the excess withholding tax credits are
being applied; and (3) the ITR of the quarter for the previous taxable year in
which the excess credits arose.[37] To stress, these regulations implementing
the law do not require the proffer of the FAR for the taxable year following the
period to which the tax credits are being applied.
Third, there is no automatic grant of a tax refund. As a matter of procedure,
the BIR should be given the opportunity to investigate and confirm the
veracity[38] of a taxpayers claim, before it grants the refund. Exercising the
option for a tax refund or a tax credit does not ipso facto confer upon a taxpayer
the right to an immediate availment of the choice made. Neither does it impose
a duty on the government to allow tax collection to be at the sole control of a
taxpayer.[39]
Fourth, the BIR ought to have on file its own copies of petitioners FAR for the
succeeding year, on the basis of which it could rebut the assertion that there
was a subsequent credit of the excess income tax payments for the previous
year. Its failure to present this vital document to support its contention against
the grant of a tax refund to petitioner is certainly fatal.
Fifth, the CTA should have taken judicial notice[40] of the fact of filing and the
pendency of petitioners subsequent claim for a refund of excess creditable
taxes withheld for 1998. The existence of the claim ought to be known by
reason of its judicial functions. Furthermore, it is decisive to and will easily
resolve the material issue in this case. If only judicial notice were taken earlier,
the fact that there was no carry-over of the excess creditable taxes withheld
for 1997 would have already been crystal clear.
Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in
writing within two years after payment of the taxes erroneously received by the
BIR.[41] Despite the failure of petitioner
to make the appropriate marking in the BIR form, the filing of its written claim
effectively serves as an expression of its choice to request a tax refund, instead
of a tax credit. To assert that any future claim for a tax refund will be instantly
hindered by a failure to signify ones intention in the FAR is to render nugatory
the clear provision that allows for a two-year prescriptive period.
In fact, in BPI-Family Savings Bank v. CA,[42] this Court even ordered the
refund of a taxpayers excess creditable taxes, despite the express declaration
in the FAR to apply the excess to the succeeding year.[43] When
circumstances show that a choice of tax credit has been made, it should be
respected. But when indubitable circumstances clearly show that another
choice -- a tax refund -- is in order, it should be granted. Technicalities and
legalisms, however exalted, should not be misused by the government to keep
money not belonging to it and thereby enrich itself at the expense of its law-
abiding citizens.[44]
In the present case, although petitioner did not mark the refund box in its 1997
FAR, neither did it perform any act indicating that it chose a tax credit. On the
contrary, it filed on September 11, 1998, an administrative claim for the refund
of its excess taxes withheld in 1997. In none of its quarterly returns for 1998
did it apply the excess creditable taxes. Under these circumstances, petitioner
is entitled to a tax refund of its 1997 excess tax credits in the amount of
P522,092.
GR No. 162004
As to the second case, Section 76 also applies. Amended by Republic Act
(RA) No. 8424, otherwise known as the Tax Reform Act of 1997, it now states:
SEC. 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.
4
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 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 cash refund or issuance of a tax
credit certificate shall be allowed therefor.
The carry-over option under Section 76 is permissive. A corporation that is
entitled to a tax refund or a tax credit for excess payment of quarterly income
taxes may carry over and credit the excess income taxes paid in a given
taxable year against the estimated income tax liabilities of the succeeding
quarters. Once chosen, the carry-over option shall be considered
irrevocable[45] for that taxable period, and no application for a tax refund or
issuance of a tax credit certificate shall then be allowed.
According to petitioner, it neither chose nor marked the carry-over option box
in its 1998 FAR.[46] As this option was not chosen, it seems that there is
nothing that can be considered irrevocable. In other words, petitioner argues
that it is still entitled to a refund of its 1998 excess income tax payments.
This argument does not hold water. The subsequent acts of petitioner reveal
that it has effectively chosen the carry-over option.
First, the fact that it filled out the portion Prior Years Excess Credits in its 1999
FAR means that it categorically availed itself of the carry-over option. In fact,
the line that precedes that phrase in the BIR form clearly states Less: Tax
Credits/Payments. The contention that it merely filled out that portion because
it was a requirement -- and that to have done otherwise would have been
tantamount to falsifying the FAR -- is a long shot.
The FAR is the most reliable firsthand evidence of corporate acts pertaining to
income taxes. In it are found the itemization and summary of additions to and
deductions from income taxes due. These entries are not without rhyme or
reason. They are required, because they facilitate the tax administration
process.
Failure to indicate the amount of prior years excess credits does not mean
falsification by a taxpayer of its current years FAR. On the contrary, if an
application for a tax refund has been -- or will be -- filed, then that portion of
the BIR form should necessarily be blank, even if the FAR of the previous
taxable year already shows an overpayment in taxes.
Second, the resulting redundancy in the claim of petitioner for a refund of its
1998 excess tax credits on November 14, 2000[47] cannot be countenanced.
It cannot be allowed to avail itself of a tax refund and a tax credit at the same
time for the same excess income taxes paid. Besides, disallowing it from
getting a tax refund of those excess tax credits will not enervate the two-year
prescriptive period under the Tax Code. That period will apply if the carry-over
option has not been chosen.
Besides, tax refunds x x x are construed strictly against the taxpayer.[48]
Petitioner has failed to meet the burden of proof required in order to establish
the factual basis of its claim for a tax refund.
Third, the first-in first-out (FIFO) principle enunciated by the CTA[49] does not
apply.[50] Money is fungible property.[51] The amount to be applied against
the P80,042 income tax due in the 1998 FAR[52] of petitioner may be taken
from its excess credits in 1997 or from those withheld in 1998 or from both.
Whichever of these the amount will be taken from will not make a difference.
Even if the FIFO principle were to be applied, the tax credits would have to be
in consonance with the usual and normal course of events. In fact, the FAR is
cumulative in nature.[53] Following a natural sequence, the prior years excess
tax credits will have to be reduced first to answer for any current tax liabilities
before the current years withheld amounts can be applied. Otherwise, there
will be no sense in requiring a taxpayer to fill out the line items in the FAR to
segregate its sources of tax credits.
Whether the FIFO principle is applied or not, Section 76 remains clear and
unequivocal. Once the carry-over option is taken, actually or constructively, it
becomes irrevocable. Petitioner has chosen that option for its 1998 creditable
withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07,
which corresponds to its 1998 excess tax credit. Nonetheless, the amount will
not be forfeited in the governments favor, because it may be claimed by
petitioner as tax credits in the succeeding taxable years.
WHEREFORE, the Petition in GR No. 156637 is GRANTED and the assailed
December 19, 2002 Decision REVERSED and SET ASIDE. No
pronouncement as to costs.
The Petition in GR No. 162004 is, however, DENIED and the assailed January
30, 2004 Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
5
RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY COLLECTED-
Brand Tax Rate
PROPER PARTY TO FILE CLAIM FOR REFUND OR TAX CREDIT
Champion M 100 ₱1.00
G.R. Nos. 167274-75 September 11, 2013
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. FORTUNE
Salem M 100 ₱1.00
TOBACCO CORPORATION, Respondent.
x-----------------------x
Salem M King ₱1.00
G.R. No. 192576
FORTUNE TOBACCO CORPORATION, Petitioner, vs. COMMISSIONER
Camel F King ₱1.00
OF INTERNAL REVENUE, Respondent.
Camel Lights Box 20’s ₱1.00
DECISION
Camel Filters Box 20’s ₱1.00
VELASCO, JR., J.:
Winston F King ₱5.00
1
Fortune Tobacco Corporation (FTC), as petitioner in G.R. No. 192576, assails and
seeks the reversal of the Decision of the Court of Tax Appeals (CTA) En Banc Winston Lights ₱5.00
dated March 12, 2010, as effectively reiterated in a Resolution of June 11, 2010,
both rendered in C.T.A. EB No. 530 entitled Fortune Tobacco Corporation v.
Commissioner of Internal Revenue. The assailed issuances affirmed the Prior to January 1, 1997, the aforesaid cigarette brands were subject to ad-valorem
Resolution of the CTA First Division dated June 4, 2009, denying the Motion for tax under Section 142 of the 1977 Tax Code, as amended. However, upon the
Issuance of Additional Writ of Execution filed by herein petitioner in CTA Case Nos. effectivity of Republic Act (R.A.) No. 8240on January 1, 1997, a shift from ad
6365, 6383 & 6612, and the Resolution dated August 10, 2009 which denied its valorem tax system to the specific tax system was adopted imposing excise taxes
Motion for Reconsideration. on cigarette brands under Section 142 thereof, now renumbered as Section 145 of
the 1997 Tax Code, stating the following pertinent provision:
The present appellate proceedings traces its origin from and finds context in the
July 21, 2008 Decision2 of the Court in G.R. Nos. 167274-75, an appeal thereto The excise tax from any brand of cigarettes within the next three (3) years from the
interposed by the Commissioner of Internal Revenue (BIR Commissioner) from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each
consolidated Decision and Resolution issued by the Court of Appeals on brand on October 1, 1996. x x x The rates of excise tax on cigars and cigarettes
September 28, 2004 and March 1, 2005, respectively, in CA-G.R. SP Nos. 80675 under paragraphs (1), (2), (3) and (4) hereof, shall be increased by twelve percent
and 83165. The decretal part of the July 21, 2008 Decision reads: (12%) on January 1, 2000.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in
CA G.R. SP No. 80675, dated 28 September 2004,and its Resolution, dated 1
March 2005, are AFFIRMED. No pronouncement as to costs.
SO ORDERED.3 (Emphasis supplied.)
The antecedent facts, as summarized by the CTA in its adverted March 12, 2010
Decision, are as follows:
FTC (herein petitioner Fortune Tobacco Corporation) is engaged in manufacturing
or producing cigarette brands with tax rate classification based on net retail price
prescribed as follows:
Upon the Commissioner’s recommendation, the Secretary of Finance, issued
Revenue Regulations (RR) No. 17-99 dated December 16,1999 for the purpose of
implementing the provision for a 12% increase of excise tax on, among others,
cigars and cigarettes packed by machines by January 1, 2000. RR No. 17-99
provides that the new specific tax rate for any existing brand of cigars, cigarettes
packed by machine x x x shall not be lower than the excise tax that is actually being
paid prior to January 1, 2000.
FTC paid excise taxes on all its cigarettes manufactured and removed from its
place of production for the following period:
PERIOD PAYMENT

6
 3. In separate Decision dated October 21, 2002, the CTA in Division
January 1, 2000 to ₱585,705,250.00
ordered the Commissioner of Internal Revenue (respondent herein) to
January 31, 2000
refund to petitioner the erroneously paid excise taxes in the amounts of
₱35,651,410.00 for the period covering January 1, 2000 to January 31,
2000 (CTA Case No. 6365) and ₱644,735,615.00 for the period February
February 1, 2000 to ₱19,366,783,535.00 1, 2000 to December 31, 2001 (CTA Case No.6383) (Ibid.).
December 31, 2001
4. Respondent filed a motion for reconsideration of the Decision dated
October 21, 2002 covering CTA Case Nos. 6365 and 6383which was
January 1, 2002 to ₱11,359,578,560.00 granted in the Resolution dated July 15, 2003.
December 31, 2002
5. Subsequently, petitioner filed another petition docketed as CTA Case
No. 6612 questioning the validity of Revenue Regulations No.17-99 with
a prayer for the refund of overpaid excise tax amounting
FTC subsequently sought administrative redress for refund before the to₱355,385,920.00, covering the period from January 1, 2002 to
Commissioner on the following dates: December 31, 2002 (Ibid., p. 5).

PERIOD ADMINISTRATIVE AMOUNT 6. Petitioner thereafter filed a consolidated Motion for Reconsideration of
FILING OF CLAIM CLAIMED the Resolution dated July 15, 2003 (Ibid., pp. 5-6).

January 1, 2000 to February 7, 2000 ₱35,651,410.00 7. The CTA in Division issued Resolution dated November 4,2003 which
January 31, 2000 reversed the Resolution dated July 15, 2003 and ordered respondent to
refund to petitioner the amounts of 35,651,410.00 for the period covering
February 1, 2000 Various claims filed from ₱644,735,615.00 January 1 to January 31, 2000 and ₱644,735,615.00 for the period
to December 31, March 21, 2000 – covering February 1, 2000 to December 31, 2001, or in the aggregate
2001 January 28, 2002 amount of ₱680,387,025.00, representing erroneously paid excise taxes
(Ibid., p. 6).
January 1, 2002 to February 3, 2003 ₱355,385,920.00
December 31, 2002
8. In its Decision dated December 4, 2003, the CTA in Division in Case
No. 6612 declared RR No. 17-99 invalid and contrary to Section 145 of
(CTA En Banc Decision, the 1997 National Internal Revenue Code (NIRC). The Court ordered
Annex "A," Petition, pp. 2-4) respondent to refund to petitioner the amount of ₱355,385,920.00
representing overpaid excise taxes for the period covering January 1,
2002 to December 21, 2002 (Ibid.)
2. Since the claim for refund was not acted upon, petitioner filed on
December 11, 2001 and January 30, 2002, respectively, Petitions for
Review before the Court of Tax Appeals (CTA) docketed as CTA Case 9. Respondent filed a motion for reconsideration of the Decision dated
Nos. 6365 and 6383 questioning the validity of Revenue Regulations December 4, 2003 but this was denied in the Resolution dated March 17,
No.17-99 with claims for refund in the amounts ₱35,651,410.00 and 2004 (Ibid.)
₱644,735,615.00, respectively.
10. On December 10, 2003, respondent Commissioner filed a Petition for
These amounts represented overpaid excise taxes for the periods from Review with the Court of Appeals (CA) questioning the CTA Resolution
January 1, 2000 to January 31, 2000 and February 1, 2000 to December dated November 4, 2003 which was issued in CTA Case Nos. 6365 and
31, 2001, respectively (Ibid., pp. 4-5). 6383. The case was docketed as CA-G.R. SP No.80675 (Ibid.).

7
 11. On April 28, 2004, respondent Commissioner filed another appeal Commissioner of Internal
before the CA questioning the CTA Decision dated December 4, 2003 Revenue vs. Fortune Tobacco
issued in CTA Case No. 6612. The case was docketed as CA-G.R. SP Corporation, 559 SCRA 160
No. 83165 (Ibid., p. 7). (2008)

12. Thereafter, petitioner filed a Consolidated Motion for Execution 18. On January 23, 2009, petitioner filed a motion for execution praying for the
Pending Appeal before the CTA for CTA Case Nos. 6365 and 6383 and issuance of a writ of execution of the Decision of the Honorable Court in G.R. Nos.
an Amended Motion for Execution Pending Appeal for CTA Case No. 167274-75 dated July 21, 2008 which was recorded in the Book of Entries of
6612 (Ibid.). Judgments on November 6, 2008(Ibid., p. 10).

13. The motions were denied in the CTA Resolutions dated August 2,
2004 and August 3, 2004, respectively. The CTA in Division pointed out
that Section 12, Rule 43 of the1997 Rules of Civil Procedure should be
interpreted with Section 18 of R.A. 1125 which provides that CTA rulings
become final and conclusive only where there is no perfected appeal.
Considering that respondent filed an appeal with the CA, the CTA in
Division’s rulings granting the amounts of ₱355,385,920.00 and
₱680,387,025.00 were not yet final and executory (Ibid.).
14. In the consolidated CA Decision dated September 28,2004 issued in
CA-G.R. SP Nos. 80675 (CTA Case Nos. 6365 and6383) and 83165 (CTA
Case No. 6612), the appellate court denied respondent’s petitions and
affirmed petitioner’s refund claims in the amounts of ₱680,387,025.00
(CTA Case Nos. 6365 and 6383) and₱355,385,920.00 (CTA Case No.
6612), respectively (Ibid., p. 8).
15. Respondent filed a motion for reconsideration of the CA Decision
dated September 28, 2004 but this was denied in the CA’s Resolution
dated March 1, 2005 (Ibid.).
16. Respondent, filed a Petition for Review on Certiorari docketed as G.R.
Nos. 167274-75 on May 4, 2005 before the Honorable Court. On June 22,
2005, a Supplemental Petition for Review was filed and the petitions were
consolidated (Ibid.).
Petitioner’s prayer was for the CTA to order the BIR to pay/refund the amounts
adjudged by the CTA, as follows:
a) CTA Case No. 6612 under the Decision 04 December 2003 – the
amount of Three Hundred Fifty Five Million Three Hundred Eighty Five
Thousand Nine Hundred Twenty Pesos (₱355,385,920.00).
b) CTA Case Nos. 6365 and 6383 under the Decisions dated 21 October
2002 and Resolution dated 04 November 2003 – the amount of Six
Hundred Eighty Million Three Hundred Eighty Seven Thousand Twenty
Five Pesos (₱680,387,025.00).
(Petition, p. 11)
19. On April 14, 2009, the CTA issued a Writ of Execution, which reads:
You are hereby ORDERED TO REFUND in favor of the petitioner FORTUNE
TOBACCO CORPORATION, pursuant to the Supreme Court Decision in the
above-entitled case (SC G.R. 167274-75),dated July 21, 2008, which has become
final and executory on November 6, 2008, by virtue of the Entry of Judgment by
the Supreme Court on said dated, which reads as follows:
xxxx

17. In its Decision dated July 21, 2008 in G.R. Nos. 167274-75, the the amounts of ₱35,651,410.00 (C.T.A Case No. 6365) and ₱644,735,615.00
Honorable Court affirmed the findings of the CA granting petitioner’s claim (C.T.A Case No. 6383) or a total of ₱680,387,025.00 representing petitioners’
for refund. The dispositive portion of said Decision reads: erroneously paid excise taxes for the periods January 1-31, 2000 and February 1,
2000 to December 31, 2001,respectively under CA G.R. SP No. 80675 (C.T.A.
Case No. 6365 and C.T.A. Case No. 6383).
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. SP No.80675, dated 28 September 2004, and its Resolution, dated 1
March 2005, are AFFIRMED. No pronouncement as to costs. (CTA – 1st Division
Resolution dated June 04,
2009, pp. 2-3)
SO ORDERED.

8
20. On April 21, 2009, petitioner filed a motion for the issuance of an
additional writ of execution praying that the CTA order the Commissioner
of Internal Revenue to pay petitioner the amount of Three Hundred Fifty-
Five Million Three Hundred Eighty Five Thousand Nine Hundred Twenty
Pesos (₱355,385,920.00) representing the amount of tax to be refunded
in C.T.A. Case No. 6612 under its Decision dated December 4, 2003 and
affirmed by the Honorable Court in its Decision dated July 21, 2008
(Petition, p. 12, CTA Decision dated March 12, 2010, supra, p. 10).
21. In the CTA Resolution dated June 4, 2009, the CTA denied petitioner’s
Motion for the Issuance of Additional Writ of Execution (Ibid., p. 11).
22. Petitioner filed a motion for reconsideration of the Resolution dated
June 4, 2009, but this was denied in the CTA Resolution dated August 10,
2009 (Ibid.).
The dispositive portion of the Resolution reads:
WHEREFORE, premises considered, the instant" Motion for
Reconsideration" is hereby DENIED for lack of merit.
23. Aggrieved by the Decision, petitioner filed a petition for review before
the CTA En Banc docketed as CTA EB Case No. 530,raising the following
arguments, to wit:
The Honorable Court of Tax Appeals seriously erred contrary to law and
jurisprudence when it held in the assailed decision and resolution that
petitioner Fortune Tobacco Corporation is not entitled to the writ of
execution covering the decision in CTA Case No. 6612.
The Decision of the Court of Tax Appeals in CTA Case Nos. 6365, 6383
and 6612 has become final and executory.
The Decision of the Honorable Supreme Court in GR Nos. 167274-75
covers both CA GR SP No. 80675 and 83165.
24. The CTA En Banc, in the Decision dated March 12, 2010,dismissed
said petition for review. The dispositive portion of said Decision reads:
WHEREFORE, premises considered, the Petition for Review is
DISMISSED. The Resolutions dated June 4,2009 and August 10, 2009
are AFFIRMED.
SO ORDERED.
(Annex "A," Petition, p. 16)
25. Petitioner filed a Motion for Leave to file Motion for Reconsideration
with attached Motion for Reconsideration but this was denied in the CTA
En Banc’s Resolution dated June 11, 2010. The dispositive portion of said
Resolution reads:
WHEREFORE, premises considered, petitioner’s Motion for Leave to file attached
Motion for Reconsideration and its Motion for Reconsideration are hereby DENIED
for lack of merit.
SO ORDERED.4 (Emphasis supplied.)
Undeterred by the rebuff from the CTA, petitioner FTC has come to this Court via
a petition for review, the recourse docketed as G.R. 192576,thereat praying in
essence that an order issue (a) directing the CTA to issue an additional writ of
execution directing the Bureau of Internal Revenue(BIR) to pay FTC the amount
of tax refund (₱355,385,920.00) as adjudged in CTA Case No. 6612 and (b)
clarifying that the Court’s Decision in G.R. Nos. 167274-75 applies to the
affirmatory ruling of the CA in CA G.R. S₱80675 and CA G.R. SP No. 83165. FTC
predicates its instant petition on two (2) stated grounds, viz.:
I The Decision of the Honorable Supreme Court in S.C. GR Nos.167274-75,
which has become final and executory, affirmed the Decision of the Court of Tax
Appeals in CTA Case Nos. 6365, 6383 and 6612 and to the Decision of the Court
of Appeals in CA G.R. SP No. 80675 and CAG.R. SP No. 83165.
II The writ of execution prayed for and pertaining to CTA Case No.6612 and CA
G.R. SP No. 83165 is consistent with the decision of the Supreme Court in GR
Nos. 167274-75.
The petition is meritorious. But before delving on the merits of this recourse, certain
undisputed predicates have to be laid and basic premises restated to explain the
consolidation of G.R. Nos. 167274-75 and G.R. No.192576, thus:
1. As may be recalled, FTC filed before the CTA three (3) separate
petitions for refund covering three different periods involving varying
amounts as hereunder indicated:
a) CTA Case No. 6365 (Jan. 1 to Jan. 31, 2000) for
₱35,651,410.00;
b) CTA Case No. 6383 (Feb. 1, 2000 to Dec. 31, 2001) for
₱644,735,615.00; and
9
 c) CTA Case No. 6612 (Jan. 1 to Dec. 31, 2002) for 355,385,92
In three (3) separate decisions/resolutions, the CTA found the claims for
refund for the amounts aforestated valid and thus ordered the payment
thereof.
2. From the adverse ruling of the CTA in the three (3) cases, the BIR
Commissioner went to the CA on a petition for review assailing in CA-
G.R.SP No. 80675 the CTA decision/resolution pertaining to consolidated
CTA Case Nos. 6365 & 6383. A similar petition, docketed as CA G.R. SP
No.83165, was subsequently filed assailing the CTA decision/resolution
on CTA Case No. 6612.
3. Eventually, the CA, by Decision dated September 4, 2004, denied the
Commissioner’s consolidated petition for review. The appellate Court also
denied the Commissioner’s motion for reconsideration on March 1,2005.
4. It is upon the foregoing state of things that the Commissioner came to
this Court in G.R. Nos. 167274-75 to defeat FTC’s claim for refund thus
granted initially by the CTA and then by the CA in CA-G.R. SP No.
80675and CA-G.R. SP No. 83165.
By Decision dated July 21, 2008, the Court found against the Commissioner,
disposing as follows:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in
CA G.R. SP No. 80675, dated 28 September 2004,and its Resolution, dated 1
March 2005, are AFFIRMED. No pronouncement as to costs.
SO ORDERED.5 (Emphasis supplied.)
From the foregoing narration, two critical facts are at once apparent. First , the BIR
Commissioner came to this Court on a petition for review in G.R. Nos. 167274-75
to set aside the consolidated decision of the CA in CA-G.R. SP No. 80675 and CA-
G.R. SP No. 83165. Second, while the Court’s Decision dated July 21, 2008 in
G.R. Nos. 167274-75 denied the Commissioner’s petition for review, necessarily
implying that the CA’s appealed consolidated decision is affirmed in toto, the fallo
of that decidendi makes no mention or even alludes to the appealed CA decision
in CA-G.R. No. 83165, albeit the main decision’s recital of facts made particular
reference to that appealed CA decision. In fine, there exists an apparent in
consistency between the dispositive portion and the body of the main decision,
which ideally should have been addressed before the finality of the said decision.
Owing to the foregoing aberration, but cognizant of the fact that the process of
clarifying the dispositive portion in G.R. Nos. 167274-75 should be acted upon in
the main case, the Court, by Resolution6 dated February 25,2013 ordered the
consolidation of this petition (G.R. No. 192576) with G.R. Nos. 167274-75, to be
assigned to any of the members of the Division who participated in the rendition of
the decision.
Now to the crux of the controversy.
Petitioner FTC posits that the CTA should have issued the desired additional writ
of execution in CTA Case No. 6612 since the body of the Decision of this Court in
G.R. Nos. 167274-75 encompasses both CA G.R. Case No. 80675 which covers
CTA Case Nos. 6365 and 6383 and CA G.R. Case No. 83165 which embraces
CTA Case No. 6612. While the fallo of the Decision dated July 21, 2008 in G.R.
Case Nos. 167274-75 did not indeed specifically mention CA G.R. SP No. 83165,
petitioner FTC would nonetheless maintain that such a slip is but an inadvertent
omission in the fallo. For the text of the July 21, 2008 Decision, FTC adds, clearly
reveals that said CA case was intended to be included in the disposition of the
case.
Respondent Commissioner, on the other hand, argues that per the CTA, no
reversible error may be attributed to the tax court in rejecting, without more, the
prayer for the additional writ of execution pertaining to CTA Case No. 6612, subject
of CA G.R. SP No. 83165. For the purpose, the Commissioner cited a catena of
cases on the limits of a writ of execution. It is pointed out that such writ must
conform to the judgment to be executed; its enforcement may not vary the terms
of the judgment it seeks to enforce, nor go beyond its terms. As further
asseverated, "whatever may be found in the body of the decision can only be
considered as part of the reasons or conclusions of the court and while they may
serve as guide or enlightenment to determine the ratio decidendi, what is
controlling is what appears in the dispositive part of the decision."7
Respondent Commissioner’s posture on the tenability of the CTA’s assailed denial
action is correct. As it were, CTA did no more than simply apply established
jurisprudence that a writ of execution issued by the court of origin tasked to
implement the final decision in the case handled by it cannot go beyond the
contents of the dispositive portion of the decision sought to be implemented. The
execution of a judgment is purely a ministerial phase of adjudication. The executing
court is without power its own, to tinker let alone vary the explicit wordings of the
dispositive portion, as couched.
But the state of things under the premises ought not to remain uncorrected. And
the BIR cannot plausibly raise a valid objection for such approach. That bureau
knew where it was coming from when it appealed, first before the CA then to this
Court, the award of refund to FTC and the rationale underpinning the award. It
cannot plausibly, in all good faith, seek refuge on the basis of slip on the
formulation of the fallo of a decision to evade a duty. On the other hand, FTC has
discharged its burden of establishing its entitlement to the tax refund in the total
10
amount indicated in its underlying petitions for refund filed with the CTA. The
successive favorable rulings of the tax court, the appellate court and finally this
Court in G.R. Nos. 167274-75 say as much. Accordingly, the Court, in the higher
interest of justice and orderly proceedings should make the corresponding
clarification on the fallo of its July 21, 2008 Decision in G.R. Case Nos.162274-75.
It is an established rule that when the dispositive portion of a judgment, which has
meanwhile become final and executory, contains a clerical error or an ambiguity
arising from a inadvertent omission, such error or ambiguity may be clarified by
reference to the body of the decision itself.
After a scrutiny of the body of the aforesaid July 21, 2008 Decision, the Court finds
it necessary to render a judgment nunc pro tunc and address an error in the fallo
of said decision. The office of a judgment nunc pro tunc is to record some act of
the court done at a former time which was not then carried into the record, and the
power of a court to make such entries is restricted to placing upon the record
evidence of judicial action which has actually been taken. 9 The object of a
judgment nunc pro tunc is not the rendering of a new judgment and the
ascertainment and determination of new rights, but is one placing in proper form
on the record, that has been previously rendered, to make it speak the truth, so as
to make it show what the judicial action really was, not to correct judicial errors,
such as to render a judgment which the court ought to have rendered, in place of
the one it did erroneously render, not to supply non-action by the court, however
erroneous the judgment may have been.10 The Court would thus have the record
reflect the deliberations and discussions had on the issue. In this particular case it
is a correction of a clerical, not a judicial error. The body of the decision in question
is clear proof that the fallo must be corrected, to properly convey the ruling of this
Court.
We thus declare that the dispositive portion of said decision should be clarified to
include CA G.R. SP No. 83165 which affirmed the December 4,2003 Decision of
the Court of Tax Appeals in CTA Case No. 6612, for the following reasons,
heretofore summarized:
1. The petition for review on certiorari in G.R. Nos. 167274-75filed by
respondent CIR sought the reversal of the September 28, 2004Decision
of the Court of Appeals rendered in the consolidated cases of CA-G.R. SP
No. 80675 and CA-G.R. SP No. 83165, thus:Hence, this petition for review
on certiorari under Rule 45 of the Rules of Court which seeks the
nullification of the Court of Appeals’ (1)Decision promulgated on
September 28, 2004 in CA-G.R. SP No. 80675and CA-G.R. SP No.
83165, both entitled "Commissioner of Internal Revenue vs. Fortune
Tobacco Corporation," denying the CIR’s petition and affirming the
assailed decisions and resolutions of the Court of Tax Appeals (CTA) in
CTA Cases Nos. 6365, 6383 and 6612; and (2)Resolution dated March 1,
2005 denying petitioner’s motion for reconsideration of the said
decision."11
Earlier on, it was made clear that respondent CIR questioned the Decision
of the CTA dated October 21, 2002 in CTA Case Nos. 6365 and 6383 in
CA G.R. SP No. 80675 before the Court of Appeals. In CA G.R. SP No.
83165, the Commissioner also assailed the Decision of the CTA dated
December 4, 2003 in CTA Case No. 66l2 also before the same appellate
court. The two CA cases were later consolidated. Since the appellate
court rendered its September 28, 2004 Decision in the consolidated cases
of CAG.R. SP Nos. 80675 and 83165, what reached and was challenged
before this Court in G.R. Nos. 167274-75 is the ruling of the Court of
Appeals in both cases. When this Court rendered its July 21, 2008
Decision, the ruling necessarily embraced both CA G.R. SP Case Nos.
80675 and 83165 and adjudicated the respective rights of the parties.
Clearly then, there was indeed an inadvertence in not specifying in the
fallo of our July 21, 2008Decision that the September 28, 2004 CA
Decision included not only CAG.R. SP No. 80675 but also CA G.R. SP
No. 83165 since the two cases were merged prior to the issuance of the
September 28, 2004 Decision.
Given the above perspective, the inclusion of CA G.R. SP Case No.83165
in the fallo of the Decision dated July 21, 2008 is very much in order and
is in keeping with the imperatives of fairness.
2. The very contents of the body of the Decision dated July 21,2008
rendered by this Court in G.R. Nos. 167274-75 undoubtedly reveal that
both CA G.R. SP No. 80675 and CA G.R. SP No. 83165 were the subject
matter of the petition therein. And as FTC would point out at every turn,
the Court’s Decision passed upon and decided the merits of the
September 28,2004 Decision of the Court of Appeals in the consolidated
cases of CA G.R.SP Case Nos. 80675 and 83165 and necessarily CA
G.R. SP No. 83165 was included in our disposition of G.R. Nos. 167274-
75. We quote the pertinent portions of the said decision:
The following undisputed facts, summarized by the Court of Appeals, are
quoted in the assailed Decision dated 28 September 2004:
CAG.R. SP No. 80675
xxxx
Petitioner FTC is the manufacturer/producer of, among others, the
following cigarette brands, with tax rate classification based on net retail
price prescribed by Annex "D" to R.A. No. 4280, to wit:
Brand Tax Rate
11
 For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes
Champion M 100 ₱1.00 on all brands manufactured and removed in the total amounts of ₱585,705,250.00.
Salem M 100 ₱1.00
On February 7, 2000, petitioner filed with respondent’s Appellate Division a claim
for refund or tax credit of its purportedly overpaid excise tax for the month of
Salem M King ₱1.00
January 2000 in the amount of ₱35,651,410.00.
Camel F King ₱1.00
On June 21, 2001, petitioner filed with respondent’s Legal Service a letter dated
Camel Lights Box 20’s ₱1.00 June 20, 2001 reiterating all the claims for refund/tax credit of its overpaid excise
taxes filed on various dates, including the present claim for the month of January
2000 in the amount of ₱35,651,410.00.
Camel Filters Box 20’s ₱1.00

Winston F Kings ₱5.00 As there was no action on the part of the respondent, petitioner filed the instant
petition for review with this Court on December 11, 2001,in order to comply with
Winston Lights ₱5.00 the two-year period for filing a claim for refund.

Immediately prior to January 1, 1997, the above-mentioned cigarette brands were
subject to ad valorem tax pursuant to then Section142 of the Tax Code of 1977,
as amended. However, on January 1, 1997,R.A. No. 8240 took effect whereby a
shift from the ad valorem tax (AVT)system to the specific tax system was made
and subjecting the aforesaid cigarette brands to specific tax under Section 142
thereof, now renumbered as Sec. 145 of the Tax Code of 1997, pertinent
provisions of which are quoted thus:
xxxx
xxxx
CA G.R. SP No. 83165
The petition contains essentially similar facts, except that the said case questions
the CTA’s December 4, 2003 decision in CTA Case No.6612 granting respondent’s
claim for refund of the amount of ₱355,385,920.00 representing erroneously or
illegally collected specific taxes covering the period January 1, 2002 to December
31, 2002, as well as its March 17, 2004 Resolution denying a reconsideration
thereof.

The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and
(4) hereof, shall be increased by twelve percent (12%) on January 1, 2000.
(Emphasis supplied.)
xxxx
To implement the provisions for a twelve percent (12%) increase of excise tax on,
among others, cigars and cigarettes packed by machines by January 1, 2000, the
Secretary of Finance, xxx issued Revenue Regulations [RR] No. 17-99, dated
December 16, 1999, which provides the increase on the applicable tax rates on
cigar and cigarettes x x x.
[tax rates deleted]
xxxx
However, on consolidated motions for reconsideration filed by the respondent in
CTA Case Nos. 6363 and 6383, the July 15, 2002 resolution was set aside, and
the Tax Court ruled, this time with a semblance of finality, that the respondent is
entitled to the refund claimed. Hence, in are solution dated November 4, 2003, the
tax court reinstated its December 21, 2002 Decision and disposed as follows:
WHEREFORE, our Decisions in CTA Case Nos.6365 and 6383 are hereby
REINSTATED. Accordingly, respondent is hereby ORDERED to REFUND
petitioner the total amount of ₱680,387,025.00 representing erroneously paid
excise taxes for the period January 1, 2000 to January 31, 2000 and February
1,2000 to December 31, 2001.

Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section SO ORDERED.
1 thereof, "(t)hat the new specific tax rate for any existing brand of cigars, cigarettes
packed by machine, distilled spirits, wines and fermented liquor shall not be lower Meanwhile, on December 4, 2003, the CTA rendered a decision in CTA Case No.
than the excise tax that is actually being paid prior to January 1, 2000." 6612 granting the prayer for the refund of the amount of ₱355,385,920.00
12
representing overpaid excise tax for the period covering January 1, 2002 to
December 31, 2002. The tax court disposed of the case as follows:
IN VIEW OF THE FOREGOING, the Petition for Review is GRANTED.
Accordingly, respondent is hereby ORDERED to REFUND to petitioner the amount
of ₱355,385,920.00 representing overpaid excise tax for the period covering
January 1, 2002 to December 31, 2002.
SO ORDERED.
Petitioner sought reconsideration of the decision, but the same was denied in a
Resolution dated March 17, 2004.1âwphi1(Emphasis supplied; citations omitted.)
The Commissioner appealed the aforesaid decisions of the CTA. The petition
questioning the grant of refund in the amount of ₱680,387,025.00 was docketed
as CA-G.R. SP No. 80675, whereas that assailing the grant of refund in the amount
of ₱355,385,920.00 was docketed as CA-G.R. SP No. 83165. The petitions were
consolidated and eventually denied by the CA. The appellate court also denied
reconsideration in its Resolution dated 1 March 2005.
In its Memorandum 22 dated November 2006, filed on behalf of the Commissioner,
the Office of the Solicitor General (OSG) seeks to convince the Court that the literal
interpretation given by the CTA and the CA of Section 145 of the Tax Code of 1997
(Tax Code) would lead to a lower tax imposable on 1 January 2000 than that
imposable during the transition period. Instead of an increase of 12% in the tax
rate effective on 1 January 2000 as allegedly mandated by the Tax Code, the
appellate court’s ruling would result in a significant decrease in the tax rate by as
much as 66%.
xxxx
Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and
must, therefore, be construed strictly against the taxpayer, such as Fortune
Tobacco. In its Memorandum dated 10 November 2006, Fortune Tobacco argues
that the CTA and the CA merely followed the letter of the law when they ruled that
the basis for the 12% increase in the tax rate should be the net retail price of the
cigarettes in the market as outlined in paragraph C, sub par. (1)-(4), Section 145
of the Tax Code. The Commissioner allegedly has gone beyond his delegated rule-
making power when he promulgated, enforced and implemented RR No. 17-
99,which effectively created a separate classification for cigarettes based on the
excise tax "actually being paid prior to January 1, 2000."
xxxx
This entire controversy revolves around the interplay between Section 145 of the
Tax Code and RR 17-99. The main issue is an inquiry into whether the revenue
regulation has exceeded the allowable limits of legislative delegation.
xxxx
Revenue Regulation 17-99, which was issued pursuant to the unquestioned
authority of the Secretary of Finance to promulgate rules and regulations for the
effective implementation of the Tax Code, interprets the above-quoted provision
and reflects the 12% increase in excise taxes in the following manner:
[table on tax rates deleted]
This table reflects Section 145 of the Tax Code insofar as it mandates a 12%
increase effective on 1 January 2000 based on the taxes indicated under
paragraph C, sub-paragraph (1)-(4). However, RR No.17-99 went further and
added that "The new specific tax rate for any existing brand of cigars, cigarettes
packed by machine, distilled spirits, wines and fermented liquor shall not be lower
than the excise tax that is actually being paid prior to January 1, 2000."
Parenthetically, Section 145 states that during the transition period ,i.e., within the
next three (3) years from the effectivity of the Tax Code, the excise tax from any
brand of cigarettes shall not be lower than the tax due from each brand on 1
October 1996. This qualification, however, is conspicuously absent as regards the
12% increase which is to be applied on cigars and cigarettes packed by machine,
among others, effective on 1 January 2000. Clearly and unmistakably, Section
145mandates a new rate of excise tax for cigarettes packed by machine due to the
12% increase effective on 1 January 2000 without regard to whether the revenue
collection starting from this period may turn out to be lower than that collected prior
to this date.
By adding the qualification that the tax due after the 12% increase becomes
effective shall not be lower than the tax actually paid prior to 1January 2000, RR
No. 17-99 effectively imposes a tax which is the higher amount between the ad
valorem tax being paid at the end of the three (3)-year transition period and the
specific tax under paragraph C, sub-paragraph (1)-(4), as increased by 12%—a
situation not supported by the plain wording of Section 145 of the Tax Code.
This is not the first time that national revenue officials had ventured in the area of
unauthorized administrative legislation.
In Commissioner of Internal Revenue v. Reyes, respondent was not informed in
writing of the law and the facts on which the assessment of estate taxes was made
pursuant to Section 228 of the 1997 Tax Code, as amended by Republic Act (R.A.)
No. 8424. She was merely notified of the findings by the Commissioner, who had
13
simply relied upon the old provisions of the law and RR No. 12-85 which was based
on the old provision of the law. The Court held that in case of discrepancy between
the law as amended and the implementing regulation based on the old law, the
former necessarily prevails. The law must still be followed, even though the existing
tax regulation at that time provided for a different procedure.
xxxx
In the case at bar, the OSG’s argument that by 1 January 2000, the excise tax on
cigarettes should be the higher tax imposed under the specific tax system and the
tax imposed under the
ad valorem tax system plus the 12% increase imposed by paragraph 5, Section
145 of the Tax Code, is an unsuccessful attempt to justify what is clearly an
impermissible incursion into the limits of administrative legislation. Such an
interpretation is not supported by the clear language of the law and is obviously
only meant to validate the OSG’s thesis that Section 145 of the Tax Code is
ambiguous and admits of several interpretations.
The contention that the increase of 12% starting on 1 January 2000 does not apply
to the brands of cigarettes listed under Annex "D" is likewise unmeritorious, absurd
even. Paragraph 8, Section 145of the Tax Code simply states that, "The
classification of each brand of cigarettes based on its average net retail price as of
October 1, 1996, as set forth in Annex ‘D’, shall remain in force until revised by
Congress." This declaration certainly does not lend itself to the interpretation given
to it by the OSG. As plainly worded, the average net retail prices of the listed brands
under Annex "D," which classify cigarettes according to their net retail price into
low, medium or high, obviously remain the bases for the application of the increase
in excise tax rates effective on 1 January 2000.
The foregoing leads us to conclude that RR No. 17-99 is indeed indefensibly
flawed. The Commissioner cannot seek refuge in his claim that the purpose behind
the passage of the Tax Code is to generate additional revenues for the
government. Revenue generation has undoubtedly been a major consideration in
the passage of the Tax Code. However, as borne by the legislative record, the shift
from the ad valorem system to the specific tax system is likewise meant to promote
fair competition among the players in the industries concerned, to ensure an
equitable distribution of the tax burden and to simplify tax administration by
classifying cigarettes x x x into high, medium and low- priced based on their net
retail price and accordingly graduating tax rates. x x x x
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in
CA G.R. SP No. 80675, dated 28 September 2004, and its Resolution, dated 1
March 2005, are AFFIRMED. No pronouncement as to costs. SO ORDERED.12
The July 21, 2008 Decision in G.R. Nos. 167274-75 brings into sharp focus the
following facts and proceedings:
1. It specifically mentioned CA G.R. SP No. 80675 and CA G.R.SP No.
83165 as the subject matter of the decision on p. 2 and p. 7,respectively.
2. It traced the history of CTA Case Nos. 6365 and 6383 from the time the
CTA peremptorily resolved the twin refund suits to the appeal of the
decisions thereat to the Court of Appeals via a petition docketed as CA-
G.R. SP No. 80675 and eventually to this Court in G.R. Nos. 167274-75.
It likewise narrated the events connected with CTA Case No. 6612 to the
time the decision in said case was appealed to the Court of Appeals in
CA-G.R.SP No. 83165, consolidated with CA G.R. SP No. 80675 and later
decided by the appellate court. It cited the appeal from the CA decision by
the BIR Commissioner to this Court in G.R. Nos. 167274-75.
3. It resolved in the negative the main issue presented in both CA-G.R.
SP No. 80675 and CA-G.R. SP No. 83165 as to whether or not the last
paragraph of Section 1 of Revenue Regulation No. 17-99 is in accordance
with the pertinent provisions of Republic Act No. 8240, now incorporated
in Section 145 of the Tax Code of 1997.
4. The very disposition in the fallo in G.R. Case Nos. 167274-75 that "the
petition is denied" and that the "Decision of the Court of Appeals x x x
dated 28 September 2004 and its Resolution dated 1 March 2005 are
affirmed" reflects an intention that CA G.R. SP No. 83165 should have
been stated therein, being one of the cases subject of the September 28,
2004 CA Decision.
The legality of Revenue Regulation No. 17-99 is the only determinative issue
resolved by the July 21, 2008 Decision which was the very same issue resolved
by the CA in the consolidated CA-G.R. SP Nos.80675 and 83165 and exactly the
same issue in CTA Nos. 6365, 6383 and 6612.
From the foregoing cogent reasons, We conclude that CA-G.R. SP No. 83165
should be included in the fallo of the July 21, 2008 decision.1âwphi1
It is established jurisprudence that "the only portion of the decision which becomes
the subject of execution and determines what is ordained is the dispositive part,
the body of the decision being considered as the reasons or conclusions of the
Court, rather than its adjudication."13
In the case of Ong Ching Kian Chung v. China National Cereals Oil and Foodstuffs
Import and Export Corporation, the Court noted two (2)exceptions to the rule that
the fallo prevails over the body of the opinion, viz:
14
 (a) where there is ambiguity or uncertainty, the body of the opinion may WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in
be referred to for purposes of construing the judgment because the the consolidated cases of CA- G.R. SP No. 80675 and 83165 dated 28 September
dispositive part of a decision must find support from the decision’s ratio 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement
decidendi; as to costs.

(b) where extensive and explicit discussion and settlement of the issue is
found in the body of the decision.14
Both exceptions obtain in the present case. We find that there is an ambiguity in
the fallo of Our July 21, 2008 Decision in G.R. Nos. 167274-75 considering that
the propriety of the CA holding in CA-G.R. SP No.83165 formed part of the core
issues raised in G.R. Case Nos. 167274-75, but unfortunately was left out in the
all-important decretal portion of the judgment. The fallo of Our July 21, 2008
Decision should, therefore, be correspondingly corrected.
The Decision of the Court of Tax Appeals (CTA) En Banc dated March 12, 2010
and the Resolution dated June 11, 2010 in CTA EB No. 530 entitled "Fortune
Tobacco Corporation vs. Commissioner of Internal Revenue" as well as the
Resolutions dated June 4, 2009 and August 10, 2009which denied the Motion for
Issuance of Additional Writ of Execution of the CTA First Division in CTA Cases
Nos. 6365, 6383 and 6612 are SETASIDE. The CTA is ORDERED to issue a writ
of execution directing the respondent CIR to pay petitioner Fortune Tobacco
Corporation the amount of tax refund of ₱355,385,920.00 as adjudged in CTA
Case No. 6612. SO ORDERED.

For sure, the CTA cannot, as the Commissioner argues, be faulted for denying
petitioner FTC’s Motion for Additional Writ of Execution filed in CTA Case Nos.
6365, 6383 and 6612 and for denying petitioner’s Motion for Reconsideration for it
has no power nor authority to deviate from the wording of the dispositive portion of
Our July 21, 2008 Decision in G.R. Nos. 167274-75. To reiterate, the CTA simply
followed the all too familiar doctrine that "when there is a conflict between the
dispositive portion of the decision and the body thereof, the dispositive portion
controls irrespective what appears in the body of the decision." 15 Veering away
from the fallo might even be viewed as irregular and may give rise to a charge of
breach of the Code of Judicial Conduct. Nevertheless, it behooves this Court for
reasons articulated earlier to grant relief to petitioner FTC by way of clarifying Our
July 21, 2008 Decision. This corrective step constitutes, in the final analysis, a
continuation of the proceedings in G.R. Case Nos. 167274-75. And it is the right
thing to do under the premises. If the BIR, or other government taxing agencies for
that matter, expects taxpayers to observe fairness, honesty, transparency and
accountability in paying their taxes, it must, to borrow from BPI Family Savings
Bank, Inc. v Court of Appeals16 hold itself against the same standard in refunding
excess payments or illegal exactions. As a necessary corollary, when the
taxpayer’s entitlement to are fund stands undisputed, the State should not misuse
technicalities and legalisms, however exalted, to keep money not belonging to
it.17 As we stressed in G.R. Nos. 167274-75, the government is not exempt from
the application of solutio indebiti, a basic postulate proscribing one, including the
State, from enriching himself or herself at the expense of another. 18So it must be
here.

WHEREFORE, the petition is GRANTED. The dispositive portion of the Court’s

July 21, 2008 Decision in G.R. Nos. 167274-75 is corrected to reflect the inclusion
of CA G.R. SP No. 83165 therein. As amended, the fallo of the aforesaid decision
shall read:

15
RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY COLLECTED- Treaty [Article 12 (2) (b)]" (Petition for Review [filed with the Court of Appeals], par.
PROPER PARTY TO FILE CLAIM FOR REFUND OR TAX CREDIT 12). [Respondent's] claim for there fund of P963,266.00 was computed as follows:

G.R. No. 127105 June 25, 1999 Gross 25% 10%

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. S.C.
JOHNSON AND SON, INC., and COURT OF APPEALS, respondents. Month/ Royalty Withholding Withholding

GONZAGA-REYES, J.: Year Fee Tax Paid Tax Balance

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking ——— ——— ——— ——— ———
to set aside the decision of the Court of Appeals dated November 7, 1996 in CA-
GR SP No. 40802 affirming the decision of the Court of Tax Appeals in CTA Case July 1992 559,878 139,970 55,988 83,982
No. 5136.
August 567,935 141,984 56,794 85,190
The antecedent facts as found by the Court of Tax Appeals are not disputed, to
wit:
September 595,956 148,989 59,596 89,393
[Respondent], a domestic corporation organized and operating under the
Philippine laws, entered into a license agreement with SC Johnson and Son, October 634,405 158,601 63,441 95,161
United States of America (USA), a non-resident foreign corporation based in the
U.S.A. pursuant to which the [respondent] was granted the right to use the November 620,885 155,221 62,089 93,133
trademark, patents and technology owned by the latter including the right to
manufacture, package and distribute the products covered by the Agreement and December 383,276 95,819 36,328 57,491
secure assistance in management, marketing and production from SC Johnson
and Son, U. S. A. Jan 1993 602,451 170,630 68,245 102,368

The said License Agreement was duly registered with the Technology Transfer February 565,845 141,461 56,585 84,877
Board of the Bureau of Patents, Trade Marks and Technology Transfer under
Certificate of Registration No. 8064 (Exh. "A").
March 547,253 136,813 54,725 82,088
For the use of the trademark or technology, [respondent] was obliged to pay SC
Johnson and Son, USA royalties based on a percentage of net sales and subjected April 660,810 165,203 66,081 99,122
the same to 25% withholding tax on royalty payments which [respondent] paid for
the period covering July 1992 to May 1993 in the total amount of P1,603,443.00 May 603,076 150,769 60,308 90,461
(Exhs. "B" to "L" and submarkings).
———— ———— ———— ———
On October 29, 1993, [respondent] filed with the International Tax Affairs Division
(ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing P6,421,770 P1,605,443 P642,177 P963,2661
that, "the antecedent facts attending [respondent's] case fall squarely within the
same circumstances under which said MacGeorge and Gillete rulings were issued.
======== ======== ======== ========
Since the agreement was approved by the Technology Transfer Board, the
preferential tax rate of 10% should apply to the [respondent]. We therefore submit
that royalties paid by the [respondent] to SC Johnson and Son, USA is only subject The Commissioner did not act on said claim for refund. Private respondent S.C.
to 10% withholding tax pursuant to the most-favored nation clause of the RP-US Johnson & Son, Inc. (S.C. Johnson) then filed a petition for review before the Court
Tax Treaty [Article 13 Paragraph 2 (b) (iii)] in relation to the RP-West Germany Tax of Tax Appeals (CTA) where the case was docketed as CTA Case No. 5136, to

16
claim a refund of the overpaid withholding tax on royalty payments from July 1992
to May 1993.
On May 7, 1996, the Court of Tax Appeals rendered its decision in favor of S.C.
Johnson and ordered the Commissioner of Internal Revenue to issue a tax credit
certificate in the amount of P963,266.00 representing overpaid withholding tax on
royalty payments, beginning July, 1992 to May, 1993.2
The Commissioner of Internal Revenue thus filed a petition for review with the
Court of Appeals which rendered the decision subject of this appeal on November
7, 1996 finding no merit in the petition and affirming in toto the CTA ruling.3
This petition for review was filed by the Commissioner of Internal Revenue raising
the following issue:
THE COURT OF APPEALS ERRED IN RULING THAT SC JOHNSON AND SON,
USA IS ENTITLED TO THE "MOST FAVORED NATION" TAX RATE OF 10% ON
ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN RELATION TO THE
RP-WEST GERMANY TAX TREATY.
Petitioner contends that under Article 13(2) (b) (iii) of the RP-US Tax Treaty, which
is known as the "most favored nation" clause, the lowest rate of the Philippine tax
at 10% may be imposed on royalties derived by a resident of the United States
from sources within the Philippines only if the circumstances of the resident of the
United States are similar to those of the resident of West Germany. Since the RP-
US Tax Treaty contains no "matching credit" provision as that provided under
Article 24 of the RP-West Germany Tax Treaty, the tax on royalties under the RP-
US Tax Treaty is not paid under similar circumstances as those obtaining in the
RP-West Germany Tax Treaty. Even assuming that the phrase "paid under similar
circumstances" refers to the payment of royalties, and not taxes, as held by the
Court of Appeals, still, the "most favored nation" clause cannot be invoked for the
reason that when a tax treaty contemplates circumstances attendant to the
payment of a tax, or royalty remittances for that matter, these must necessarily
refer to circumstances that are tax-related. Finally, petitioner argues that since S.C.
Johnson's invocation of the "most favored nation" clause is in the nature of a claim
for exemption from the application of the regular tax rate of 25% for royalties, the
provisions of the treaty must be construed strictly against it.
In its Comment, private respondent S.C. Johnson avers that the instant petition
should be denied (1) because it contains a defective certification against forum
shopping as required under SC Circular No. 28-91, that is, the certification was not
executed by the petitioner herself but by her counsel; and (2) that the "most favored
nation" clause under the RP-US Tax Treaty refers to royalties paid under similar
circumstances as those royalties subject to tax in other treaties; that the phrase
"paid under similar circumstances" does not refer to payment of the tax but to the
subject matter of the tax, that is, royalties, because the "most favored nation"
clause is intended to allow the taxpayer in one state to avail of more liberal
provisions contained in another tax treaty wherein the country of residence of such
taxpayer is also a party thereto, subject to the basic condition that the subject
matter of taxation in that other tax treaty is the same as that in the original tax treaty
under which the taxpayer is liable; thus, the RP-US Tax Treaty speaks of "royalties
of the same kind paid under similar circumstances". S.C. Johnson also contends
that the Commissioner is estopped from insisting on her interpretation that the
phrase "paid under similar circumstances" refers to the manner in which the tax is
paid, for the reason that said interpretation is embodied in Revenue Memorandum
Circular ("RMC") 39-92 which was already abandoned by the Commissioner's
predecessor in 1993; and was expressly revoked in BIR Ruling No. 052-95 which
stated that royalties paid to an American licensor are subject only to 10%
withholding tax pursuant to Art 13(2)(b)(iii) of the RP-US Tax Treaty in relation to
the RP-West Germany Tax Treaty. Said ruling should be given retroactive effect
except if such is prejudicial to the taxpayer pursuant to Section 246 of the National
Internal Revenue Code.
Petitioner filed Reply alleging that the fact that the certification against forum
shopping was signed by petitioner's counsel is not a fatal defect as to warrant the
dismissal of this petition since Circular No. 28-91 applies only to original actions
and not to appeals, as in the instant case. Moreover, the requirement that the
certification should be signed by petitioner and not by counsel does not apply to
petitioner who has only the Office of the Solicitor General as statutory counsel.
Petitioner reiterates that even if the phrase "paid under similar circumstances"
embodied in the most favored nation clause of the RP-US Tax Treaty refers to the
payment of royalties and not taxes, still the presence or absence of a "matching
credit" provision in the said RP-US Tax Treaty would constitute a material
circumstance to such payment and would be determinative of the said clause's
application.1âwphi1.nêt
We address first the objection raised by private respondent that the certification
against forum shopping was not executed by the petitioner herself but by her
counsel, the Office of the Solicitor General (O.S.G.) through one of its Solicitors,
Atty. Tomas M. Navarro.
SC Circular No. 28-91 provides:
SUBJECT: ADDITIONAL REQUISITES FOR PETITIONS FILED WITH THE
SUPREME COURT AND THE COURT OF APPEALS TO PREVENT FORUM
SHOPPING OR MULTIPLE FILING OF PETITIONS AND COMPLAINTS
TO: xxx xxx xxx
The attention of the Court has been called to the filing of multiple petitions and
complaints involving the same issues in the Supreme Court, the Court of Appeals
17
or other tribunals or agencies, with the result that said courts, tribunals or agencies
have to resolve the same issues.
(1) To avoid the foregoing, in every petition filed with the Supreme Court or
the Court of Appeals, the petitioner aside from complying with pertinent provisions
of the Rules of Court and existing circulars, must certify under oath to all of the
following facts or undertakings: (a) he has not theretofore commenced any other
action or proceeding involving the same issues in the Supreme Court, the Court of
Appeals, or any tribunal or agency; . . .
(2) Any violation of this revised Circular will entail the following sanctions: (a)
it shall be a cause for the summary dismissal of the multiple petitions or complaints;
...
The circular expressly requires that a certificate of non-forum shopping should be
attached to petitions filed before this Court and the Court of Appeals. Petitioner's
allegation that Circular No. 28-91 applies only to original actions and not to appeals
as in the instant case is not supported by the text nor by the obvious intent of the
Circular which is to prevent multiple petitions that will result in the same issue being
resolved by different courts.
Anent the requirement that the party, not counsel, must certify under oath that he
has not commenced any other action involving the same issues in this Court or the
Court of Appeals or any other tribunal or agency, we are inclined to accept
petitioner's submission that since the OSG is the only lawyer for the petitioner,
which is a government agency mandated under Section 35, Chapter 12, title III,
Book IV of the 1987 Administrative Code4 to be represented only by the Solicitor
General, the certification executed by the OSG in this case constitutes substantial
compliance with Circular No. 28-91.
With respect to the merits of this petition, the main point of contention in this appeal
is the interpretation of Article 13 (2) (b) (iii) of the RP-US Tax Treaty regarding the
rate of tax to be imposed by the Philippines upon royalties received by a non-
resident foreign corporation. The provision states insofar as pertinent that —
1) Royalties derived by a resident of one of the Contracting States from
sources within the other Contracting State may be taxed by both Contracting
States.
2) However, the tax imposed by that Contracting State shall not exceed.
a) In the case of the United States, 15 percent of the gross amount of the
royalties, and
b) In the case of the Philippines, the least of:
(i) 25 percent of the gross amount of the royalties;
(ii) 15 percent of the gross amount of the royalties, where the royalties are
paid by a corporation registered with the Philippine Board of Investments and
engaged in preferred areas of activities; and
(iii) the lowest rate of Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of a third State.
xxx xxx xxx
(emphasis supplied)
Respondent S. C. Johnson and Son, Inc. claims that on the basis of the quoted
provision, it is entitled to the concessional tax rate of 10 percent on royalties based
on Article 12 (2) (b) of the RP-Germany Tax Treaty which provides:
(2) However, such royalties may also be taxed in the Contracting State in
which they arise, and according to the law of that State, but the tax so charged
shall not exceed:
xxx xxx xxx
b) 10 percent of the gross amount of royalties arising from the use of, or the
right to use, any patent, trademark, design or model, plan, secret formula or
process, or from the use of or the right to use, industrial, commercial, or scientific
equipment, or for information concerning industrial, commercial or scientific
experience.
For as long as the transfer of technology, under Philippine law, is subject to
approval, the limitation of the tax rate mentioned under b) shall, in the case of
royalties arising in the Republic of the Philippines, only apply if the contract giving
rise to such royalties has been approved by the Philippine competent authorities.
Unlike the RP-US Tax Treaty, the RP-Germany Tax Treaty allows a tax credit of
20 percent of the gross amount of such royalties against German income and
corporation tax for the taxes payable in the Philippines on such royalties where the
tax rate is reduced to 10 or 15 percent under such treaty. Article 24 of the RP-
Germany Tax Treaty states —
1) Tax shall be determined in the case of a resident of the Federal Republic
of Germany as follows: x x x xxx xxx
18
b) Subject to the provisions of German tax law regarding credit for foreign
tax, there shall be allowed as a credit against German income and corporation tax
payable in respect of the following items of income arising in the Republic of the
Philippines, the tax paid under the laws of the Philippines in accordance with this
Agreement on: x x x xxx xxx
dd) royalties, as defined in paragraph 3 of Article 12; x x x xxx x context in which they are used", and since what is paid to a resident of a third state
xx
c) For the purpose of the credit referred in subparagraph; b) the Philippine
tax shall be deemed to be x x x xxx xxx
cc) in the case of royalties for which the tax is reduced to 10 or 15 per cent
according to paragraph 2 of Article 12, 20 percent of the gross amount of such
royalties. x x x xxx xxx
According to petitioner, the taxes upon royalties under the RP-US Tax Treaty are
not paid under circumstances similar to those in the RP-West Germany Tax Treaty
since there is no provision for a 20 percent matching credit in the former convention
and private respondent cannot invoke the concessional tax rate on the strength of
the most favored nation clause in the RP-US Tax Treaty. Petitioner's position is
explained thus:
Under the foregoing provision of the RP-West Germany Tax Treaty, the Philippine
tax paid on income from sources within the Philippines is allowed as a credit
against German income and corporation tax on the same income. In the case of
royalties for which the tax is reduced to 10 or 15 percent according to paragraph 2
of Article 12 of the RP-West Germany Tax Treaty, the credit shall be 20% of the
gross amount of such royalty. To illustrate, the royalty income of a German resident
from sources within the Philippines arising from the use of, or the right to use, any
patent, trade mark, design or model, plan, secret formula or process, is taxed at
10% of the gross amount of said royalty under certain conditions. The rate of 10%
is imposed if credit against the German income and corporation tax on said royalty
is allowed in favor of the German resident. That means the rate of 10% is granted
to the German taxpayer if he is similarly granted a credit against the income and
corporation tax of West Germany. The clear intent of the "matching credit" is to
soften the impact of double taxation by different jurisdictions.
The RP-US Tax Treaty contains no similar "matching credit" as that provided under
the RP-West Germany Tax Treaty. Hence, the tax on royalties under the RP-US
Tax Treaty is not paid under similar circumstances as those obtaining in the RP-
West Germany Tax Treaty. Therefore, the "most favored nation" clause in the RP-
West Germany Tax Treaty cannot be availed of in interpreting the provisions of the
RP-US Tax Treaty.5
The petition is meritorious.
We are unable to sustain the position of the Court of Tax Appeals, which was
upheld by the Court of Appeals, that the phrase "paid under similar circumstances
in Article 13 (2) (b), (iii) of the RP-US Tax Treaty should be interpreted to refer to
payment of royalty, and not to the payment of the tax, for the reason that the phrase
"paid under similar circumstances" is followed by the phrase "to a resident of a
third state". The respondent court held that "Words are to be understood in the
is not a tax but a royalty "logic instructs" that the treaty provision in question should
refer to royalties of the same kind paid under similar circumstances.
The above construction is based principally on syntax or sentence structure but
fails to take into account the purpose animating the treaty provisions in point. To
begin with, we are not aware of any law or rule pertinent to the payment of royalties,
and none has been brought to our attention, which provides for the payment of
royalties under dissimilar circumstances. The tax rates on royalties and the
circumstances of payment thereof are the same for all the recipients of such
royalties and there is no disparity based on nationality in the circumstances of such
payment.6 On the other hand, a cursory reading of the various tax treaties will
show that there is no similarity in the provisions on relief from or avoidance of
double taxation7 as this is a matter of negotiation between the contracting parties.8
As will be shown later, this dissimilarity is true particularly in the treaties between
the Philippines and the United States and between the Philippines and West
Germany.
The RP-US Tax Treaty is just one of a number of bilateral treaties which the
Philippines has entered into for the avoidance of double taxation.9 The purpose of
these international agreements is to reconcile the national fiscal legislations of the
contracting parties in order to help the taxpayer avoid simultaneous taxation in two
different jurisdictions. 10 More precisely, the tax conventions are drafted with a
view towards the elimination of international juridical double taxation, which is
defined as the imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identical periods. 11 The
apparent rationale for doing away with double taxation is of encourage the free
flow of goods and services and the movement of capital, technology and persons
between countries, conditions deemed vital in creating robust and dynamic
economies. 12 Foreign investments will only thrive in a fairly predictable and
reasonable international investment climate and the protection against double
taxation is crucial in creating such a climate. 13
Double taxation usually takes place when a person is resident of a contracting
state and derives income from, or owns capital in, the other contracting state and
both states impose tax on that income or capital. In order to eliminate double
taxation, a tax treaty resorts to several methods. First, it sets out the respective
rights to tax of the state of source or situs and of the state of residence with regard
to certain classes of income or capital. In some cases, an exclusive right to tax is
conferred on one of the contracting states; however, for other items of income or
19
capital, both states are given the right to tax, although the amount of tax that may
be imposed by the state of source is limited. 14
The second method for the elimination of double taxation applies whenever the
state of source is given a full or limited right to tax together with the state of
residence. In this case, the treaties make it incumbent upon the state of residence
to allow relief in order to avoid double taxation. There are two methods of relief —
the exemption method and the credit method. In the exemption method, the income
or capital which is taxable in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into account in determining
the rate of tax applicable to the taxpayer's remaining income or capital. On the
other hand, in the credit method, although the income or capital which is taxed in
the state of source is still taxable in the state of residence, the tax paid in the former
is credited against the tax levied in the latter. The basic difference between the two
methods is that in the exemption method, the focus is on the income or capital
itself, whereas the credit method focuses upon the tax. 15
In negotiating tax treaties, the underlying rationale for reducing the tax rate is that
the Philippines will give up a part of the tax in the expectation that the tax given up
for this particular investment is not taxed by the other
country. 16 Thus the petitioner correctly opined that the phrase "royalties paid
under similar circumstances" in the most favored nation clause of the US-RP Tax
Treaty necessarily contemplated "circumstances that are tax-related".
In the case at bar, the state of source is the Philippines because the royalties are
paid for the right to use property or rights, i.e. trademarks, patents and technology,
located within the Philippines. 17 The United States is the state of residence since
the taxpayer, S. C. Johnson and Son, U. S. A., is based there. Under the RP-US
Tax Treaty, the state of residence and the state of source are both permitted to tax
the royalties, with a restraint on the tax that may be collected by the state of source.
18 Furthermore, the method employed to give relief from double taxation is the
allowance of a tax credit to citizens or residents of the United States (in an
appropriate amount based upon the taxes paid or accrued to the Philippines)
against the United States tax, but such amount shall not exceed the limitations
provided by United States law for the taxable year. 19 Under Article 13 thereof, the
Philippines may impose one of three rates — 25 percent of the gross amount of
the royalties; 15 percent when the royalties are paid by a corporation registered
with the Philippine Board of Investments and engaged in preferred areas of
activities; or the lowest rate of Philippine tax that may be imposed on royalties of
the same kind paid under similar circumstances to a resident of a third state.
Given the purpose underlying tax treaties and the rationale for the most favored
nation clause, the concessional tax rate of 10 percent provided for in the RP-
Germany Tax Treaty should apply only if the taxes imposed upon royalties in the
RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid under similar
circumstances. This would mean that private respondent must prove that the RP-
US Tax Treaty grants similar tax reliefs to residents of the United States in respect
of the taxes imposable upon royalties earned from sources within the Philippines
as those allowed to their German counterparts under the RP-Germany Tax Treaty.
The RP-US and the RP-West Germany Tax Treaties do not contain similar
provisions on tax crediting. Article 24 of the RP-Germany Tax Treaty, supra,
expressly allows crediting against German income and corporation tax of 20% of
the gross amount of royalties paid under the law of the Philippines. On the other
hand, Article 23 of the RP-US Tax Treaty, which is the counterpart provision with
respect to relief for double taxation, does not provide for similar crediting of 20%
of the gross amount of royalties paid. Said Article 23 reads:
Article 23
Relief from double taxation
Double taxation of income shall be avoided in the following manner:
1) In accordance with the provisions and subject to the limitations of the law
of the United States (as it may be amended from time to time without changing the
general principle thereof), the United States shall allow to a citizen or resident of
the United States as a credit against the United States tax the appropriate amount
of taxes paid or accrued to the Philippines and, in the case of a United States
corporation owning at least 10 percent of the voting stock of a Philippine
corporation from which it receives dividends in any taxable year, shall allow credit
for the appropriate amount of taxes paid or accrued to the Philippines by the
Philippine corporation paying such dividends with respect to the profits out of which
such dividends are paid. Such appropriate amount shall be based upon the amount
of tax paid or accrued to the Philippines, but the credit shall not exceed the
limitations (for the purpose of limiting the credit to the United States tax on income
from sources within the Philippines or on income from sources outside the United
States) provided by United States law for the taxable year. . . .
The reason for construing the phrase "paid under similar circumstances" as used
in Article 13 (2) (b) (iii) of the RP-US Tax Treaty as referring to taxes is anchored
upon a logical reading of the text in the light of the fundamental purpose of such
treaty which is to grant an incentive to the foreign investor by lowering the tax and
at the same time crediting against the domestic tax abroad a figure higher than
what was collected in the Philippines.
In one case, the Supreme Court pointed out that laws are not just mere
compositions, but have ends to be achieved and that the general purpose is a more
important aid to the meaning of a law than any rule which grammar may lay down.
20 It is the duty of the courts to look to the object to be accomplished, the evils to
be remedied, or the purpose to be subserved, and should give the law a
20
reasonable or liberal construction which will best effectuate its purpose. 21 The royalties as allowed under the RP-West Germany Tax Treaty, private respondent
Vienna Convention on the Law of Treaties states that a treaty shall be interpreted cannot be deemed entitled to the 10 percent rate granted under the latter treaty for
in good faith in accordance with the ordinary meaning to be given to the terms of the reason that there is no payment of taxes on royalties under similar
the treaty in their context and in the light of its object and purpose. 22 circumstances.

As stated earlier, the ultimate reason for avoiding double taxation is to encourage
foreign investors to invest in the Philippines — a crucial economic goal for
developing countries. 23 The goal of double taxation conventions would be
thwarted if such treaties did not provide for effective measures to minimize, if not
completely eliminate, the tax burden laid upon the income or capital of the investor.
Thus, if the rates of tax are lowered by the state of source, in this case, by the
Philippines, there should be a concomitant commitment on the part of the state of
residence to grant some form of tax relief, whether this be in the form of a tax credit
or exemption. 24 Otherwise, the tax which could have been collected by the
Philippine government will simply be collected by another state, defeating the
object of the tax treaty since the tax burden imposed upon the investor would
remain unrelieved. If the state of residence does not grant some form of tax relief
to the investor, no benefit would redound to the Philippines, i.e., increased
investment resulting from a favorable tax regime, should it impose a lower tax rate
on the royalty earnings of the investor, and it would be better to impose the regular
rate rather than lose much-needed revenues to another country.
It bears stress that tax refunds are in the nature of tax exemptions. As such they
are regarded as in derogation of sovereign authority and to be construed
strictissimi juris against the person or entity claiming the exemption. 27 The burden
of proof is upon him who claims the exemption in his favor and he must be able to
justify his claim by the clearest grant of organic or statute law. 28 Private
respondent is claiming for a refund of the alleged overpayment of tax on royalties;
however, there is nothing on record to support a claim that the tax on royalties
under the RP-US Tax Treaty is paid under similar circumstances as the tax on
royalties under the RP-West Germany Tax Treaty.
WHEREFORE, for all the foregoing, the instant petition is GRANTED. The decision
dated May 7, 1996 of the Court of Tax Appeals and the decision dated November
7, 1996 of the Court of Appeals are hereby SET ASIDE.

SO ORDERED.
At the same time, the intention behind the adoption of the provision on "relief from
double taxation" in the two tax treaties in question should be considered in light of
the purpose behind the most favored nation clause.

The purpose of a most favored nation clause is to grant to the contracting party
treatment not less favorable than that which has been or may be granted to the
"most favored" among other countries. 25 The most favored nation clause is
intended to establish the principle of equality of international treatment by providing
that the citizens or subjects of the contracting nations may enjoy the privileges
accorded by either party to those of the most favored nation. 26 The essence of
the principle is to allow the taxpayer in one state to avail of more liberal provisions
granted in another tax treaty to which the country of residence of such taxpayer is
also a party provided that the subject matter of taxation, in this case royalty income,
is the same as that in the tax treaty under which the taxpayer is liable. Both Article
13 of the RP-US Tax Treaty and Article 12 (2) (b) of the RP-West Germany Tax
Treaty, above-quoted, speaks of tax on royalties for the use of trademark, patent,
and technology. The entitlement of the 10% rate by U.S. firms despite the absence
of a matching credit (20% for royalties) would derogate from the design behind the
most grant equality of international treatment since the tax burden laid upon the
income of the investor is not the same in the two countries. The similarity in the
circumstances of payment of taxes is a condition for the enjoyment of most favored
nation treatment precisely to underscore the need for equality of treatment.

We accordingly agree with petitioner that since the RP-US Tax Treaty does not
give a matching tax credit of 20 percent for the taxes paid to the Philippines on
21
RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY COLLECTED-
PROPER PARTY TO FILE CLAIM FOR REFUND OR TAX CREDIT
G.R. No. 173594 February 6, 2008
SILKAIR (SINGAPORE) PTE, LTD., petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.
DECISION
CARPIO MORALES, J.:
Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized under
the laws of Singapore which has a Philippine representative office, is an online
international air carrier operating the Singapore-Cebu-Davao-Singapore,
Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-Singapore routes.
On December 19, 2001, Silkair filed with the Bureau of Internal Revenue (BIR)
a written application for the refund of P4,567,450.79 excise taxes it claimed to
have paid on its purchases of jet fuel from Petron Corporation from January to
June 2000.1
As the BIR had not yet acted on the application as of December 26, 2001,
Silkair filed a Petition for Review2 before the CTA following Commissioner of
Internal Revenue v. Victorias Milling Co., Inc., et al.3
Opposing the petition, respondent Commissioner on Internal Revenue (CIR)
alleged in his Answer that, among other things,
Petitioner failed to prove that the sale of the petroleum products was directly
made from a domestic oil company to the international carrier. The excise tax
on petroleum products is the direct liability of the manufacturer/producer, and
when added to the cost of the goods sold to the buyer, it is no longer a tax but
part of the price which the buyer has to pay to obtain the article.4 (Emphasis
and underscoring supplied)
By Decision of May 27, 2005, the Second Division of the CTA denied Silkair’s
petition on the ground that as the excise tax was imposed on Petron
Corporation as the manufacturer of petroleum products, any claim for refund
should be filed by the latter; and where the burden of tax is shifted to the
purchaser, the amount passed on to it is no longer a tax but becomes an added
cost of the goods purchased. Thus the CTA discoursed:
The liability for excise tax on petroleum products that are being removed from
its refinery is imposed on the manufacturer/producer (Section 130 of the NIRC
of 1997). x x x
xxxx
While it is true that in the case of excise tax imposed on petroleum products,
the seller thereof may shift the tax burden to the buyer, the latter is the proper
party to claim for the refund in the case of exemption from excise tax. Since
the excise tax was imposed upon Petron Corporation as the manufacturer of
petroleum products, pursuant to Section 130(A)(2), and that the corresponding
excise taxes were indeed, paid by it, . . . any claim for refund of the subject
excise taxes should be filed by Petron Corporation as the taxpayer
contemplated under the law. Petitioner cannot be considered as the taxpayer
because it merely shouldered the burden of the excise tax and not the excise
tax itself.
Therefore, the right to claim for the refund of excise taxes paid on petroleum
products lies with Petron Corporation who paid and remitted the excise tax to
the BIR. Respondent, on the other hand, may only claim from Petron
Corporation the reimbursement of the tax burden shifted to the former by the
latter. The excise tax partaking the nature of an indirect tax, is clearly the
liability of the manufacturer or seller who has the option whether or not to shift
the burden of the tax to the purchaser. Where the burden of the tax is shifted
to the [purchaser], the amount passed on to it is no longer a tax but becomes
an added cost on the goods purchased which constitutes a part of the
purchase price. The incidence of taxation or the person statutorily liable to pay
the tax falls on Petron Corporation though the impact of taxation or the burden
of taxation falls on another person, which in this case is petitioner Silkair.5
(Italics in the original; emphasis and underscoring supplied)
Silkair filed a Motion for Reconsideration6 during the pendency of which or on
September 12, 2005 the Bengzon Law Firm entered its appearance as
counsel,7 without Silkair’s then-counsel of record (Jimenez Gonzales Liwanag
Bello Valdez Caluya & Fernandez or "JGLaw") having withdrawn as such.
By Resolution8 of September 22, 2005, the CTA Second Division denied
Silkair’s motion for reconsideration. A copy of the Resolution was furnished
Silkair’s counsel JGLaw which received it on October 3, 2005.9
On October 13, 2005, JGLaw, with the conformity of Silkair, filed its Notice of
Withdrawal of Appearance.10 On even date, Silkair, through the Bengzon Law
Firm, filed a Manifestation/Motion11 stating:
Petitioner was formerly represented xxx by JIMENEZ GONZALES LIWANAG
BELLO VALDEZ CALUYA & FERNANDEZ (JGLaw).
22
1. On 24 August 2005, petitioner served notice to JGLaw of its decision to
cease all legal representation handled by the latter on behalf of the petitioner.
Petitioner also requested JGLaw to make arrangements for the transfer of all
files relating to its legal representation on behalf of petitioner to the
undersigned counsel. x x x
2. The undersigned counsel was engaged to act as counsel for the petitioner
in the above-entitled case; and thus, filed its entry of appearance on 12
September 2005. x x x
3. The undersigned counsel, through petitioner, has received information that
the Honorable Court promulgated a Resolution on petitioner’s Motion for
Reconsideration. To date, the undersigned counsel has yet to receive an
official copy of the above-mentioned Resolution. In light of the foregoing,
undersigned counsel hereby respectfully requests for an official copy of the
Honorable Court’s Resolution on petitioner’s Motion for Reconsideration x x
x.12 (Underscoring supplied)
On October 14, 2005, the Bengzon Law Firm received its requested copy of
the September 22, 200513 CTA Second Division Resolution. Thirty-seven
days later or on October 28, 2005, Silkair, through said counsel, filed a Motion
for Extension of Time to File Petition for Review14 before the CTA En Banc
which gave it until November 14, 2005 to file a petition for review.
On November 11, 2005, Silkair filed another Motion for Extension of Time.15
On even date, the Bengzon Law Firm informed the CTA of its withdrawal of
appearance as counsel for Silkair with the information, that Silkair would
continue to be represented by Atty. Teodoro A. Pastrana, who used to be with
the firm but who had become a partner of the Pastrana and Fallar Law
Offices.16
The CTA En Banc granted Silkair’s second Motion for Extension of Time,
giving Silkair until November 24, 2005 to file its petition for review. On
November 17, 2005, Silkair filed its Petition for Review17 before the CTA En
Banc.
By Resolution of May 19,2006, the CTA En Banc dismissed18 Silkair’s petition
for review for having been filed out of time in this wise:
A petitioner is given a period of fifteen (15) days from notice of award,
judgment, final order or resolution, or denial of motion for new trial or
reconsideration to appeal to the proper forum, in this case, the CTA En Banc.
This is clear from both Section 11 and Section 9 of Republic Act No. 9282 x x
x. x x x x
The petitioner, through its counsel of record Jimenez, Gonzalez, L[iwanag],
Bello, Valdez, Caluya & Fernandez Law Offices, received the Resolution dated
September 22, 2005 on October 3, 2005. At that time, the petitioner had two
counsels of record, namely, Jimenez, Gonzales, L[iwanag], Bello, Valdez,
Caluya & Fernandez Law Offices and The Bengzon Law Firm which filed its
Entry of Appearance on September 12, 2005. However, as of said date, Atty.
Mary Jane B. Austria-Delgado of Jimenez, Gonzales, L[iwanag], Bello, Valdez,
Caluya & Fernandez Law Offices was still the counsel of record considering
that the Notice of Withdrawal of Appearance signed by Atty. Mary Jane B.
Austria-Delgado was filed only on October 13, 2005 or ten (10) days after
receipt of the September 22, 2005 Resolution of the Court’s Second Division.
This notwithstanding, Section 2 of Rule 13 of the Rules of Court provides that
if any party has appeared by counsel, service upon him shall be made upon
his counsel or one of them, unless service upon the party himself is ordered
by the Court. Where a party is represented by more than one counsel of record,
"notice to any one of the several counsel on record is equivalent to notice to
all the counsel (Damasco vs. Arrieta, et. al., 7 SCRA 224)." Considering that
petitioner, through its counsel of record, had received the September 22, 2005
Resolution as early as October 3, 2005, it had only until October 18, 2005
within which to file its Petition for Review. Petitioner only managed to file the
Petition for Review with the Court En Banc on November 17, 2005 or [after]
thirty (30) days had lapsed from the final date of October 18, 2005 to appeal.
The argument that it requested Motions for Extension of Time on October 28,
2005 or ten (10) days from the appeal period and the second Motion for
Extension of Time to file its Petition for Review on November 11, 2005 and its
allowance by the CTA En Banc notwithstanding, the questioned Decision is no
longer appealable for failure to timely file the necessary Petition for Review.19
(Emphasis in the original)
In a Separate Concurring Opinion,20 CTA Associate Justice Juanito C.
Castañeda, Jr. posited that Silkair is not the proper party to claim the tax
refund.
Silkair filed a Motion for Reconsideration21 which the CTA En Banc denied.22
Hence, the present Petition for Review23 which raises the following issues:
I. WHETHER OR NOT THE PETITION FOR REVIEW FILED WITH THE
HONORABLE COURT OF TAX APPEALS EN BANC WAS TIMELY FILED.
II. APPEAL BEING AN ESSENTIAL PART OF OUR JUDICIAL SYSTEM,
WHETHER OR NOT PETITIONER SHOULD BE DEPRIVED OF ITS RIGHT
TO APPEAL ON THE BASIS OF TECHNICALITY.
23
III. ASSUMING THE HONORABLE SUPREME COURT WOULD HOLD THAT
THE FILING OF THE PETITITON FOR REVIEW WITH THE HONORABLE
COURT OF TAX APPEALS EN BANC WAS TIMELY, WHETHER OR NOT
THE PETITIONER IS THE PROPER PARTY TO CLAIM FOR REFUND OR
TAX CREDIT.24 (Underscoring supplied)
Silkair posits that "the instant case does not involve a situation where the
petitioner was represented by two (2) counsels on record, such that notice to
the former counsel would be held binding on the petitioner, as in the case of
Damasco v. Arrieta, etc., et al.25 x x x heavily relied upon by the
respondent";26 and that "the case of Dolores De Mesa Abad v. Court of
Appeals27 has more appropriate application to the present case."28
In Dolores De Mesa Abad, the trial court issued an order of November 19,
1974 granting the therein private respondents’ Motion for Annulment of
documents and titles. The order was received by the therein petitioner’s
counsel of record, Atty. Escolastico R. Viola, on November 22, 1974 prior to
which or on July 17, 1974, Atty. Vicente Millora of the Millora, Tobias and
Calimlim Law Office had filed an "Appearance and Manifestation." Atty. Millora
received a copy of the trial court’s order on December 9, 1974. On January 4,
1975, the therein petitioners, through Atty. Ernesto D. Tobias also of the
Millora, Tobias and Calimlim Law Office, filed their Notice of Appeal and Cash
Appeal Bond as well as a Motion for Extension of the period to file a Record
on Appeal. They filed the Record on Appeal on January 24, 1975. The trial
court dismissed the appeal for having been filed out of time, which was upheld
by the Court of Appeals on the ground that the period within which to appeal
should be counted from November 22, 1974, the date Atty. Viola received a
copy of the November 19, 1974 order. The appellate court held that Atty. Viola
was still the counsel of record, he not having yet withdrawn his appearance as
counsel for the therein petitioners. On petition for certiorari,29 this Court held
x x x [R]espondent Court reckoned the period of appeal from the time
petitioners’ original counsel, Atty. Escolastico R. Viola, received the Order
granting the Motion for Annulment of documents and titles on November 22,
1974. But as petitioners stress, Atty. Vicente Millora of the Millora, Tobias and
Calimlim Law Office had filed an "Appearance and Manifestation" on July 16,
1974. Where there may have been no specific withdrawal by Atty. Escolastico
R. Viola, for which he should be admonished, by the appearance of a new
counsel, it can be said that Atty. Viola had ceased as counsel for petitioners.
In fact, Orders subsequent to the aforesaid date were already sent by the trial
Court to the Millora, Tobias and Calimlim Law Office and not to Atty. Viola.
Under the circumstances, December 9, 1974 is the controlling date of receipt
by petitioners’ counsel and from which the period of appeal from the Order of
November 19, 1974 should be reckoned. That being the case, petitioner’s x x
x appeal filed on January 4, 1975 was timely filed.30 (Underscoring supplied)
The facts of Dolores De Mesa Abad are not on all fours with those of the
present case. In any event, more recent jurisprudence holds that in case of
failure to comply with the procedure established by Section 26, Rule 13831 of
the Rules of Court re the withdrawal of a lawyer as a counsel in a case, the
attorney of record is regarded as the counsel who should be served with copies
of the judgments, orders and pleadings.32 Thus, where no notice of withdrawal
or substitution of counsel has been shown, notice to counsel of record is, for
all purposes, notice to the client.33 The court cannot be expected to itself
ascertain whether the counsel of record has been changed.34
In the case at bar, JGLaw filed its Notice of Withdrawal of Appearance on
October 13, 200535 after the Bengzon Law Firm had entered its appearance.
While Silkair claims it dismissed JGLaw as its counsel as early as August 24,
2005, the same was communicated to the CTA only on October 13, 2005.36
Thus, JGLaw was still Silkair’s counsel of record as of October 3, 2005 when
a copy of the September 22, 2005 resolution of the CTA Second Division was
served on it. The service upon JGLaw on October 3, 2005 of the September
22, 2005 resolution of CTA Second Division was, therefore, for all legal intents
and purposes, service to Silkair, and the CTA correctly reckoned the period of
appeal from such date.
TECHNICALITY ASIDE, on the merits, the petition just the same fails.
Silkair bases its claim for refund or tax credit on Section 135 (b) of the NIRC
of 1997 which reads
Sec. 135. Petroleum Products sold to International Carriers and Exempt
Entities of Agencies. – Petroleum products sold to the following are exempt
from excise tax: x x x x
(b) Exempt entities or agencies covered by tax treaties, conventions, and other
international agreements for their use and consumption: Provided, however,
That the country of said foreign international carrier or exempt entities or
agencies exempts from similar taxes petroleum products sold to Philippine
carriers, entities or agencies; x x x x x x x,
and Article 4(2) of the Air Transport Agreement between the Government of
the Republic of the Philippines and the Government of the Republic of
Singapore (Air Transport Agreement between RP and Singapore) which reads
Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced
into, or taken on board aircraft in the territory of one Contracting party by, or
24
on behalf of, a designated airline of the other Contracting Party and intended
solely for use in the operation of the agreed services shall, with the exception
of charges corresponding to the service performed, be exempt from the same
customs duties, inspection fees and other duties or taxes imposed in the
territories of the first Contracting Party , even when these supplies are to be
used on the parts of the journey performed over the territory of the Contracting
Party in which they are introduced into or taken on board. The materials
referred to above may be required to be kept under customs supervision and
control.
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.37 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.38
x x x However, the amendment under Republic Act No. 6395 enumerated the
details covered by the exemption. Subsequently, P.D. 380, made even more
specific the details of the exemption of NPC to cover, among others, both direct
and indirect taxes on all petroleum products used in its operation. Presidential
Decree No. 938 [NPC’s amended charter] amended the tax exemption by
simplifying the same law in general terms. It succinctly exempts NPC from "all
forms of taxes, duties[,] fees…"
The use of the phrase "all forms" of taxes demonstrates the intention of the
law to give NPC all the tax exemptions it has been enjoying before…
xxxx
It is evident from the provisions of P.D. No. 938 that its purpose is to maintain
the tax exemption of NPC from all forms of taxes including indirect taxes as
provided under R.A. No. 6395 and P.D. 380 if it is to attain its goals. (Italics in
the original; emphasis supplied)42
The exemption granted under Section 135 (b) of the NIRC of 1997 and Article
4(2) of the Air Transport Agreement between RP and Singapore cannot,
without a clear showing of legislative intent, be construed as including indirect
taxes. Statutes granting tax exemptions must be construed in strictissimi juris
against the taxpayer and liberally in favor of the taxing authority, 43 and if an
exemption is found to exist, it must not be enlarged by construction.44

Silkair nevertheless argues that it is exempt from indirect taxes because the WHEREFORE, the petition is DENIED.
Air Transport Agreement between RP and Singapore grants exemption "from
the same customs duties, inspection fees and other duties or taxes imposed Costs against petitioner.
in the territory of the first Contracting Party."39 It invokes Maceda v. Macaraig,
Jr.40 which upheld the claim for tax credit or refund by the National Power SO ORDERED.
Corporation (NPC) on the ground that the NPC is exempt even from the
payment of indirect taxes.

Silkairs’s argument does not persuade. In Commissioner of Internal Revenue

v. Philippine Long Distance Telephone Company,41 this Court clarified the
ruling in Maceda v. Macaraig, Jr., viz:

It may be so that in Maceda vs. Macaraig, Jr., the Court held that an exemption
from "all taxes" granted to the National Power Corporation (NPC) under its
charter includes both direct and indirect taxes. But far from providing PLDT
comfort, Maceda in fact supports the case of herein petitioner, the correct
lesson of Maceda being that an exemption from "all taxes" excludes indirect
taxes, unless the exempting statute, like NPC’s charter, is so couched as to
include indirect tax from the exemption. Wrote the Court:

25
RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY COLLECTED-
On June 25, 2001, Prism billed respondent in the amount of US$547,822.45, broken
PROPER PARTY TO FILE CLAIM FOR REFUND OR TAX CREDIT
down as follows:
COMMISSIONER OF INTERNAL G.R. Nos. 179045-46
REVENUE,
Petitioner, Present: SDM Agreement US$236,000.00
CM Agreement 296,000.00
SIM Application Agreement 15,822.45
CORONA, C. J., Chairperson, Total US$547,822.45[4]
VELASCO, JR.,
- versus - LEONARDO-DE CASTRO,
DEL CASTILLO, and Thinking that these payments constitute royalties, respondent withheld the amount of
PEREZ, JJ. US$136,955.61 or P7,008,840.43,[5] representing the 25% royalty tax under the RP-Malaysia

SMART COMMUNICATION, INC.,⃰ Promulgated: Tax Treaty.[6]

Respondent. August 25, 2010
On September 25, 2001, respondent filed its Monthly Remittance Return of Final
x--------------------------------------------------x
DECISION Income Taxes Withheld (BIR Form No. 1601-F)[7] for the month of August 2001.
DEL CASTILLO, J.:
On September 24, 2003, or within the two-year period to claim a refund, respondent

filed with the Bureau of Internal Revenue (BIR), through the International Tax Affairs Division
The right of a withholding agent to claim a refund of erroneously or illegally withheld taxes comes
(ITAD), an administrative claim for refund[8] of the amount of P7,008,840.43.
with the responsibility to return the same to the principal taxpayer.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the
Proceedings before the CTA Second Division
Due to the failure of the petitioner Commissioner of Internal Revenue (CIR)
Decision[1] dated June 28, 2007 and the Resolution[2] dated July 31, 2007 of the Court of Tax
Appeals (CTA) En Banc.
to act on the claim for refund, respondent filed a Petition for Review[9] with the CTA,

Factual Antecedents
docketed as CTA Case No. 6782 which was raffled to its Second Division.
In its Petition for Review, respondent claimed that it is entitled to a refund
Respondent Smart Communications, Inc. is a corporation organized and existing under
because the payments made to Prism are not royalties[10] but business
Philippine law. It is an enterprise duly registered with the Board of Investments.
profits,[11] pursuant to the definition of royalties under the RP-Malaysia Tax
Treaty,[12] and in view of the pertinent Commentaries of the Organization for Economic
On May 25, 2001, respondent entered into three Agreements for Programming and Consultancy
Cooperation and Development (OECD) Committee on Fiscal Affairs through the
Services[3] with Prism Transactive (M) Sdn. Bhd. (Prism), a non-resident corporation duly
Technical Advisory Group on Treaty Characterization of Electronic Commerce
organized and existing under the laws of Malaysia. Under the agreements, Prism was to provide
Payments.[13] Respondent further averred that since under Article 7 of the RP-
programming and consultancy services for the installation of the Service Download Manager
Malaysia Tax Treaty, business profits are taxable in the Philippines only if attributable
(SDM) and the Channel Manager (CM), and for the installation and implementation of Smart
to a permanent establishment in the Philippines, the payments made to Prism, a
Money and Mobile Banking Service SIM Applications (SIM Applications) and Private Text
Malaysian company with no permanent establishment in the Philippines,[14] should not
Platform (SIM Application).
be taxed.[15]
26
 On December 1, 2003, petitioner filed his Answer[16] arguing that respondent,
as withholding agent, is not a party-in-interest to file the claim for refund,[17] and that
assuming for the sake of argument that it is the proper party, there is no showing that
the payments made to Prism constitute business profits.[18]
Ruling of the CTA Second Division
WHEREFORE, premises considered, the instant petition is partially
GRANTED. Accordingly, respondent Commissioner of Internal
Revenue is hereby ORDERED to REFUND or ISSUE a TAX
CREDIT CERTIFICATE to petitioner Smart Communications, Inc.
in the amount of P3,989,456.43, representing overpaid final
withholding taxes for the month of August 2001.

In a Decision[19] dated February 23, 2006, the Second Division of the CTA SO ORDERED.[27]
upheld respondents right, as a withholding agent, to file the claim for refund citing the
cases of Commissioner of Internal Revenue v. Wander Philippines, Both parties moved for partial reconsideration[28] but the CTA Second Division denied

Inc.,[20] Commissioner of Internal Revenue v. Procter & Gamble Philippine the motions in a Resolution[29] dated July 18, 2006.

Manufacturing Corporation[21] and Commissioner of Internal Revenue v. The Court of Ruling of the CTA En Banc

Tax Appeals.[22] Unsatisfied, both parties appealed to the CTA En Banc by filing their respective

However, as to the claim for refund, the Second Division found respondent Petitions for Review,[30] which were consolidated per Resolution[31] dated February 8,

entitled only to a partial refund. Although it agreed with respondent that the payments 2007.

for the CM and SIM Application Agreements are business profits,[23] and therefore, not On June 28, 2007, the CTA En Banc rendered a Decision affirming the

subject to tax[24] under the RP-Malaysia Tax Treaty, the Second Division found the partial refund granted to respondent. In sustaining respondents right to file the claim

payment for the SDM Agreement a royalty subject to withholding tax.[25] Accordingly, for refund, the CTA En Banc said that although respondent and Prism are unrelated

respondent was granted refund in the amount of P3,989,456.43, computed as entities, such circumstance does not affect the status of [respondent] as a party-in-

follows:[26] interest [as its legal interest] is based on its direct and independent liability under the
withholding tax system.[32] The CTA En Banc also concurred with the Second
Particulars Amount (in US$) Divisions characterization of the payments made to Prism, specifically that the
1. CM 296,000.00
2. SIM Application 15,822.45 payments for the CM and SIM Application Agreements constitute business
Total US$311,822.45 profits,[33] while the payment for the SDM Agreement is a royalty.[34]
Particulars Amount The dispositive portion of the CTA En Banc Decision reads:
Tax Base US$311,822.45 WHEREFORE, the instant petition is hereby
Multiply by: Withholding Tax DISMISSED. Accordingly, the assailed Decision and Resolution are
Rate 25% hereby AFFIRMED. SO ORDERED.[35]
Final Withholding Tax US$ 77,955.61
Multiply by: Prevailing Exchange
Only petitioner sought reconsideration[36] of the Decision. The CTA En
Rate 51.176
Tax Refund Due P3,989,456.43 Banc, however, found no cogent reason to reverse its Decision, and thus, denied
petitioners motion for reconsideration in a Resolution[37] dated July 31, 2007.
The dispositive portion of the Decision of the CTA Second Division reads:
27
Unfazed, petitioner availed of the present recourse.
Issues
The two issues to be resolved are: (1) whether respondent has the right to
file the claim for refund; and (2) if respondent has the right, whether the payments
made to Prism constitute business profits or royalties.
Petitioners Arguments
Petitioner contends that the cases relied upon by the CTA in upholding
respondents right to claim the refund are inapplicable since the withholding agents
therein are wholly owned subsidiaries of the principal taxpayers, unlike in the instant
case where the withholding agent and the taxpayer are unrelated entities. Petitioner
further claims that since respondent did not file the claim on behalf of Prism, it has no
legal standing to claim the refund. To rule otherwise would result to the unjust
enrichment of respondent, who never shelled-out any amount to pay the royalty
taxes. Petitioner, thus, posits that the real party-in-interest to file a claim for refund of
the erroneously withheld taxes is Prism. He cites as basis the case of Silkair
(Singapore) Pte, Ltd. v. Commissioner of Internal Revenue,[38] where it was ruled that
the proper party to file a refund is the statutory taxpayer.[39] Finally, assuming that
respondent is the proper party, petitioner counters that it is still not entitled to any refund
because the payments made to Prism are taxable as royalties, having been made in
consideration for the use of the programs owned by Prism.
Respondents Arguments
Respondent, on the other hand, maintains that it is the proper party to file a claim for
refund as it has the statutory and primary responsibility and liability to withhold and
remit the taxes to the BIR. It points out that under the withholding tax system, the
agent-payor becomes a payee by fiction of law because the law makes the agent
personally liable for the tax arising from the breach of its duty to withhold. Thus, the
fact that respondent is not in any way related to Prism is immaterial.
Moreover, respondent asserts that the payments made to Prism do not fall under the
definition of royalties since the agreements are for programming and consultancy
services only, wherein Prism undertakes to perform services for the creation,
development or the bringing into existence of software applications solely for the
satisfaction of the peculiar needs and requirements of respondent.
Our Ruling
The petition is bereft of merit.
Withholding agent may file
claim for refund
Sections 204(c) and 229 of the National Internal Revenue Code (NIRC)
provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate,
and Refund or Credit Taxes. The Commissioner may
xxxx
(C) Credit or refund taxes erroneously or illegally received or
penalties imposed without authority, refund the value of internal
revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps
that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be
allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years
after the payment of the tax or penalty: Provided, however, That
a return filed showing an overpayment shall be considered as a
written claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit
or proceeding shall be maintained in any court for the recovery of
any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum
alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed
with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
28

In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.(Emphasis
supplied)
Pursuant to the foregoing, the person entitled to claim a tax refund is the
taxpayer. However, in case the taxpayer does not file a claim for refund, the
withholding agent may file the claim.
In Commissioner of Internal Revenue v. Procter & Gamble Philippine
Manufacturing Corporation,[40] a withholding agent was considered a proper party to
file a claim for refund of the withheld taxes of its foreign parent company. Pertinent
portions of the Decision read:
The term taxpayer is defined in our NIRC as referring to any person subject
to tax imposed by the Title [on Tax on Income]. It thus becomes important to
note that under Section 53(c)[41] of the NIRC, the withholding agent who is
required to deduct and withhold any tax is made personally liable for such
tax and indeed is indemnified against any claims and demands which the
stockholder might wish to make in questioning the amount of payments
effected by the withholding agent in accordance with the provisions of the
NIRC. The withholding agent, P&G-Phil., is directly and independently liable
for the correct amount of the tax that should be withheld from the dividend
remittances. The withholding agent is, moreover, subject to and liable for
deficiency assessments, surcharges and penalties should the amount of the
tax withheld be finally found to be less than the amount that should have
been withheld under law.
A person liable for tax has been held to be a person subject to tax
and properly considered a taxpayer. The terms liable for tax and subject to
tax both connote legal obligation or duty to pay a tax. It is very difficult,
indeed conceptually impossible, to consider a person who is
statutorily made liable for tax as not subject to tax. By any reasonable
standard, such a person should be regarded as a party in interest, or
as a person having sufficient legal interest, to bring a suit for refund of
taxes he believes were illegally collected from him.
In Philippine Guaranty Company, Inc. v. Commissioner of
Internal Revenue, this Court pointed out that a withholding agent is
in fact the agent both of the government and of the taxpayer, and
that the withholding agent is not an ordinary government agent:
The law sets no condition for the personal liability of the
withholding agent to attach. The reason is to compel the
withholding agent to withhold the tax under all
circumstances. In effect, the responsibility for the
collection of the tax as well as the payment thereof is
concentrated upon the person over whom the
Government has jurisdiction. Thus, the withholding
agent is constituted the agent of both the Government
and the taxpayer. With respect to the collection and/or
withholding of the tax, he is the Governments agent. In
regard to the filing of the necessary income tax return
and the payment of the tax to the Government, he is the
agent of the taxpayer. The withholding agent, therefore,
is no ordinary government agent especially because
under Section 53 (c) he is held personally liable for the
tax he is duty bound to withhold; whereas the
Commissioner and his deputies are not made liable by
law.
If, as pointed out in Philippine Guaranty, the withholding agent is
also an agent of the beneficial owner of the dividends with
respect to the filing of the necessary income tax return and
with respect to actual payment of the tax to the government,
such authority may reasonably be held to include the authority
to file a claim for refund and to bring an action for recovery of
such claim. This implied authority is especially warranted where, as
in the instant case, the withholding agent is the wholly owned
subsidiary of the parent-stockholder and therefore, at all times,
under the effective control of such parent-stockholder. In the
circumstances of this case, it seems particularly unreal to deny the
implied authority of P&G-Phil. to claim a refund and to commence
an action for such refund. x x x x
We believe and so hold that, under the circumstances of this case,
P&G-Phil. is properly regarded as a taxpayer within the meaning of
Section 309,[42] NIRC, and as impliedly authorized to file the claim
for refund and the suit to recover such claim. (Emphasis supplied.)
Petitioner, however, submits that this ruling applies only when the withholding
agent and the taxpayer are related parties, i.e., where the withholding agent is a wholly
owned subsidiary of the taxpayer.
29
 The payments for the CM and
We do not agree. the SIM
Although such relation between the taxpayer and the withholding agent is a Application Agreements con
stitute
factor that increases the latters legal interest to file a claim for refund, there is nothing
in the decision to suggest that such relationship is required or that the lack of such business profits

relation deprives the withholding agent of the right to file a claim for refund. Rather, Under the RP-Malaysia Tax Treaty, the term royalties is defined as payments

what is clear in the decision is that a withholding agent has a legal right to file a claim of any kind received as consideration for: (i) the use of, or the right to use, any patent,

for refund for two reasons. First, he is considered a taxpayer under the NIRC as he is trade mark, design or model, plan, secret formula or process, any copyright of literary,

personally liable for the withholding tax as well as for deficiency assessments, artistic or scientific work, or for the use of, or the right to use, industrial, commercial, or

surcharges, and penalties, should the amount of the tax withheld be finally found to be scientific equipment, or for information concerning industrial, commercial or scientific

less than the amount that should have been withheld under law. Second, as an agent experience; (ii) the use of, or the right to use, cinematograph films, or tapes for radio

of the taxpayer, his authority to file the necessary income tax return and to remit the or television broadcasting.[44] These are taxed at the rate of 25% of the gross

tax withheld to the government impliedly includes the authority to file a claim for refund amount.[45]

and to bring an action for recovery of such claim. Under the same Treaty, the business profits of an enterprise of

In this connection, it is however significant to add that while the withholding a Contracting State is taxable only in that State, unless the enterprise carries on

agent has the right to recover the taxes erroneously or illegally collected, he business in the other Contracting State through a permanent establishment.[46] The

nevertheless has the obligation to remit the same to the principal taxpayer. As an term permanent establishment is defined as a fixed place of business where the

agent of the taxpayer, it is his duty to return what he has recovered; otherwise, he enterprise is wholly or partly carried on.[47] However, even if there is no fixed place of

would be unjustly enriching himself at the expense of the principal taxpayer from whom business, an enterprise of a Contracting State is deemed to have a permanent

the taxes were withheld, and from whom he derives his legal right to file a claim for establishment in the other Contracting State if it carries on supervisory activities in that

refund. other State for more than six months in connection with a construction, installation or

As to Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal assembly project which is being undertaken in that other State.[48]

Revenue[43] cited by the petitioner, we find the same inapplicable as it involves excise In the instant case, it was established during the trial that Prism does not have

taxes, not withholding taxes. In that case, it was ruled that the proper party to question, a permanent establishment in the Philippines. Hence, business profits derived from

or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the Prisms dealings with respondent are not taxable. The question is whether the

tax is imposed by law and who paid the same even if he shifts the burden thereof to payments made to Prism under the SDM, CM, and SIM Application agreements are

another. business profits and not royalties.

In view of the foregoing, we find no error on the part of the CTA in upholding Paragraph 1.3 of the Programming Services (Schedule A) of the SDM

respondents right as a withholding agent to file a claim for refund. Agreement,[49] reads:

30
 1.3 Intellectual Property Rights (IPR)
The SDM shall be installed by PRISM, including the SDM
Libraries, the IPR of which shall be retained by PRISM.
PRISM, however, shall provide the Client the APIs for the
SDM at no cost to the Client. The Client shall be permitted
to develop programs to interface with the SDM or the SDM
Libraries, using the related APIs
appropriate.[50] (Emphasis supplied.)
Whereas, paragraph 1.4 of the Programming Services (Schedule A) of the
CM Agreement and paragraph 1.3 of the Programming Services (Schedule A) of the
SIM Agreement provide:
1.4 Intellectual Property Rights (IPR)
The IPR of all components of the CM belong to the
Client with the exception of the following components,
which are provided, without technical or commercial
restraints or obligations:
ConfigurationException.java
DataStructures (DblLinkedListjava, DbIListNodejava, List
EmptyException.java, ListFullException.java,
ListNodeNotFoundException.java,
QueueEmptyException.java,
QueueFullException.java, QueueList.java,
QueuListEx.java, and
QueueNodeNotFoundException.java)
FieldMappedObjeet.java
LogFileEx.java
Logging (BaseLogger.java and Logger.java)
PrismGeneric Exception.java
PrismGenericObject.java
ProtocolBuilders/CIMD2 (Alive.java, BaseMessageData.
java, DeliverMessage.java, Login.java, Logout.java,
Nack.java, SubmitMessage.java,
TemplateManagement (FileTemplateDataBag.java,
Template
DataBag.java, TemplateManagerExBag.java, and
TemplateParserExBag.java)
TemplateManager.class
TemplateServer.class
TemplateServer$RequestThread.class
Template Server_skel.class
TemplateServer_stub.class
TemplateService.class
Prism Crypto Server module for PHP4[51]
xxxx
as 1.3 Intellectual Property Rights (IPR)
The Client shall own the IPR for the Specifications and
the Source Code for the SIM Applications. PRISM shall
develop an executable compiled code (the Executable
Version) of the SIM Applications for use on the aSIMetric
card which, however, shall only be for the Clients use. The
Executable Version may not be provided by PRISM to any
third [party] without the prior written consent of the Client. It
is further recognized that the Client anticipates licensing the
use of the SIM Applications, but it is agreed that no license
fee will be charged to PRISM or to a licensee of the
aSIMetrix card from PRISM when SIMs are supplied to the
Client.[52] (Emphases supplied.)
The provisions in the agreements are clear. Prism has intellectual property
right over the SDM program, but not over the CM and SIM Application programs as
the proprietary rights of these programs belong to respondent. In other words, out of
the payments made to Prism, only the payment for the SDM program is a royalty
subject to a 25% withholding tax. A refund of the erroneously withheld royalty taxes for
the payments pertaining to the CM and SIM Application Agreements is therefore in
order.
Indeed, the government has no right to retain what does not belong to it. No
one, not even the State, should enrich oneself at the expense of another.[53]
WHEREFORE, the petition is DENIED. The assailed Decision dated June
28, 2007 and the Resolution dated July 31, 2007 of the Court of Tax Appeals En
Banc are hereby AFFIRMED. The Bureau of Internal Revenue is
hereby ORDERED to ISSUE a TAX CREDIT CERTIFICATE to Prism Transactive
(M) Sdn. Bhd. in the amount of P3,989,456.43 representing the overpaid final
withholding taxes for the month of August 2001. SO ORDERED.
31

GOVERNMENT REMEDIES
G.R. No. L-11527 November 25, 1958
THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. SUYOC
CONSOLIDATED MINING COMPANY, ET AL., respondents.
BAUTISTA ANGELO, J.:
Suyoc Consolidated Mining Company, a mining corporation operating before
the war, was unable to file in 1942 its income tax return for the year 1941 due
to the last war. After liberation, Congress enacted Commonwealth Act No.
722 which extended the filing of tax returns for 1941 up to December 31,
1945. Its records having been lost or destroyed, the company requested the
Collector of Internal Revenue to grant it an extension of time to file its return,
which was granted until February 15, 1946, and the company was authorized
to file its return for 1941 on the basis of the best evidence obtainable.
The company filed three income tax returns for the calendar year ending
December 31, 1941. On February 12, 1946, it filed a tentative return as it had
not yet completely reconstructed its records. On November 28, 1946, it filed
a second final return on the basis of the records it has been able to
reconstruct at that time. On February 6, 1947, it filed its third amended final
return on the basis of the available records which to that date it had been
able to reconstruct.
On the basis of the second final return filed by the company on November
28, 1946, the Collector assessed against it the sum of P28,289.96 as income
tax for 1941, plus P1,414.50 as 5 per cent surcharge and P3,894.80 as 1 per
cent monthly interest from March 1, 1946 to February 28, 1947, or a total of
P33,099.26. The assessment was made on February 11, 1947. On February
21, 1947, the company asked for an extension of at least one year from
February 28, 1947 within which to pay the amount assessed, reserving its
right to question the correctness of the assessment. The Collector granted an
extension of only three months from March 20, 1947.
The company failed to pay the tax within the period granted to it and so the
Collector sent to it a letter on November 28, 1950 demanding payment of the
tax due as assessed, plus surcharge and interest up to December 31, 1950.
On April 6, 1951, the company asked for a reconsideration and
reinvestigation of the assessment, which was granted, the case being
assigned to another examiner, but the Collector made another assessment
against the company in the sum of P33,829.66. This new assessment was
made on March 7, 1952. On April 18, 1952, the Collector revised this last
assessment and required the company to pay the sum of P28,289.96 as
income tax, P1,414.50 as surcharge, P20,934.57 as interest up to April 30,
1952 and P40 as compromise.
After several other negotiations conducted at the request of respondent,
including an appeal to the Conference Staff created to act on such matters in
the Bureau of Internal Revenue, the assessment was finally reduced by the
Collector to P24,438.96, without surcharge and interest, and of this new
assessment the company was notified on July 28, 1955. Within the
reglementary period, the company filed with the Court of Tax Appeals a
petition for review of this assessment made on July 26, 1955 on the main
ground that the right of the Government to collect the tax has already
prescribed. After the case was heard, the court rendered its decision
upholding this defense and, accordingly, it set aside the ruling of the
Collector of Internal Revenue. The Collector interposed the present petition
for review.
Under the law, an internal revenue tax shall be assessed within five years
after the return is filed by the taxpayer and no proceeding in court for its
collection shall be begun after the expiration of such period (Section 331,
National Internal Revenue Code). The law also provides that where an
assessment of internal revenue tax is made within the above period, such tax
may be collected by distraint or levy or by a proceeding in court but only if the
same is begun(1) within five years after assessment or (2) within the period
that may be agreed upon in writing between the Collector and the taxpayer
before the expiration of the 5-year period [Section 332 (c), Idem.].
It appears that the first assessment made against respondent based on
its second final return filed on November 28, 1946 was made on February
11, 1947. Upon receipt of this assessment respondent requested for at least
one year within which to pay the amount assessed although it reserved its
right to question the correctness of the assessment before actual payment.
Petitioner granted an extension of only three months. When it failed to pay
the tax within the period extended, petitioner sent respondent a letter on
November 28, 1950 demanding payment of the tax as assessed, and upon
receipt of the letter respondent asked for a reinvestigation and
reconsideration of the assessment. When this request was denied,
respondent again requested for a reconsideration on April 25, 1952, which
was denied on May 6, 1953, which denial was appealed to the Conference
Staff. The appeal was heard by the Conference Staff from September 2,
1953 to July 16, 1955, and as a result of these various negotiations, the
assessment was finally reduced on July 26, 1955. This is the ruling which is
now being questioned after a protracted negotiation on the ground that the
collection of the tax has already prescribed.
32
It is obvious from the foregoing that petitioner refrained from collecting the
tax by distraint or levy or by proceeding in court within the 5-year period from
the filing of the second amended final return due to the several requests of
respondent for extension to which petitioner yielded to give it every
opportunity to prove its claim regarding the correctness of the assessment.
Because of such requests, several reinvestigations were made and a hearing
was even held by the Conference Staff organized in the collection office to
consider claims of such nature which, as the record shows, lasted for several
months. After inducing petitioner to delay collection as he in fact did, it is
most unfair for respondent to now take advantage of such desistance to
elude his deficiency income, tax liability to the prejudice of the Government
invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the
running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer,
there are cases however where a taxpayer may be prevented from setting up
the defense of prescription even if he has not previously waived it in writing
as when by his repeated requests or positive acts the Government has been,
for good reasons, persuaded to postpone collection to make him feel that the
demand was not unreasonable or that no harassment or injustice is meant by
the Government. And when such situation comes to pass there are
authorities that hold, based on weighty reasons, that such an attitude or
behavior should not be countenanced if only to protect the interest of the
Government.
This case has no precedent in this jurisdiction for it is the first time that such
has risen, but there are several precedents that may be invoked in American
jurisprudence. As Mr. Justice Cardozo has said: "The applicable principle is
fundamental and unquestioned. 'He who prevents a thing from being done
may not avail himself of the nonperformance which he has himself
occasioned, for the law says to him in effect "this is your own act, and
therefore you are not damnified." ' "(R. H. Stearns Co. vs. U.S., 78 L. ed.,
647). Or, as was aptly said, "The tax could have been collected, but the
government withheld action at the specific request of the plaintiff. The plaintiff
is now estopped and should not be permitted to raise the defense of the
Statute of Limitations." [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp. 588].
The following authorities cited in the brief of the Solicitor General are in point:
The petitioner makes the point that by the Revenue Act of May 29,
1928 (chap. 852, 45 Stat. at L. 791, 875, sec. 609, U.S.C. title 26,
sec. 2609), a credit against a liability in respect of any taxable year
shall be "void" if it has been made against a liability barred by
limitation. The aim of that provision, as we view it, was to invalidate
such a credit if made by the Commissioner of his own motion without
the taxpayer's approval or with approval failing short of inducement
or request. Cf. Stange vs. United States, 282 U. S. 270, 75 L. ed.
335, 51 S. Ct. 145, supra; Revenue Act of 1928, sec. 506 (b) (c),
chap. 852, 45 Stat. at L. 791, 870, 871, U.S.C. title 26, see. 1062a. If
nothing more than this appeared, there was to be no exercise in
invitum of governmental power. But the aim of the statute suggests a
restraint upon its meaning. To know whether liability has been barred
by limitation it will not do to refer to the flight of time alone. The
limitation may have been postponed by force of a simple waiver,
which must then be made in adherence to the statutory forms, or so
we now assume. It may have been postponed by deliberate
persuasion to withhold official action. We think it an unreasonable
construction that would view the prohibition of the statute as over-
riding the doctrine of estoppel (Randon vs. Tobey, 11 How. 493, 519,
13 L. ed. 784, 795) and invalidating a credit made at the taxpayer's
request. Here at the time of the request, the liability was still alive,
unaffected as yet by any statutory bar. The request in its fair
meaning reached forward into the future and prayed for the
postponement of collection till the audits for later years had been
completed in the usual course. This having been done, the
suspended collection might be effected by credit or by distraint or by
other methods prescribed by law. Congress surely did not mean that
a credit was to be void if made by the Government in response to
such prayer.
The applicable principle is fundamental and unquestioned. "He who
prevents a thing from being done may not avail himself of the
nonperformance which he has himself occasioned, for the law says
to him in effect "this is your own act, and therefore you are not
damnified," ' " Dolan vs. Rogers, 149 N. Y. 489, 491, 44 N.E. 167,
and Imperator Realty Co. vs. Tull, 228 N. Y. 447, 457, 127 N.E. 263,
quoting West vs. Blakeway, 2 Mann. & G. 729, 751, 133 Eng.
Reprint, 940, 949. Sometimes the resulting disability has been
characterized as an estoppel, sometimes as a waiver. The label
counts for little. Enough for present purposes that the disability has
its roots in a principle more nearly ultimate than either waiver or
estoppel, the principle that no one shall be permitted to found any
claim upon his own inequity or take advantage of his own wrong.
Imperator Realty Co. vs. Tull, 228 N.Y. 447, 127 N.E. 263, supra. A
suit may not be built on an omission induced by him who sues.
Swain vs. Seamens, 9 Wall. 254, 274, 19 L. ed. 554, 560; United
States vs. Peck, 102 U.S. 64, 26 L. ed. 46; Thomson vs. Poor, 147
33
 N.Y. 402, 42 N.E. 13; New Zealand Shipping Co. vs. Societe des
Ateliers (1919) A. C. 1, 6-H. L.; 2 Williston, Contr. sec. 689. (R. H. November 28, Respondent filed its "final return".
Stearns Co. vs. U.S., supra; Emphasis supplied.) 1946

. . . It is admitted that these assessments were timely made in February 6, Respondent filed its amended final return".
August 1923. Upon the making of the assessment the Commissioner 1947
sought to make collection, which likewise was at a time when the
statute had not ran on collection, but the authorized representative of February 11, Notice of 1st assessment (Based on the
the Lattimores strenuously objected to the collection and urged the 1947 final return sent to the respondent) (Amount
Commissioner to withhold collection, pending adjustment of the of assessment — P33,099.26).
controversy between them and the Commissioner. The
Commissioner yielded to their request and postponed collection until February 14, Receipt of respondent said assessment.
August 19, 1926, which was after the statute had run on collection. In 1947
the meantime, further claims for refund and protests were filed,
conferences were held and consideration was given to the settlement February 21, Respondent asked for extension of time
of the controversy, and the matter was not finally disposed of until 1947 (one year) to pay the assessment, but
1926, when the statute had run on collection. The procedure carried reserving right to question its validity. He
out was that requested by plaintiffs, and they cannot now be heard to was given only three months from March
say that the collection was not timely. R. H. Stearns Company vs. 20, 1957.
United States, 291 U.S. 54, 54 S. Ct. 325, 78 L. Ed. 647. (Lattimore
vs. U.S., 12 F. Supp. 895, 91.)
November 28, Petitioner demanded payment of tax
1950 assessed.
Wherefore, the decision appealed from is reversed.
April 6, 1951 Respondent asked for reconsideration and
The decision of the Collector of Internal Revenue rendered on July 26, 1955 reinvestigation of the assessment.
is hereby affirmed. No costs.
March 7, 1952 Notice of 2nd assessment (Based on the
Separate Opinions amended final return) was sent to
MONTEMAYOR, J., dissenting: respondent. (Amount — P33,289.96).

As stated in the majority opinion, the respondent Suyoc Consolidated Mining April 18, 1952 Petitioner revised the assessment made on
Company was unable to file in 1942 its income tax return for the year 1941, March 7, 1952 (Now it is P50,697.03)
because of the last war. Acting upon an extension granted by
Commonwealth Act 722 and by the Collector of Internal Revenue, it finally
July 26, 1955 Petitioner reduced the assessment of April
filed the first income tax return (tentative) on February 12, 1946. For
18, 1952 after various negotiations. (Now it
purposes of reference I am listing below in chronological order, the dates
is P24,438.96)
which are material and relevant for purposes of computation of the period of
prescription.
It will be noticed that petitioner Collector made his first assessment based on
the final return submitted by Suyoc on November 28, 1946, on February 11,
February 12, Respondent filed its "tentative return".
1947. The assessment was in the amount of P33,099.26. Suyoc asked for an
1946
extension of time of one year within which to make payment, at the same
time reserving its right to question the validity of the assessment, but it was
granted only three months from March 20, 1947, that is to say, up to June 20,
34
1947. After said deadline, the Collector should immediately have demanded
payment or resorted to the administrative remedy of distraint and levy, but
strange to say, the Collector did not act and allowed more than three years to
pass (from June 20, 1947 to November 28, 1950). It was only on November
28, 1950 that the Collector demanded payment on the basis of his
assessment. On April 6, 1951, Suyoc asked for reconsideration and
reinvestigation. After about a year, that is, on March 7, 1952, the Collector
made a second assessment of P33,829.66, which was larger than his first
assessment by about P800. Then on April 18, 1952, the Collector made a
revised third assessment of P28,289.96 as income tax, P1,414.50 as
surcharge, P20,934.57 as interest up to April 30, 1952, and P40.00 as
compromise, which all added up to the staggering amount of P50,679.03, far
different from and much larger than the first and second assessment by
almost P17,000. After several negotiations, including appeal to the
conference staff created to act on such matters in the Bureau of Internal
Revenue, the assessment was finally reduced on July 26, 1955 to only
P24,438.96, without surcharge, without interest and without any amount as
compromise. It is this last assessment which Suyoc appealed to the Court of
Tax Appeals.
For purposes of reference, I am reproducing the pertinent sections of the
National Internal Revenue Code:
SEC. 331. Period of limitation upon assessment and collection. —
Except as provided in the succeeding section, internal revenue taxes
shall be assessed within five years after the return was filed, and no
proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period. For the
purposes of this section a return filed before the last day prescribed
by law for the filing thereof shall be considered as filed on such last
day; Provided, that this limitation shall not apply to cases already
investigated prior to the approval of this Code.
SEC. 332. Exceptions as to period of limitation of assessment and
collection of taxes. — . . . .
(c) Where the assessment of any internal revenue tax has been
made within the period of limitation above prescribed such tax may
be collected by distraint or levy or by a proceeding in court, but only if
begun (1) within five years after the assessment of the tax, or (2)
prior to the expiration of any period for collection agreed upon in
writing by the Collector of Internal Revenue and the taxpayer before
the expiration of such five-year period. The period so agreed upon
may be extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon.
SEC. 333. Suspension of running of statute. — The running of the
statute of limitations provided in section three hundred thirty-one or
three hundred thirty-two on the making of "assessments and the
beginning of distraint or levy or a proceeding in court for collection, in
respect of any deficiency, shall be suspended for the period during
which the Collector of Internal Revenue is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court,
and for sixty days thereafter.
To me, the best argument against the contention of the Collector, and the
ruling contained in the majority opinion that the right of the Collector to collect
the tax assessed by it has not prescribed, and that the petitions or petitions
filed by Suyoc for investigation and revision of the assessment extended the
period of prescription, is the well written and reasoned decision (Resolution)
of the Court of Tax Appeals, through Judge Roman M. Umali to which I
agree. I am reproducing with approval the pertinent portions of said decision:
Petitioner filed the instant petition for review on the grounds that
certain losses were improperly disallowed by respondent as
deductions from its gross income, and that the right of the
Government to collect the tax, if any is due, has prescribed. When
this case was called for hearing counsel for petitioner asked that the
question of prescription be first resolved before hearing the case on
the question involving the correctness of the assessment. The sole
issue raised at this time for resolution of this Court is, therefore,
confined to the question of prescription.
Upon the evidence submitted and admitted by the parties, it appears
that the last and final assessment made by respondent covering the
income tax due from petitioner for the year 1941 was made on July
26, 1955, more than five years from the date the "amended return"
was filed on November 28, 1946, or from the date the amended final
return' was filed on February 6, 1947. The right of respondent to
assess the tax has, therefore, prescribed pursuant to Section 331 of
the National Internal Revenue which requires that the assessment be
made within five years from the date the return was filed.
Even granting that the first assessment made on February 11, 1947,
is the one to be considered in determining whether or not the
assessment was made within the statutory period it follows that it
must have to be considered also as the starting point from which the
35
 period within which the right to collect should be computed.
Accordingly, on the theory that the assessment in this case was
made within five years from the date the return was filed, the right of
the Government to collect the tax assessed has prescribed,
respondent having failed at any time from February 14, 1947 up to
the time the instant petition for review was filed on September 19,
1955, a period of more than 8 years, to institute appropriate
proceedings, judicially or otherwise, for the collection of the tax. (See
Sec. 332 [c], National Internal Revenue Code.)
From whatever angle the case is viewed, we find that the right of the
Government to collect the income tax assessed against petitioner for
the year 1941 has prescribed. But it is insisted that the requests of
petitioner for reconsideration of the assessment, and while the same
were pending consideration by respondent, had the effect of
suspending the running of the statute of limitations. The statute of
limitations upon assessment and collection of national internal
revenue taxes provided in Sections 331 and 332 of the Revenue
Code may be suspended only "for the period during which the
Collector of Internal Revenue is prohibited from making the
assessment or beginning destraint or levy or a proceeding in court,
and sixty day thereafter." (Sec. 333, Revenue Code.) Nowhere does
the law recognize that a simple request for reconsideration of an
assessment, unaccompanied by any positive indication that the
taxpayer is waiving his right to assert the defense of prescription, has
the effect of suspending the running of the statute of limitations.
That a request for re-examination or reconsideration of an
assessment does not suspend the running of the statute of
limitations seems to be the prevailing opinion in the Bureau of
Internal Revenue. This may he inferred from the fact that General
Circular No. V-182 dated January 17, 1955 had to be promulgated.
Paragraph 6 of said circular provides:
6. Within thirty (30) days from the receipt of the deficiency tax
assessment notice, the taxpayer may request reinvestigation or re-
examination of the assessment, subject to the following requirements
prescribed in paragraph 3 of Department Order No. 213:
"(a) The taxpayer shall put the specific grounds of his protest in
writing and under oath, accompanied by such additional documents
and evidence supporting his protest;
(b) He shall pay one-half (1/2) of the total assessment and file a bond
to guarantee the payment of the balance together with the penalties
that shall have accrued at the time of final payment; and
(c) He shall sign a statement that he is waiving the periods of
prescription involved in the assessment and collection of the
deficiency tax in question." (Emphasis supplied.)
If a simple request for reinvestigation or re-examination of an
assessment suspends the running of the statute of limitations, as
alleged by respondent, there is no necessity for the requirement that
a taxpayer must sign a statement that he is waiving the periods of
prescription' as a condition for the granting of the request for
reinvestigation or re-examination. General Circular No. V-182
obviously in line with Section 332 (c) of the Revenue Code which
provides that the waiver of the taxpayer must be contained in an
agreement in writingextending the five year period of limitation upon
the right of the respondent to collect internal revenue taxes.
FOR THE FOREGOING CONSIDERATIONS We are of the opinion
that the right of the Government to collect from petitioner the sum of
P24,438.96 as income tax for the year 1941 has prescribed.
Accordingly, the decision appealed from is hereby set aside, without
pronouncement as to costs.
I fully agree with the Court of Tax Appeals that whether we consider
February 11, 1947 or July 26, 1955, as the date of the assessment, the right
of the Collector, either to make collection within five years from February 11,
1947 or to make assessment within five years from February 6, 1947, has
prescribed. I do not believe that a mere petition for revision or reinvestigation
can be regarded as an agreement of the taxpayer to extend the period of
prescription. The very law clearly so states. Section 333 says that the
running of the statute of limitations provided in Sections 331 and 332 shall be
suspended only when the Collector is prohibited from making the
assessment or beginning the distraint. No such prohibition or inability to
make assessment or begin the distraint is claimed for the Collector. And
Section 332 (c) says that the period for collection may be extended only by
express agreement in writing by the taxpayer and the Collector. Evidently,
nothing short of such express written agreement to extend will suspend the
running of the period.
It will be observed that Suyoc made only one petition for extension, that is,
for one year within which to pay the assessment, but reserving its right to
question the validity thereof. It was given only three months. Thereafter, it
36
never asked for any other extension. True, it asked for revision and
reconsideration of the different assessments made by the Collector, but this
in no way can be regarded as an express agreement to extend the period;
and the Collector was well aware of the fact that a mere petition to amend,
modify, revise or revive the assessment or reinvestigate the case cannot
extend the period of prescription, as evidenced by the very General Circular
No. V-182, promulgated for the guidance of the Bureau of Internal Revenue.
Said circular among other things provides that in order that there be an
extension of the period of prescription and presumably, for the protection of
the Government, the taxpayer must sign a statement that he is waiving the
period of prescription involved in the collection of the tax.
The trouble with the actuations of the Collector in this case is that he would
appear to have unduly delayed definite and affirmative action on the
assessment and collection as shown by the wide gaps — first, a period of
more than three years from February 14, 1947, when Suyoc received notice
of the first assessment (extended by the Collector to June 20, 1947) to
November 28, 1950, when the Collector demanded payment; then another
period of about two years from November 28, 1950 to March 7, 1952 when
he made the second assessment.
Not only was there undue delay on the part of the Collector, but his
actuations would seem to have been characterized by indecision and
uncertainty. First, he made an assessment in the amount of P33,099.26.
Then he increased this to P33,829.66. Then on April 18, 1952, he again
increased this assessment to P50,678.03, until on July 26, 1955, this sum of
over P50,000 was reduced to P24,438.96, without surcharge, without interest
and without any amount as compromise. Why all this difference or
differences in the amounts of the assessment?
One could well imagine and understand that a first assessment more or less
hastily prepared may be revised within a reasonable time, say a few months
or even a year, either increasing it or decreasing it. But when the Collector
over a period of more than eight years kept changing his assessment,
increasing the same by substantial amounts and then decreasing the same
substantially, and at the same time utterly forgetting the period of prescription
set by the law and also forgetting to protect the interest of the Government by
requiring the taxpayer to agree expressly and in writing to extend the period
of such prescription; and equally important, forgetting and failing up to the
present time to institute proceedings, administrative by distraint and levy or
judicial by court action, to collect, the Government has no one to blame but
itself and its officials, certainly not the taxpayer who did nothing but ask for
revision of the assessment to obtain a correct figure while it finally got but too
late, after a wait of over eight years.
The majority opinion places much reliance on the case of R. H. Stearns
Company vs. U.S., 291 U.S., 54, and makes extensive quotation therefrom.
After reading said case, I agree with counsel for Suyoc that it not applicable,
for the reason that in that case, the taxpayer signed two waivers of the period
of limitation; that although the second waiver was not signed by the
Commissioner, nevertheless, the taxpayer on several ocassions had
requested him to withhold collection. Naturally, the United States Supreme
Court was constrained to hold that when the taxpayer not only signed
waivers but had deliberately asked and persuaded the Commissioner to
postpone collection, he cannot invoke the benefit of prescription to the
running of which he has contributed. Our law expressly and clearly provides
that in order to suspend the period of prescription or to extend it, the taxpayer
and the Collector must sign an agreement to that effect. Nothing short of this
will effect said extension or suspension of the period of limitation. Mere
petitions for revision or reinvestigation by the taxpayer cannot suspend the
running of the period of prescription. The taxpayer may make as many
requests for revision or examination as he wishes, but the Collector need not
act upon them to the prejudice of the Government; and even if he does act
upon said petitions, he should always keep an eye on the running of the
period, on the dead line, so that for the protection of the Government, he
could enforce collection before it is too late.
Prescription in the assessment and in the collection of taxes is provided by
the Legislature for the benefit of both the Government and taxpayer; for the
Government for the purpose of expediting the collection of taxes, so that the
agency charged with the assessment and collection may not tarry too long or
indefinitely to the prejudice of the interests of the Government which needs
said taxes to run it; and for the taxpayer so that within a reasonable time after
filing his return, he may know the amount of the assessment which he is
required to pay, whether or not such assessment is well founded and
reasonable so that he may either pay the amount of the assessment or
contest its validity in court, either by filing an action for the refund, if already
paid, under the old law, or appeal the disputed assessment to the Court of
Tax Appeals under the present law creating the Tax Court. It would surely be
prejudicial to the interest of the taxpayer for the Government collecting
agency to unduly delay the assessment and the collection because by the
time that the collecting agency finally gets around to making the assessment
or making the collection, the taxpayer may then have lost his papers and
books to support his claim and contest that of the Government, and what is
more, the tax is in the meantime accumulating interest which the taxpayer
eventually has to pay.
In connection with this extension of the period of prescription or limitation for
the Government to collect taxes, it will be noticed from Section 332(c) of the
Internal Revenue Code that even If the taxpayer and the Collector agree to
37
extend the period of limitation, said period has to be specific or fixed, and if
said period of extension is to be further extended, another agreement has to
be made again specifying the period of said further extension. From all this, it
is evident that to extend the period of limitation or prescription, an express
agreement in writing to that effect, signed by the Collector and the taxpayer
is necessary. Naturally, a mere petition by the taxpayer for revision or re-
examination of the assessment cannot and will not automatically extend the
period of limitation. However, under the theory espoused by the majority, let
the taxpayer just ask, not for an extension of the time to pay or the
Government to collect, but for a mere re-examination or revision of the
assessment, and lo, and behold, all the carefully prepared provisions of the
tax law about prescription and statutory limitation are laid aside, and the
collecting agency of the Government may then postpone and delay the
collection indefinitely, until such time as it is good and ready to resume
proceedings from where it left off, and if the taxpayer complains of the delay
or invokes prescription, he is instantly met with and silenced by the done of
estoppel. I believe that is not what the law and the Legislature contemplated.

To me, this matter of the extension of the period of limitation is quite clear,
but assuming for a moment that there were any doubt about it, then we have
the time honored and well settled rule of statutory construction that tax laws
should be interpreted liberally in favor of the taxpayer and strictly against the
Government, except in the matter of tax exemptions, in which case the rule is
reversed. In the case of Manila Railroad Co. vs. Collector of Customs, 52
Phil. 952, this Tribunal said:

. . . . It is the general rule in the interpretation of statutes levying

taxes or duties not to extend their provisions beyond the clear import
of the language used. In every case of doubt, such statutes are
construed most strongly against the Government and in favor of the
citizen, because burdens are not to be imposed, nor presumed to be
imposed, beyond what the statutes expressly and clearly import. (U.
S. vs. Wigglesworth [1842], 2 Story, 369; Froehlich & Kuttner vs.
Collector of Customs [1911], 19 Phil., 461.)

Years ago, the Supreme Court of the United States, through Chief Justice
Marshall, in the case of McCulloch vs. The State of Maryland, 4 Law Ed. 579,
said that the power to tax is the power to destroy. Evidently, to moderate this
awesome and dangerous taxing power of the Legislature, and in order to
temper the rigor of tax laws, this sound and salutary rule of liberal
construction of tax laws in favor of the taxpayer has been evolved and laid
down.

For the foregoing reasons, I dissent. Padilla, J., concurs.

38

GOVERNMENT REMEDIES
G.R. No. L-22356 July 21, 1967
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. PEDRO B.
PATANAO, defendant-appellee.
ANGELES, J.:
This is an appeal from an order of the Court of First Instance of Agusan in civil
case No. 925, dismissing plaintiff's complaint so far as concerns the collection
of deficiency income taxes for the years 1951, 1953 and 1954 and additional
residence taxes for 1951 and 1952, and requiring the defendant to file his
answer with respect to deficiency income tax for 1955 and residence taxes for
1953-1955.
In the complaint filed by the Republic of the Philippines, through the Solicitor
General, against Pedro B. Patanao, it is alleged that defendant was the holder
of an ordinary timber license with concession at Esperanza, Agusan, and as
such was engaged in the business of producing logs and lumber for sale during
the years 1951-1955; that defendant failed to file income tax returns for 1953
and 1954, and although he filed income tax returns for 1951, 1952 and 1955,
the same were false and fraudulent because he did not report substantial
income earned by him from his business; that in an examination conducted by
the Bureau of Internal Revenue on defendant's income and expenses for 1951-
1955, it was ascertained that the sum of P79,892.75, representing deficiency;
income taxes and additional residence taxes for the aforesaid years, is due
from defendant; that on February 14, 1958, plaintiff, through the Deputy
Commissioner of Internal Revenue, sent a letter of demand with enclosed
income tax assessment to the defendant requiring him to pay the said amount;
that notwithstanding repeated demands the defendant refused, failed and
neglected to pay said taxes; and that the assessment for the payment of the
taxes in question has become final, executory and demandable, because it
was not contested before the Court of Tax Appeals in accordance with the
provisions of section 11 of Republic Act No. 1125.
Defendant moved to dismiss the complaint on two grounds, namely: (1) that
the action is barred by prior judgment, defendant having been acquitted in
criminal cases Nos. 2089 and 2090 of the same court, which were
prosecutions for failure to file income tax returns and for non-payment of
income taxes; and (2) that the action has prescribed.
After considering the motion to dismiss, the opposition thereto and the
rejoinder to the opposition, the lower court entered the order appealed from,
holding that the only cause of action left to the plaintiff in its complaint is the
collection of the income tax due for the taxable year 1955 and the residence
tax (Class B) for 1953, 1954 and 1955. A motion to reconsider said order was
denied, whereupon plaintiff interposed the instant appeal, which was brought
directly to this Court, the questions involved being purely legal.
The conclusion of the trial court, that the present action is barred by prior
judgment, is anchored on the following rationale:
There is no question that the defendant herein has been accused in Criminal
Cases Nos. 2089 and 2090 of this Court for not filing his income tax returns
and for non-payment of income taxes for the years 1953 and 1954. In both
cases, he was acquitted. The rule in this jurisdiction is that the accused once
acquitted is exempt from both criminal and civil responsibility because when a
criminal action is instituted, civil action arising from the same offense is
impliedly instituted unless the offended party expressly waives the civil action
or reserves the right to file it separately. In the criminal cases abovementioned
wherein the defendant was completely exonerated, there was no waiver or
reservation to file a separate civil case so that the failure to obtain conviction
on a charge of non-payment of income taxes is fatal to any civil action to collect
the payment of said taxes.1äwphï1.ñët
Plaintiff-appellant assails the ruling as erroneous. Defendant-appellee on his
part urges that it should be maintained.
In applying the principle underlying the civil liability of an offender under the
Penal Code to a case involving the collection of taxes, the court a quo fell into
error. The two cases are circumscribed by factual premises which are
diametrically opposed to each either, and are founded on entirely different
philosophies. Under the Penal Code the civil liability is incurred by reason of
the offender's criminal act. Stated differently, the criminal liability gives birth to
the civil obligation such that generally, if one is not criminally liable under the
Penal Code, he cannot become civilly liable thereunder. The situation under
the income tax law is the exact opposite. Civil liability to pay taxes arises from
the fact, for instance, that one has engaged himself in business, and not
because of any criminal act committed by him. The criminal liability arises upon
failure of the debtor to satisfy his civil obligation. The incongruity of the factual
premises and foundation principles of the two cases is one of the reasons for
not imposing civil indemnity on the criminal infractor of the income tax law.
Another reason, of course, is found in the fact that while section 73 of the
National Internal Revenue Code has provided the imposition of the penalty of
imprisonment or fine, or both, for refusal or neglect to pay income tax or to
make a return thereof, it failed to provide the collection of said tax in criminal
proceedings. The only civil remedies provided, for the collection of income tax,
in Chapters I and II, Title IX of the Code and section 316 thereof, are distraint
of goods, chattels, etc. or by judicial action, which remedies are generally
exclusive in the absence of a contrary intent from the legislator. (People vs.
39
Arnault, G.R. No. L-4288, November 20, 1952; People vs. Tierra, G.R. Nos. L-
17177-17180, December 28, 1964) Considering that the Government cannot
seek satisfaction of the taxpayer's civil liability in a criminal proceeding under
the tax law or, otherwise stated, since the said civil liability is not deemed
included in the criminal action, acquittal of the taxpayer in the criminal
proceeding does not necessarily entail exoneration from his liability to pay the
taxes. It is error to hold, as the lower court has held, that the judgment in the
criminal cases Nos. 2089 and 2090 bars the action in the present case. The
acquittal in the said criminal cases cannot operate to discharge defendant
appellee from the duty of paying the taxes which the law requires to be paid,
since that duty is imposed by statute prior to and independently of any attempts
by the taxpayer to evade payment. Said obligation is not a consequence of the
felonious acts charged in the criminal proceeding, nor is it a mere civil liability
arising from crime that could be wiped out by the judicial declaration of non-
existence of the criminal acts charged. (Castro vs. The Collector of Internal
Revenue, G.R. No. L-12174, April 20, 1962).

Regarding prescription of action, the lower court held that the cause of action
on the deficiency income tax and residence tax for 1951 is barred because
appellee's income tax return for 1951 was assessed by the Bureau of Internal
Revenue only on February 14, 1958, or beyond the five year period of limitation
for assessment as provided in section 331 of the National Internal Revenue
Code. Appellant contends that the applicable law is section 332 (a) of the same
Code under which a proceeding in court for the collection of the tax may be
commenced without assessment at any time within 10 years from the
discovery of the falsity, fraud or omission.

The complaint filed on December 7, 1962, alleges that the fraud in the
appellee's income tax return for 1951, was discovered on February 14, 1958.
By filing a motion to dismiss, appellee hypothetically admitted this allegation
as all the other averments in the complaint were so admitted. Hence, section
332 (a) and not section 331 of the National Internal Revenue Code should
determine whether or not the cause of action of deficiency income tax and
residence tax for 1951 has prescribed. Applying the provision of section 332
(a), the appellant's action instituted in court on December 7, 1962 has not
prescribed.

Wherefore, the order appealed from is hereby set aside. Let the records of this
case be remanded to the court of origin for further proceedings. No
pronouncement as to costs.

40
GOVERNMENT REMEDIES
G.R. No. L-14142 May 30, 1961
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. J. AMADO
ARANETA and AMADO ARANETA & CO., INC., and MANILA SURETY &
FIDELITY CO., INC., defendants.
J. AMADO ARANETA & CO., INC., defendants-appellants.
MANILA SURETY & FIDELITY CO., INC., cross-plaintiff-appellant, vs. J.
AMADO ARANETA and J. AMADO ARANETA & CO., INC., cross-
defendants-appellees.
PADILLA, J.:
On 22 February 1957 in the Court of First Instance of Manila the Solicitor
General, in behalf of the Republic Of the Philippines, brought an action against
J. Amado Araneta and J. Amado Araneta & Company, Inc., as principals and
the Manila Surety & Fidelity Company, Inc., as surety, to recover from them
jointly and severally the sum of P30, as fixed tax upon business due from 1946
to 1948, imposed by section 182, in connection with sections 178 to 180 of the
National Internal Revenue Code, as amended: P5,067.42, as 2% tax on
P253,370.84, the gross receipts from their business as a common carrier
during the said period, pursuant to section 192 of the same Code; and
P1,266.86, as 25% surcharge, or a total sum of P6,364.28, the payment of
which was guaranteed by a bond (Annex B) executed by the defendant-surety,
and 6% in interest on the amount of P6,364.28 from 6 December 1951, when
the first extrajudicial demand was made, until fully paid. On 12 March 1957 the
defendants-principals filed a motion to dismiss the plaintiffs complaint on the
ground that its cause of action is barred by the statute of limitations and on 20
March 1957 the plaintiff, an objection thereto. On 23 March 1957 the Court
denied the defendants-principals' motion to dismiss.
On 29 March the defendants-principals filed their answer denying that they had
operated their vessel as a common carrier, the truth being that they had used
it to ship goods and cargoes manufactured and sold by them and allied
companies owned and/or controlled by them; asserting that granting without
admitting that they were liable for common carrier's tax, their gross receipts
during the alleged period was P166,299.67 only and not P253,370.24; and that
the "Bond to Guarantee Payment of Common Carrier's Tax and Compensating
Tax," attached to the complaint as Annex A or to the stipulation of facts filed
on 25 February 1958 as Annex B, is not genuine and had not been duly
executed because the same had not been approved by the Collector of Internal
Revenue; and setting up affirmative defenses that the five-year period of
limitation provided for in section 332, paragraph (c) of the National Internal
Revenue Code, as amended, already had elapsed, hence the plaintiff's action
was barred; and that granting that the said bond was valid, the enforcement of
the principal obligation having been barred, it follows that the enforcement of
the obligation undertaken in the said bond was also barred. They set up a
counterclaim of P2,000 for expenses of litigation and attorney's fees incurred
in defending their legal rights. On 30 March 1957 the defendant surety filed its
answer setting up the following affirmative defenses: that the plaintiff's
complaint states no cause of action; that its liability under the bond (Annex B)
was extinguished by its novation and alteration without its knowledge and
consent; that granting that its liability still subsists, the said bond being merely
se ondary or auxiliary to a principal obligation that could no longer be enforced
by reason of prescription, its obligation thereunder could, likewise, no longer
be enforced; and that the bond (Annex B), not having been approved by the
Collector of Internal Revenue, was void. As counterclaim, it sought from the
plaintiff the sum of P2,500 for expenses of litigation and attorney's fees
incurred for the protection of its rights.
On 10 April 1957, the plaintiff answered the defendants' respective
counterclaim, alleging that it was a valid cause of action against them and that
its complaint was filed pursuant to its policy of collecting long overdue accounts
from delinquent taxpayers.
After obtaining leave of court, on 25 May 1957 the de defendant-surety filed
an amended answer reiterating its denials, affirmative defenses and
counterclaim in its first answer and adding or including a cross-claim against
the defendants-principals for recovery from the latter of whatever sum of
money it might be ordered to pay the plaintiff by judgment of the Court, with
interest at the rate of 12% per annum from the date of payment until the sum
it shall have paid be fully reimbursed to it by the defendants-principals; of the
sum of P3,598.20 as premiums due for the period from 18 September 1949 to
18 March 1957, with interest at the rate 12% per annum from 18 March 1957
until fully paid; of a sum equivalent to 15% of the total amount claimed as
attorney's fees, as agreed upon in the indemnity bond executed by the cross-
defendants on 21 March 1949 and accepted by the cross-plaintiff (Annex "1-
MSFCI") attached to the attended answer and made a part thereof; and of the
costs of the suit with respect to its cross-claim. It prayed further for any other
just and equitable relief.
On 10 June 1957 the cross-defendants filed an answer to the cross-complaint
of the defendant-surety, denying the truth, genuineness and correctness of the
copy of the bond attached to the complaint as Annex A and as Annex B of the
stipulation of facts; and claiming that the mere filing of a suit against the cross-
plaintiff did not render it liable to pay the alleged tax liability of the cross-
defendants; that the bond filed on 18 March 1949 by the cross-plaintiff (Annex
B) was null and void, hence the same could not be the basis of the cross-
plaintiff's cross-claim against the cross-defendants; that since both of them
have denied liability to the plaintiff for any amount, the cross-plaintiff has no
cause of action against the cross-defendants; and that the amount of expenses
41
of litigation and attorney's fees claimed by the cross-plaintiff, should there be
any, is to be determined by the Court in the exercise of its discretion. As
counterclaim, they prayed for recovery from the cross-plaintiff of the sum of
P2,000 as expenses of litigation and attorney's fees incurred in defending their
rights on the cross-claim.
On 18 June 1957, the cross-plaintiff filed an answer to the cross-defendants'
counterclaim denying the allegations therein and setting up a counterclaim to
the cross-defendants defendants' counterclaim in the amount of P1,000 as
exemplary damages.
On 3 December 1957 the defendants-principals filed a motion to dismiss on
the ground of lack of jurisdiction because the case involves a disputed tax
assessment; on 9 December 1957 the plaintiff, an "opposition" thereto. On 12
December 1957 the Court denied the motion to dismiss.
On 25 February 1957 the cross-plaintiff and the cross-defendants entered into
the following stipulation of facts:
COME NOW, the parties in the cross-complaint represented by their
respective counsel and to this Honorable Court respect-fully submit the
following stipulation of facts:
1. That the jurisdictional facts and the capacity of the parties to sue and be
sued are submitted;
2. That on or about March 18, 1949, cross-defendants J. Amado Araneta and
J. Amado Araneta & Co., Inc. (Philippine Shipping Lines) represented by J.
Amado Araneta requested the herein cross-plaintiff to post a surety bond in
behalf of cross-defendant Philippine Shipping Lines and in favor of the
Republic of the Philippines in the amount of P11,814.00 to guarantee the
payment of the Common Carrier's Tax and Compensating Tax of the former
with the latter, to which request the cross-plaintiff agreed and did in fact post
the said bond, the original copy of which is attached as Annex "A" of the
Stipulation of Facts entered into with the plaintiff Republic of the Philippines
and made an integral part hereof by reference as Annex "1-MSFC";
3. That the parties admit the truth of the terms and conditions of said bond;
4. That the cross-plaintiff agreed and did in fact post the aforesaid surety bond
upon written undertaking of the cross-defendants the original carbon copy of
which is hereto attached as Annex "2-MSFCI" and made an integral part of this
stipulation of facts obligating themselves to indemnify the cross-plaintiff for any
damage, losses, costs, charges or expenses of whatever kind and nature
including counsel or attorney's fees which the company may incur at any time
as a consequence of having become surety of the abovementioned bond;
5. That the parties admit the truth of the terms and conditions of the said written
undertaking marked Annex "2- MSFCI";
6. That upon the passage and approval of Republic Act No. 961 on June 9,
1949, exempting from payment of the compensating tax the purchase or
receipt of vessels, their equipment and/or appurtenances, from without the
Philippines, before or after the taking effect of said Republic Act No. 361, the
alleged tax liability of the cross-defendant was reduced by P5,250.00 from the
original assessment of P11,814.00 leaving the sum of P6,364.28 only,
representing the fixed and common carrier's tax allegedly due the
Government;
7. That on February 22, 1957, the Republic of the Philippines initiated court
proceedings seeking to recover from the as principal and the cross-plaintiff as
surety the said sum of P6,364.28 including penalties plus six (6%) percent
thereon from December 6, 1951 until fully paid plus costs;
8. That in accordance with the indemnity agreement An Annex "2-MSFCI", the
cross-defendants agreed to indemnify the cross-plaintiff as soon as the latter
has become liable for the payment of any amount under the aforementioned
bond, whether or not it shall have paid such sum or sums of money, or any
part thereof;
9. That in spite of repeated demands cross-defendants have failed and refused
and still fail and refuse to indemnify the cross-plaintiff the amount claimed for
in the cross-plaintiff's complaint;
10. That the cross-plaintiff hereby withdraws the second and third causes of
action as contained in the cross-claim; and
11. That the parties hereto hereby withdraw their respective counterclaims.
which they submitted to the Court (pp. 71-76; 84-91, recs. on app.).
On the same day, 25 February 1957, all the parties to this case submitted to
the Court the following stipulation of facts dated 7 February 1957:
COME NOW the parties in the above-entitled case represented by their
respective counsel and to this Honorable Court respectfully submit the
following stipulation of facts:
42
1. That the jurisdictional facts and the capacity of the parties to sue and be
sued are admitted;
2. That sometime in 1946, the defendant J. Amado Araneta purchased from
the Philippine Shipping Commission, and received delivery of one F. S. vessel
for the sum of P120,000.00;
3. That during the fourth quarter of 1946 up to and in including the fourth
quarter of 1948, defendants J. Amado Araneta and/or J. Amado Araneta &
Co., operated said F. S. vessel within Philippine waters under the business
style "Philippine Shipping Lines" without first providing themselves with the
necessary fixed tax C-3-C required by Sec. 182 of the Tax Code;
4. That during the above-mentioned period from the fourth quarter of 1946 to
the fourth quarter of 1947, said defendants J. Amado Araneta and/or J. Amado
Araneta & Co., failed to make a return of gross receipts from the operation of
said F.S. vessel;
5. That the Bureau of Internal Revenue conducted an examination of the books
of the Philippine Shipping Lines, as a result of which the Bureau of Internal
Revenue assessed defer defendant in the sums of P6,361.28, as fixed and
percentage taxes and surcharge and P5,250.00 as compensating tax and
surcharge, or a total of P11,614.28, as evidenced by the letter, dated May 15,
1948, hereto attached as Annex "A" to this stipulation of facts and made an
integral part hereof, computed as follows:
Fixed Tax (1947-1948) ...................................................... P 30.00
2% common carrier's tax in accordance with Sec. 192, NIRC, on gross receipt
for the same period in the sum of P253,370.84
.................................................................. 5,067.42
25% surcharge .................................................................. 1,266.86
TOTAL ..................................................................... P 6,364.28
and an assessment for compensating tax as follows:
2-1/2% on P120,000.00 ............................................. P 4,200.00
25% surcharge on P4,200.00 ................................... 1,050.00
TOTAL COMPENSATING TAX DUE .................... P 5,250.00
6. That on March 18, 1949, defendants J. Amado Araneta as principal and the
Manila Surety & Fidelity Co., Inc. as surety executed "Bond to Guarantee
Payment of Common Carriers Tax and Compensating Tax", the original of
which is hereto attached to this stipulation of facts as Annex "B" and made an
integral part hereof. That the parties admit the truth of the terms and conditions
of said bond and the fact that at the lower portion of said bond which reads:
"APPROVED:
"BIBIANO L. MEER
"Collector of Internal Revenue"
was left unsigned by said official;
7. That in view of the enactment of Rep. Act No. 361, the defendant J. Amado
Araneta and/or J. Amado Araneta & Co., Inc. sent a letter to the Collector of
Internal Revenue dated June 14, 1949, a certified true copy of which is hereto
attached with this stipulation of facts as Annex "C" and made an integral part
hereof. Said letter was answered by the Collector of Internal Revenue dated
June 21, 1949, a certified true copy of which is likewise attached to this
stipulation of facts as Annex "D" and made an integral part hereof;
8. That plaintiff through the Collector of Internal Revenue sent letters of
demand to the defendants J. Amado Araneta and the Manila Surety & Fidelity
Co., Inc., dated December 6, 1951 and May 17, 1952, respectively, certified
true copies of which are hereto attached to this stipulation of facts as Annexes
"E" and "F" and made integral parts hereof. Another set of demand letters
dated November 14, 1953, was sent to the defendant J. Amado Araneta under
the firm name of Philippine Shipping Lines and to the Manila Surety & Fidelity
Co., Inc. certified true copies of which are likewise hereto attached to this
stipulation of facts as Annexes "G" and "H" and likewise made integral parts
hereof;
9. That on February 3, 1955, the Bureau of Internal Revenue sent another
demand letter to the Philippine Shipping Lines. A copy of said letter is hereto
attached and made an integral part hereof as Annex I;
10. That due to the failure of defendants to comply with the above-demands,
plaintiff instituted the present action on February 22, 1957, to collect from
defendants J. Amado Araneta and/or J. Amado Araneta & Co., Inc., and Manila
Surety & Fidelity Co., Inc., jointly and severally the amount of P6,364.28
including penalties plus 6% interest thereon from December 6, 1951, until fully
paid, and/or in default thereof, to execute upon the bond (Annex "B") for the
satisfaction of the claim.
43
WHEREFORE, it is respectfully prayed that the above case be submitted for
decision based upon the above stipulation of facts. (pp. 76-101; 66-83, recs.
on app.)
On 31 May 1958 the Court rendered judgment holding that the action brought
by the plaintiff was for the enforcement of an obligation undertaken by the
defendants-principals and the defendant-surety in the bond executed by them
in favor of the plaintiff (Annex B); that the action having been brought on 22
February 1957 was within the period of ten years from 18 March 1949, the
date of execution of the bond; that the defendants-principals having defaulted
in the payment of their tax obligation, which the defendant-surety had
guaranteed to pay should the principals fail, the surety's obligation undertaken
in the bond became a principal obligation; and that although the Collector of
Internal Revenue failed to affix his signature in the bond (Annex B), the latter's
acceptance constituted approval thereof, and ordering the defendants, jointly
and severally, to pay the plaintiff the sum of P6,364.28, with interest at the rate
of 6% per annum from 22 February 1957, the date of the filing of the complaint,
until fully paid; and dismissing the defendants' counterclaims against the
plaintiff and those against each other as well as the cross-claim by the cross
plaintiff and defendant-surely against the cross-defendants and defendants-
principals, without pronouncement as to costs.
On 12 June and 5 July 1958 the defendants filed motions for reconsideration;
on 14 June 1958, the cross-defendants, an objection to the cross-plaintiff's
motion for reconsideration.
On 27 June and 8 July 1958 the Court denied the defendants' respective
motions for reconsideration.
The defendants have appealed separately.
The contention of the appellants-taxpayers (J. Amado Araneta and J. Amado
Araneta & Company, Inc.) is that the appellee's cause of action has prescribed,
because the action for recovery of internal revenue taxes and surcharge due
brought on 22 February 1957, was not commenced within the period of five
years after the assessment dated 15 May 1948 had been made (Annex A);
that the bond executed by them and the appellant-surety (Manila Surety &
Fidelity Company, Inc.) to guarantee payment of the common carrier's tax
(Annex B), being merely auxiliary or ancillary to the principal obligation the
enforcement of which has prescribed, the enforcement of their auxiliary
obligation in the bond also has prescribed; and that the bond, (Annex B) is null
and void because the same was not approved by the Collector of Internal
Revenue.
The ground of the appellant-surety's appeal is that, not-withstanding the fact
that the appellants-taxpayers had bound themselves to indemnify it "for any
damages, loss, costs, charges, or expenses of whatever kind and nature," as
a result of its having executed and filed the bond marked as Annex B (Annex
2-MSFCI), the trial court dismissed its cross-claim against the appellants-
taxpayers instead of ordering them to pay it whatever amount it shall have paid
to the appellee by virtue of its judgment and the stipulated interests thereon
from the date of payment of said amount by the cross-plaintiff to the appellee
until full payment thereof by the cross-defendants to the cross-plaintiff.
The appellants-taxpayers' appeal is without merit. They cannot invoke
prescription under the provisions of section 331 of the National Internal
Revenue Code, as amended, because the appellee is suing on the bond
executed and filed by them and the appellant-surety (Annex B). It must be
borne in mind that on 15 March 1948 the Collector of Internal Revenue
assessed the appellants-taxpayers for fixed tax upon business due from 1946
to 1948 under the provisions of section 182, in connection with sections 178
to 180, of the National Internal Revenue Code, as amended, and 2% tax on
gross receipts from their business as common carrier under those of section
192 of the same Code, and surcharge, all amounting to P6,364.28 (An Annex
A);1 that the appellants-taxpayers requested the Collector of internal Revenue
to be allowed to pay their tax liability in six equal monthly installments
beginning 15 April 1949; that the Collector of Internal Revenue granted their
request provided a bond to guarantee payment of their tax liability be filed by
them (Annex B); that the appellants-taxpayers requested the appellant-surety
to underwrite the required bond (Annex 2-MSFCI); and that on 18 March 1949
the appellants-taxpayers and the appel appellant-surety executed the,
required bend (Annex B) and submitted it to the Collector of Internal Revenue
who received and kept it. The condition of the bond is —
. . . that if the above-bounden Principal (the appellants-tax-payers) truly and
faithfully make a prompt and complete payment of the 2% common carriers
tax and compensating tax due on the above-mentioned vessel for the year
1948, in six (6) equal monthly installments Commencing on April 15, 1949, as
well as all fines and penalties imposed in accordance with the National Internal
Revenue Code, then this obligation shall be null and void, otherwise it shall
remain in full force and effect (Annex B).
The appellants-taxpayers failed to pay any of the installments due despite
demand (Annexes E, G & 1). Hence, the appellee sued on the bond (Annex
B) which is a separate and distinct obligation of the parties thereto. For this
Court to sustain the appellants' defense of prescription would in effect nullify
their undertaking in the bond which was executed and filed by them to lighten
their tax obligation or burden by being allowed to pay in six equal installments.
44
The action to enforce the obligation on the bond executed on 18 March 1949,
having been filed in court by the appellee on 22 February 1957, was within the
prescriptive period of ten years.
The appellants-taxpayers' argument that the bond (Annex B) being ancillary to
the principal obligation to pay heir tax liability, which already has prescribed,
the enforcement of their obligation in the bond also has prescribed is
untenable. What has been said about their claim of prescription against the
collection of the tax equally applies to the claim of prescription against the
enforcement of the bond obligation or undertaking.
The act of the Collector of Internal Revenue in receiving and keeping the bond,
deferring collection of the tax, and suing on the bond (Annex B) upon failure of
the appellants taxpayers to pay the tax, the payment of which is guaranteed
by the bond, meant or amounted to approval thereof.
abovementioned bond, shall be final and shall not be questioned by the
undersigned who hereby agree to indemnify, jointly and severally, to the
COMPANY, for each and everyone of said payments and disbursements.
(Emphasis supplied). Annex "2- MSFCI"
should be ordered to reimburse the appellant-surety for whatever amount it
shall have paid to the appellee by virtue of the judgment rendered in this case
and to pay the stipulated interest thereon. The premium and attorney's fees
sought to be collected by the appellant-surety in the second and third causes
of action of its cross-complaint against the appellants-taxpayers have been
withdrawn by it (paragraph 10 of the stipulation of facts).
WITH THE FOREGOING MODIFICATION, the rest of the judgment appealed
from is affirmed, with costs against the appellants-taxpayers.

Turning now to the appeal of the appellant-surety, the having bound

themselves to the former as follows:

INDEMNITY: (b) To indemnify the Company for any damage, loss, costs,
charges, or expenses of whatever kind and nature including counsel or
attorney's fees, which the COMPANY may, at any time, sustain or incur as a
consequence of having become surety upon the above-mentioned bond; said
attorneys fees shall not be less than fifteen (15%) per cent of e total amount
claimed in any action which the COMPANY may institute against the
undersigned in Court.

MATURITY OF THE OBLIGATION UNDER THIS SECOND: (c) Said

indemnity shall be paid to the COMPANY as soon as it has become liable for
the payment of any amount, under the abovementioned bond, whether or not
it shall have paid such sums or sums of money, or any part thereof.

INTEREST IN CASE OF DEFAULT: (d) And in the case of non-payment of the

said sum or sums of money to the COMPANY by the undersigned, the said
undersigned shall pay, upon said sum or sums of money, an interest of twelve
(12%) per cent per annum, which interest, while not paid, shall be liquidated
and accumulated monthly to the capital owed by the undersigned, drawing the
same interest as the said capital.

UNQUESTIONABILITY OF THE PAYMENTS AND DISBURSEMENTS MADE

BY THE COMPANY: (e) Any payment or disbursement made by the
COMPANY on account of the abovementioned bond, either in the belief that it
was bound to make said payment or disbursement or in the belief that the
payment or disbursement made was necessary or expedient, in order to avoid
greater losses or obligations for which it would be liable under the

45
GOVERNMENT REMEDIES
G.R. No. L-20477 March 29, 1968
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. FELIX B. ACEBEDO,
defendant-appellee.
MAKALINTAL, J.:
This is a suit for collection of deficiency income tax for the year 1948 in the
amount of P5,962.83. The corresponding notice of assessment was issued on
September 24, 1949. The complaint was filed on December 27, 1961. After the
defendant filed his answer but before trial started he moved to dismiss on the ground
of prescription. The court received evidence on the motion, and on September 1, 1962
issued an order finding the same meritorious and hence dismissing the complaint. The
case is before us on appeal by the plaintiff from the order of dismissal.
The statute of limitations which governs this case is Section 332, subsection (c),
of the National Internal Revenue Code, which reads:
SEC. 332. Exemptions as to period of limitation of assessment and collection of
taxes. — x x x xxx xxx
(c) Where the assessment of any internal-revenue tax has been made with the period
of limitation above prescribed such tax may be collected by distraint or levy or by a
proceeding in court, but only if begun (1) within five years after the assessment of the
tax, or (2) prior to the expiration of any period for collection agreed upon in writing by
the Collector of Internal Revenue and the taxpayer before the expiration of such five-
year period. The period so agreed upon may be extended by subsequent agreements
in writing made before the expiration of the period previously agreed upon.
The present suit was not begun within five years after the assessment of the tax,
which was in 1949. Was it, however, begun prior to the expiration of any period for
collection agreed upon in writing by the Commissioner of Internal Revenue and the
defendant before the expiration of such five-year period? The only evidence of such
written agreement, in the form of a "waiver of the statute of limitations" signed by the
defendant, is Exhibit U (also Exh. 4), dated December 17, 1959. But this waiver was
ineffective because it was executed beyond the original five-year limitation.
The plaintiff contends that the period of prescription was suspended by the
defendant's various requests for reinvestigation or reconsideration of the tax
assessment. The trial court rejected this contention, saying that a mere request for
reinvestigation or reconsideration of an assessment does not have the effect of such
suspension. The ruling is logical, otherwise there would be no point to the legal
requirement that the extension of the original period be agreed upon in writing.
To be sure, this legal provision, according to some, decisions of this Court, does
not rule out a situation where the taxpayer may be in estoppel to claim prescription.
Thus we said in Commissioner of Internal Revenue, vs. Consolidated Mining Co., L-
11527, Nov. 25, 1958:
... There are cases however where a taxpayer may be prevented from setting up
the defense of prescription even if he has not previously waived it in writing as when by
his repeated requests or positive acts the Government has been, for good reasons,
persuaded to postpone collection to make him feel that the demand was not
unreasonable or that no harassment or injustice is meant by the Government.
(Emphasis supplied.)
Likewise, when a taxpayer asks for a reinvestigation of the tax assessment
issued to him and such reinvestigation is made, on the basis of which the Government
makes another assessment, the five-year period with which an action for collection may
be commenced should be counted from this last assessment. (Republic vs. Lopez, L-
18007, March 30, 1963; Commissioner v. Sison, et al., L-13739, April 30, 1963.)
In the case at bar, the defendant, after receiving the assessment notice of
September 24, 1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. A).
There is no evidence that this request was considered or acted upon. In fact, on
October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint
and levy for the full amount of the assessment at (Exh. D), but there was no follow up
of this warrant. Consequently, the request for reinvestigation did not suspend the
running of the period for filing an action for collection.
The next communication of record is a letter signed for the defendant by one
Troadio Concha and dated October 6, 1951, again requesting a reinvestigation of his
tax liability (Exh. B). Nothing came of this request either. Then on February 9, 1954,
the defendant's lawyers wrote the Collector of Internal Revenue informing him that the
books of their client were ready at their office for examination (Exh. C). The reply was
dated more than a year later, or on October 4, 1955, when the Collector bestirred
himself for the first time in connection with the reinvestigation sought, and required that
the defendants specify his objections to the assessment and execute "the enclosed
forms for waiver, of the statute of limitations." (Exh. E). The last part of the letter was a
warning that unless the waiver "was accomplished and submitted within 10 days the
collection of the deficiency taxes would be enforced by means of the remedies provided
for by law."
It will be noted that up to October 4, 1955 the delay in collection could not be
attributed to the defendant at all. His requests in fact had been unheeded until then,
and there was nothing to impede enforcement of the tax liability by any of the means
provided by law. By October 4, 1955, more than five years had elapsed since
assessment in question was made, and hence prescription had already set in, making
subsequent events in connection with the said assessment entirely immaterial. Even
the written waiver of the statute signed by the defendant on December 17, 1959 could
no longer revive the right of action, for under the law such waiver must be executed
within the original five-year period within which suit could be commenced. The order
appealed from is affirmed, without pronouncement as to costs.
46
GOVERNMENT REMEDIES
G. R. No. 167146 October 31, 2006
COMMISSIONER OF INTERNAL REVENUE, Petitioner, - versus -
PHILIPPINE GLOBAL COMMUNICATION, INC., Respondent.
x--------------------------------------------------x
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court,
seeking to set aside the en banc Decision of the Court of Tax Appeals (CTA)
in CTA EB No. 37 dated 22 February 2005,[1] ordering the petitioner to
withdraw and cancel Assessment Notice No. 000688-80-7333 issued against
respondent Philippine Global Communication, Inc. for its 1990 income tax
deficiency. The CTA, in its assailed en banc Decision, affirmed the Decision of
the First Division of the CTA dated 9 June 2004[2] and its Resolution dated 22
September 2004 in C.T.A. Case No. 6568.
Respondent, a corporation engaged in telecommunications, filed its Annual
Income Tax Return for taxable year 1990 on 15 April 1991. On 13 April 1992,
the Commissioner of Internal Revenue (CIR) issued Letter of Authority No.
0002307, authorizing the appropriate Bureau of Internal Revenue (BIR)
officials to examine the books of account and other accounting records of
respondent, in connection with the investigation of respondents 1990 income
tax liability. On 22 April 1992, the BIR sent a letter to respondent requesting
the latter to present for examination certain records and documents, but
respondent failed to present any document. On 21 April 1994, respondent
received a Preliminary Assessment Notice dated 13 April 1994 for deficiency
income tax in the amount of P118,271,672.00, inclusive of surcharge, interest,
and compromise penalty, arising from deductions that were disallowed for
failure to pay the withholding tax and interest expenses that were likewise
disallowed. On the following day, 22 April 1994, respondent received a Formal
Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14
April 1994, for deficiency income tax in the total amount of P118,271,672.00.[3]
On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano Reyes
and Manalastas Law Offices, filed a formal protest letter against Assessment
Notice No. 000688-80-7333. Respondent filed another protest letter on 23 May
1994, through another counsel Siguion Reyna Montecillo & Ongsiako Law
Offices. In both letters, respondent requested for the cancellation of the tax
assessment, which they alleged was invalid for lack of factual and legal
basis.[4]
On 16 October 2002, more than eight years after the assessment was
presumably issued, the Ponce Enrile Cayetano Reyes and Manalastas Law
Offices received from the CIR a Final Decision dated 8 October 2002 denying
the respondents protest against Assessment Notice No. 000688-80-7333, and
affirming the said assessment in toto.[5]
On 15 November 2002, respondent filed a Petition for Review with the CTA.
After due notice and hearing, the CTA rendered a Decision in favor of
respondent on 9 June 2004.[6] The CTA ruled on the primary issue of
prescription and found it unnecessary to decide the issues on the validity and
propriety of the assessment. It decided that the protest letters filed by the
respondent cannot constitute a request for reinvestigation, hence, they cannot
toll the running of the prescriptive period to collect the assessed deficiency
income tax.[7] Thus, since more than three years had lapsed from the time
Assessment Notice No. 000688-80-7333 was issued in 1994, the CIRs right to
collect the same has prescribed in conformity with Section 269 of the National
Internal Revenue Code of 1977[8] (Tax Code of 1977). The dispositive portion
of this decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the petitioner. Accordingly, respondents Final Decision dated October 8, 2002
is hereby REVERSED and SET ASIDE and respondent is hereby ORDERED
to WITHDRAW and CANCEL Assessment Notice No. 000688-80-7333 issued
against the petitioner for its 1990 income tax deficiency because respondents
right to collect the same has prescribed.[9]
The CIR moved for reconsideration of the aforesaid Decision but was denied
by the CTA in a Resolution dated 22 September 2004.[10] Thereafter, the CIR
filed a Petition for Review with the CTA en banc, questioning the aforesaid
Decision and Resolution. In its en banc Decision, the CTA affirmed the
Decision and Resolution in CTA Case No. 6568. The dispositive part reads:
WHEREFORE, premises considered, the Petition for Review is hereby
DISMISSED for lack of merit. Accordingly, the assailed Decision and
Resolution in CTA Case No. 6568 are hereby AFFIRMED in toto.[11]
Hence, this Petition for Review on Certiorari raising the following grounds:
THE COURT OF TAX APPEALS, SITTING EN BANC, COMMITTED
REVERSIBLE ERROR IN AFFIRMING THE ASSAILED DECISION AND
RESOLUTION IN CTA CASE NO. 6568 DECLARING THAT THE RIGHT OF
THE GOVERNMENT TO COLLECT THE DEFICIENCY INCOME TAX FROM
RESPONDENT FOR THE YEAR 1990 HAS PRESCRIBED
A. THE PRESCRIPTIVE PERIOD WAS INTERUPTED WHEN
RESPONDENT FILED TWO LETTERS OF PROTEST DISPUTING IN
DETAIL THE DEFICIENCY ASSESSMENT IN QUESTION AND
REQUESTING THE CANCELLATION OF SAID ASSESSMENT. THE TWO
47
LETTERS OF PROTEST ARE, BY NATURE, REQUESTS FOR
REINVESTIGATION OF THE DISPUTED ASSESSMENT.
B. THE REQUESTS FOR REINVESTIGATION OF RESPONDENT WERE
GRANTED BY THE BUREAU OF INTERNAL REVENUE.[12]
This Court finds no merit in this Petition.
The main issue in this case is whether or not CIRs right to collect respondents
alleged deficiency income tax is barred by prescription under Section 269(c)
of the Tax Code of 1977, which reads:
Section 269. Exceptions as to the period of limitation of assessment and
collection of taxes. x x x
xxxx
c. Any internal revenue tax which has been assessed within the period of
limitation above-prescribed may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax.
The law prescribed a period of three years from the date the return was actually
filed or from the last date prescribed by law for the filing of such return,
whichever came later, within which the BIR may assess a national internal
revenue tax.[13] However, the law increased the prescriptive period to assess
or to begin a court proceeding for the collection without an assessment to ten
years when a false or fraudulent return was filed with the intent of evading the
tax or when no return was filed at all.[14] In such cases, the ten-year period
began to run only from the date of discovery by the BIR of the falsity, fraud or
omission.
If the BIR issued this assessment within the three-year period or the ten-year
period, whichever was applicable, the law provided another three years after
the assessment for the collection of the tax due thereon through the
administrative process of distraint and/or levy or through judicial
proceedings.[15] The three-year period for collection of the assessed tax
began to run on the date the assessment notice had been released, mailed or
sent by the BIR.[16]
The assessment, in this case, was presumably issued on 14 April 1994 since
the respondent did not dispute the CIRs claim. Therefore, the BIR had until 13
April 1997. However, as there was no Warrant of Distraint and/or Levy served
on the respondents nor any judicial proceedings initiated by the BIR, the
earliest attempt of the BIR to collect the tax due based on this assessment was
when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was
several years beyond the three-year prescriptive period. Thus, the CIR is now
prescribed from collecting the assessed tax.
The provisions on prescription in the assessment and collection of national
internal revenue taxes became law upon the recommendation of the tax
commissioner of the Philippines. The report submitted by the tax commission
clearly states that these provisions on prescription should be enacted to benefit
and protect taxpayers:
Under the former law, the right of the Government to collect the tax does not
prescribe. However, in fairness to the taxpayer, the Government should be
estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and
where it failed to collect the tax within 5 years from the date of assessment
thereof. Just as the government is interested in the stability of its collections,
so also are the taxpayers entitled to an assurance that they will not be
subjected to further investigation for tax purposes after the expiration of a
reasonable period of time. (Vol. II, Report of the Tax Commission of the
Philippines, pp. 321-322).[17]
In a number of cases, this Court has also clarified that the statute of limitations
on the collection of taxes should benefit both the Government and the
taxpayers. In these cases, the Court further illustrated the harmful effects that
the delay in the assessment and collection of taxes inflicts upon taxpayers. In
Collector of Internal Revenue v. Suyoc Consolidated Mining Company,[18]
Justice Montemayor, in his dissenting opinion, identified the potential loss to
the taxpayer if the assessment and collection of taxes are not promptly made.
Prescription in the assessment and in the collection of taxes is provided by the
Legislature for the benefit of both the Government and the taxpayer; for the
Government for the purpose of expediting the collection of taxes, so that the
agency charged with the assessment and collection may not tarry too long or
indefinitely to the prejudice of the interests of the Government, which needs
taxes to run it; and for the taxpayer so that within a reasonable time after filing
his return, he may know the amount of the assessment he is required to pay,
whether or not such assessment is well founded and reasonable so that he
may either pay the amount of the assessment or contest its validity in court x
x x. It would surely be prejudicial to the interest of the taxpayer for the
Government collecting agency to unduly delay the assessment and the
collection because by the time the collecting agency finally gets around to
making the assessment or making the collection, the taxpayer may then have
lost his papers and books to support his claim and contest that of the
48
Government, and what is more, the tax is in the meantime accumulating
interest which the taxpayer eventually has to pay .
In Republic of the Philippines v. Ablaza,[19] this Court emphatically explained
that the statute of limitations of actions for the collection of taxes is justified by
the need to protect law-abiding citizens from possible harassment:
The law prescribing a limitation of actions for the collection of the income tax
is beneficial both to the Government and to its citizens; to the Government
because tax officers would be obliged to act promptly in the making of
assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax
agents who will always find an excuse to inspect the books of taxpayers, not
to determine the latters real liability, but to take advantage of every opportunity
to molest, peaceful, law-abiding citizens. Without such legal defense taxpayers
would furthermore be under obligation to always keep their books and keep
them open for inspection subject to harassment by unscrupulous tax agents.
The law on prescription being a remedial measure should be interpreted in a
way conducive to bringing about the beneficient purpose of affording protection
to the taxpayer within the contemplation of the Commission which
recommended the approval of the law.
And again in the recent case Bank of the Philippine Islands v. Commissioner
of Internal Revenue,[20] this Court, in confirming these earlier rulings,
pronounced that:
Though the statute of limitations on assessment and collection of national
internal revenue taxes benefits both the Government and the taxpayer, it
principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he
will no longer be subjected to further investigation for taxes after the expiration
of a reasonable period of time.
Thus, in Commissioner of Internal Revenue v. B.F. Goodrich,[21] this Court
affirmed that the law on prescription should be liberally construed in order to
protect taxpayers and that, as a corollary, the exceptions to the law on
prescription should be strictly construed.
The Tax Code of 1977, as amended, provides instances when the running of
the statute of limitations on the assessment and collection of national internal
revenue taxes could be suspended, even in the absence of a waiver, under
Section 271 thereof which reads:
Section 224. Suspension of running of statute. The running of the statute of
limitation provided in Sections 268 and 269 on the making of assessments and
the beginning of distraint or levy or a proceeding in court for collection in
respect of any deficiency, shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or beginning distraint
or levy or a proceeding in court and for sixty days thereafter; when the taxpayer
requests for a reinvestigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected x x x. (Emphasis supplied.)
Among the exceptions provided by the aforecited section, and invoked by the
CIR as a ground for this petition, is the instance when the taxpayer requests
for a reinvestigation which is granted by the Commissioner. However, this
exception does not apply to this case since the respondent never requested
for a reinvestigation. More importantly, the CIR could not have conducted a
reinvestigation where, as admitted by the CIR in its Petition, the respondent
refused to submit any new evidence.
Revenue Regulations No. 12-85, the Procedure Governing Administrative
Protests of Assessment of the Bureau of Internal Revenue, issued on 27
November 1985, defines the two types of protest, the request for
reconsideration and the request for reinvestigation, and distinguishes one from
the other in this manner:
Section 6. Protest. - The taxpayer may protest administratively an assessment
by filing a written request for reconsideration or reinvestigation specifying the
following particulars: x x x x
For the purpose of protest herein
(a) Request for reconsideration-- refers to a plea for a re-evaluation
of an assessment on the basis of existing records without need of additional
evidence. It may involve both a question of fact or of law or both.
(b) Request for reinvestigationrefers to a plea for re-evaluation of an
assessment on the basis of newly-discovered evidence or additional evidence
that a taxpayer intends to present in the investigation. It may also involve a
question of fact or law or both.
The main difference between these two types of protests lies in the records or
evidence to be examined by internal revenue officers, whether these are
49
existing records or newly discovered or additional evidence. A re-evaluation of
existing records which results from a request for reconsideration does not toll
the running of the prescription period for the collection of an assessed tax.
Section 271 distinctly limits the suspension of the running of the statute of
limitations to instances when reinvestigation is requested by a taxpayer and is
granted by the CIR. The Court provided a clear-cut rationale in the case of
Bank of the Philippine Islands v. Commissioner of Internal Revenue[22]
explaining why a request for reinvestigation, and not a request for
reconsideration, interrupts the running of the statute of limitations on the
collection of the assessed tax:
Undoubtedly, a reinvestigation, which entails the reception and evaluation of
additional evidence, will take more time than a reconsideration of a tax
assessment, which will be limited to the evidence already at hand; this justifies
why the former can suspend the running of the statute of limitations on
collection of the assessed tax, while the latter cannot.
In the present case, the separate letters of protest dated 6 May 1994 and 23
May 1994 are requests for reconsideration. The CIRs allegation that there was
a request for reinvestigation is inconceivable since respondent consistently
and categorically refused to submit new evidence and cooperate in any
reinvestigation proceedings. This much was admitted in the Decision dated 8
October 2002 issued by then CIR Guillermo Payarno, Jr.
In the said conference-hearing, Revenue Officer Alameda basically testified
that Philcom, despite repeated demands, failed to submit documentary
evidences in support of its claimed deductible expenses. Hence, except for the
item of interest expense which was disallowed for being not ordinary and
necessary, the rest of the claimed expenses were disallowed for non-
withholding. In the same token, Revenue Officer Escober testified that upon
his assignment to conduct the re-investigation, he immediately requested the
taxpayer to present various accounting records for the year 1990, in addition
to other documents in relation to the disallowed items (p.171). This was
followed by other requests for submission of documents (pp.199 &217) but
these were not heeded by the taxpayer. Essentially, he stated that Philcom did
not cooperate in his reinvestigation of the case.
In response to the testimonies of the Revenue Officers, Philcom thru Atty.
Consunji, emphasized that it was denied due process because of the issuance
of the Pre-Assessment Notice and the Assessment Notice on successive
dates. x x x Counsel for the taxpayer even questioned the propriety of the
conference-hearing inasmuch as the only question to resolved (sic) is the
legality of the issuance of the assessment. On the disallowed items, Philcom
thru counsel manifested that it has no intention to present documents and/or
evidences allegedly because of the pending legal question on the validity of
the assessment.[23]
Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes
a request for reconsideration and a request for reinvestigation, there have
been cases wherein these two terms were used interchangeably. But upon
closer examination, these cases all involved a reinvestigation that was
requested by the taxpayer and granted by the BIR.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,[24]
the Court weighed the considerable time spent by the BIR to actually conduct
the reinvestigations requested by the taxpayer in deciding that the prescription
period was suspended during this time.
Because of such requests, several reinvestigations were made and a hearing
was even held by the Conference Staff organized in the collection office to
consider claims of such nature which, as the record shows, lasted for several
months. After inducing petitioner to delay collection as he in fact did, it is most
unfair for respondent to now take advantage of such desistance to elude his
deficiency income tax liability to the prejudice of the Government invoking the
technical ground of prescription.
Although the Court used the term requests for reconsideration in reference to
the letters sent by the taxpayer in the case of Querol v. Collector of Internal
Revenue,[25] it took into account the reinvestigation conducted soon after
these letters were received and the revised assessment that resulted from the
reinvestigations.
It is true that the Collector revised the original assessment on February 9,
1955; and appellant avers that this revision was invalid in that it was not made
within the five-year prescriptive period provided by law (Collector vs. Pineda,
112 Phil. 321). But that fact is that the revised assessment was merely a result
of petitioner Querols requests for reconsideration of the original assessment,
contained in his letters of December 14, 1951 and May 25, 1953. The records
of the Bureau of Internal Revenue show that after receiving the letters, the
Bureau conducted a reinvestigation of petitioners tax liabilities, and, in fact,
sent a tax examiner to San Fernando, La Union, for that purpose; that because
of the examiners report, the Bureau revised the original assessment, x x x. In
other words, the reconsideration was granted in part, and the original
assessment was altered. Consequently, the period between the petition for
reconsideration and the revised assessment should be subtracted from the
total prescriptive period (Republic vs. Ablaza, 108 Phil 1105).
50
The Court, in Republic v. Lopez,[26] even gave a detailed accounting of the
time the BIR spent for each reinvestigation in order to deduct it from the five-
year period set at that time in the statute of limitations:
It is now a settled ruled in our jurisdiction that the five-year prescriptive period
fixed by Section 332(c) of the Internal Revenue Code within which the
Government may sue to collect an assessed tax is to be computed from the
last revised assessment resulting from a reinvestigation asked for by the
taxpayer and (2) that where a taxpayer demands a reinvestigation, the time
employed in reinvestigating should be deducted from the total period of
limitation. x x x x
The first reinvestigation was granted, and a reduced assessment issued on 29
May 1954, from which date the Government had five years for bringing an
action to collect.
The second reinvestigation was asked on 16 January 1956, and lasted until it
was decided on 22 April 1960, or a period of 4 years, 3 months, and 6 days,
during which the limitation period was interrupted.
The Court reiterated the ruling in Republic v. Lopez in the case of
Commissioner of Internal Revenue v. Sison,[27] that where a taxpayer
demands a reinvestigation, the time employed in reinvestigating should be
deducted from the total period of limitation. Finally, in Republic v. Arcache,[28]
the Court enumerated the reasons why the taxpayer is barred from invoking
the defense of prescription, one of which was that, In the first place, it appears
obvious that the delay in the collection of his 1946 tax liability was due to his
own repeated requests for reinvestigation and similarly repeated requests for
extension of time to pay.
In this case, the BIR admitted that there was no new or additional evidence
presented. Considering that the BIR issued its Preliminary Assessment Notice
on 13 April 1994 and its Formal Assessment Notice on 14 April 1994, just one
day before the three-year prescription period for issuing the assessment
expired on 15 April 1994, it had ample time to make a factually and legally well-
founded assessment. Added to the fact that the Final Decision that the CIR
issued on 8 October 2002 merely affirmed its earlier findings, whatever
examination that the BIR may have conducted cannot possibly outlast the
entire three-year prescriptive period provided by law to collect the assessed
tax, not to mention the eight years it actually took the BIR to decide the
respondents protest. The factual and legal issues involved in the assessment
are relatively simple, that is, whether certain income tax deductions should be
disallowed, mostly for failure to pay withholding taxes. Thus, there is no reason
to suspend the running of the statute of limitations in this case.
The distinction between a request for reconsideration and a request for
reinvestigation is significant. It bears repetition that a request for
reconsideration, unlike a request for reinvestigation, cannot suspend the
statute of limitations on the collection of an assessed tax. If both types of
protest can effectively interrupt the running of the statute of limitations, an
erroneous assessment may never prescribe. If the taxpayer fails to file a
protest, then the erroneous assessment would become final and
unappealable.[29] On the other hand, if the taxpayer does file the protest on a
patently erroneous assessment, the statute of limitations would automatically
be suspended and the tax thereon may be collected long after it was assessed.
Meanwhile the interest on the deficiencies and the surcharges continue to
accumulate. And for an unrestricted number of years, the taxpayers remain
uncertain and are burdened with the costs of preserving their books and
records. This is the predicament that the law on the statute of limitations seeks
to prevent.
The Court, in sustaining for the first time the suspension of the running of the
statute of limitations in cases where the taxpayer requested for a
reinvestigation, gave this justification:
A taxpayer may be prevented from setting up the defense of prescription even
if he has not previously waived it in writing as when by his repeated requests
or positive acts the Government has been, for good reasons, persuaded to
postpone collection to make him feel that the demand was not unreasonable
or that no harassment or injustice is meant by the Government. x x x x
This case has no precedent in this jurisdiction for it is the first time that such
has risen, but there are several precedents that may be invoked in American
jurisprudence. As Mr. Justice Cardozo has said: The applicable principle is
fundamental and unquestioned. He who prevents a thing from being done may
not avail himself of the nonperformance which he himself occasioned, for the
law says to him in effect this is your own act, and therefore you are not
damnified. (R.H. Stearns Co. v. U.S., 78 L. ed., 647). (Emphasis supplied.)[30]
This rationale is not applicable to the present case where the respondent did
nothing to prevent the BIR from collecting the tax. It did not present to the BIR
any new evidence for its re-evaluation. At the earliest opportunity, respondent
insisted that the assessment was invalid and made clear to the BIR its refusal
to produce documents that the BIR requested. On the other hand, the BIR also
communicated to the respondent its unwavering stance that its assessment is
correct. Given that both parties were at a deadlock, the next logical step would
have been for the BIR to issue a Decision denying the respondents protest and
to initiate proceedings for the collection of the assessed tax and, thus, allow
the respondent, should it so choose, to contest the assessment before the
51
CTA. Postponing the collection for eight long years could not possibly make
the taxpayer feel that the demand was not unreasonable or that no harassment
or injustice is meant by the Government. There was no legal, or even a moral,
obligation preventing the CIR from collecting the assessed tax. In a similar
case, Cordero v. Conda,[31] the Court did not suspend the running of the
prescription period where the acts of the taxpayer did not prevent the
government from collecting the tax.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed
en banc Decision of the CTA in CTA EB No. 37 dated 22 February 2005,
cancelling Assessment Notice No. 000688-80-7333 issued against Philippine
Global Communication, Inc. for its 1990 income tax deficiency for the reason
that it is barred by prescription, is hereby AFFIRMED. No costs.
SO ORDERED.

The government also urges that partial payment is acknowledgement of the

tax obligation, hence a waiver on the defense of prescription. But partial
payment would not prevent the government from suing the taxpayer. Because,
by such act of payment, the government is not thereby persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no
harassment or injustice is meant. Which, as stated in Collector v. Suyoc
Consolidated Mining Co., et al., L-11527, November 25, 1958, is the
underlying reason behind the rule that prescriptive period is arrested by the
taxpayers request for reexamination or reinvestigation even if he has not
previously waived it [prescription] in writing.

The Court reminds us, in the case of Commissioner of Internal Revenue v.

Algue, Inc., [32] of the need to balance the conflicting interests of the
government and the taxpayers.

Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently
conflicting interest of the authorities and the taxpayers so that the real purpose
of taxation, which is the promotion of common good, may be achieved.

Thus, the three-year statute of limitations on the collection of an assessed tax

provided under Section 269(c) of the Tax Code of 1977, a law enacted to
protect the interests of the taxpayer, must be given effect. In providing for
exceptions to such rule in Section 271, the law strictly limits the suspension of
the running of the prescription period to, among other instances, protests
wherein the taxpayer requests for a reinvestigation. In this case, where the
taxpayer merely filed two protest letters requesting for a reconsideration, and
where the BIR could not have conducted a reinvestigation because no new or
additional evidence was submitted, the running of statute of limitations cannot
be interrupted. The tax which is the subject of the Decision issued by the CIR
on 8 October 2002 affirming the Formal Assessment issued on 14 April 1994
can no longer be the subject of any proceeding for its collection. Consequently,
the right of the government to collect the alleged deficiency tax is barred by
prescription.

52
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
G.R. No. 120082 September 11, 1996
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of
the Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU,
represented by its Mayor HON. TOMAS R. OSMEÑA, and EUSTAQUIO B.
CESA, respondents.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on a pure question of law are
the decision of 22 March 19951 of the Regional Trial Court (RTC) of Cebu City,
Branch 20, dismissing the petition for declaratory relief in Civil Case No. CEB-
16900 entitled "Mactan Cebu International Airport Authority vs. City of Cebu",
and its order of 4, May 19952 denying the motion to reconsider the decision.
We resolved to give due course to this petition for its raises issues dwelling on
the scope of the taxing power of local government-owned and controlled
corporations.
The uncontradicted factual antecedents are summarized in the instant petition
as follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created
by virtue of Republic Act No. 6958, mandated to "principally undertake the
economical, efficient and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the Lahug Airport in
Cebu City, . . . and such other Airports as may be established in the Province
of Cebu . . . (Sec. 3, RA 6958). It is also mandated to:
a) encourage, promote and develop international and domestic air traffic
in the Central Visayas and Mindanao regions as a means of making the
regions centers of international trade and tourism, and accelerating the
development of the means of transportation and communication in the country;
and
b) upgrade the services and facilities of the airports and to formulate
internationally acceptable standards of airport accommodation and service.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance with Section 14 of its
Charter.
Sec. 14. Tax Exemptions. — The authority shall be exempt from realty
taxes imposed by the National Government or any of its political subdivisions,
agencies and instrumentalities . . .
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge,
Office of the Treasurer of the City of Cebu, demanded payment for realty taxes
on several parcels of land belonging to the petitioner (Lot Nos. 913-G, 743, 88
SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77
Psd., 746 and 991-A), located at Barrio Apas and Barrio Kasambagan, Lahug,
Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified,
claiming in its favor the aforecited Section 14 of RA 6958 which exempt it from
payment of realty taxes. It was also asserted that it is an instrumentality of the
government performing governmental functions, citing section 133 of the Local
Government Code of 1991 which puts limitations on the taxing powers of local
government units:
Sec. 133. Common Limitations on the Taxing Powers of Local
Government Units. — Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangay shall not
extend to the levy of the following:
a) ...xxx xxx xxx
o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units. (Emphasis
supplied)
Respondent City refused to cancel and set aside petitioner's realty tax account,
insisting that the MCIAA is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of
the Local Governmental Code that took effect on January 1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege. — 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 RA No. 6938, non-stock, and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.
(Emphasis supplied) xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes. — . . .
(a) ...xxx xxx xxx
(c) ...
53
Except as provided herein, any exemption from payment of real property tax
previously granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
As the City of Cebu was about to issue a warrant of levy against the properties
of petitioner, the latter was compelled to pay its tax account "under protest"
and thereafter filed a Petition for Declaratory Relief with the Regional Trial
Court of Cebu, Branch 20, on December 29, 1994. MCIAA basically contended
that the taxing powers of local government units do not extend to the levy of
taxes or fees of any kind on an instrumentality of the national government.
Petitioner insisted that while it is indeed a government-owned corporation, it
nonetheless stands on the same footing as an agency or instrumentality of the
national government. Petitioner insisted that while it is indeed a government-
owned corporation, it nonetheless stands on the same footing as an agency or
instrumentality of the national government by the very nature of its powers and
functions.
Respondent City, however, asserted that MACIAA is not an instrumentality of
the government but merely a government-owned corporation performing
proprietary functions As such, all exemptions previously granted to it were
deemed withdrawn by operation of law, as provided under Sections 193 and
234 of the Local Government Code when it took effect on January 1, 1992.3
The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995,4 the trial court dismissed the petition in light
of its findings, to wit:
A close reading of the New Local Government Code of 1991 or RA 7160
provides the express cancellation and withdrawal of exemption of taxes by
government owned and controlled corporation per Sections after the effectivity
of said Code on January 1, 1992, to wit: [proceeds to quote Sections 193 and
234]
Petitioners claimed that its real properties assessed by respondent City
Government of Cebu are exempted from paying realty taxes in view of the
exemption granted under RA 6958 to pay the same (citing Section 14 of RA
6958).
However, RA 7160 expressly provides that "All general and special laws, acts,
city charters, decress [sic], executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified accordingly." ([f],
Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state that the tax
exemption provided for in RA 6958 creating petitioner had been expressly
repealed by the provisions of the New Local Government Code of 1991.
So that petitioner in this case has to pay the assessed realty tax of its
properties effective after January 1, 1992 until the present.
This Court's ruling finds expression to give impetus and meaning to the overall
objectives of the New Local Government Code of 1991, RA 7160. "It is hereby
declared the policy of the State that the territorial and political subdivisions of
the State shall enjoy genuine and meaningful local autonomy to enable them
to attain their fullest development as self-reliant communities and make them
more effective partners in the attainment of national goals. Towards this end,
the State shall provide for a more responsive and accountable local
government structure instituted through a system of decentralization whereby
local government units shall be given more powers, authority, responsibilities,
and resources. The process of decentralization shall proceed from the national
government to the local government units. . . .5
Its motion for reconsideration having been denied by the trial court in its 4 May
1995 order, the petitioner filed the instant petition based on the following
assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE
PETITIONER IS VESTED WITH GOVERNMENT POWERS AND
FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN
INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS
LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a
government-owned or controlled corporation it is mandated to perform
functions in the same category as an instrumentality of Government. An
instrumentality of Government is one created to perform governmental
functions primarily to promote certain aspects of the economic life of the
people.6 Considering its task "not merely to efficiently operate and manage
the Mactan-Cebu International Airport, but more importantly, to carry out the
Government policies of promoting and developing the Central Visayas and
Mindanao regions as centers of international trade and tourism, and
accelerating the development of the means of transportation and
communication in the country,"7 and that it is an attached agency of the
Department of Transportation and Communication (DOTC),8 the petitioner
"may stand in [sic] the same footing as an agency or instrumentality of the
54
national government." Hence, its tax exemption privilege under Section 14 of
its Charter "cannot be considered withdrawn with the passage of the Local
Government Code of 1991 (hereinafter LGC) because Section 133 thereof
specifically states that the taxing powers of local government units shall not
extend to the levy of taxes of fees or charges of any kind on the national
government its agencies and instrumentalities."
As to the second assigned error, the petitioner contends that being an
instrumentality of the National Government, respondent City of Cebu has no
power nor authority to impose realty taxes upon it in accordance with the
aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine
Amusement and Gaming Corporation;9
Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation with
an original character, PD 1869. All its shares of stock are owned by the
National Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter
joke is governmental, which places it in the category of an agency or
instrumentality of the Government. Being an instrumentality of the
Government, PAGCOR should be and actually is exempt from local taxes.
Otherwise, its operation might be burdened, impeded or subjected to control
by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden
or in any manner control the operation of constitutional laws enacted by
Congress to carry into execution the powers vested in the federal government.
(McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579).
This doctrine emanates from the "supremacy" of the National Government
over local government.
Justice Holmes, speaking for the Supreme Court, make references to the
entire absence of power on the part of the States to touch, in that way (taxation)
at least, the instrumentalities of the United States (Johnson v. Maryland, 254
US 51) and it can be agreed that no state or political subdivision can regulate
a federal instrumentality in such a way as to prevent it from consummating its
federal responsibilities, or even to seriously burden it in the accomplishment
of them. (Antieau Modern Constitutional Law, Vol. 2, p. 140)
Otherwise mere creature of the State can defeat National policies thru
extermination of what local authorities may perceive to be undesirable
activities or enterprise using the power to tax as "a toll for regulation" (U.S. v.
Sanchez, 340 US 42). The power to tax which was called by Justice Marshall
as the "power to destroy" (McCulloch v. Maryland, supra) cannot be allowed
to defeat an instrumentality or creation of the very entity which has the inherent
power to wield it. (Emphasis supplied)
It then concludes that the respondent Judge "cannot therefore correctly say
that the questioned provisions of the Code do not contain any distinction
between a governmental function as against one performing merely
proprietary ones such that the exemption privilege withdrawn under the said
Code would apply to all government corporations." For it is clear from Section
133, in relation to Section 234, of the LGC that the legislature meant to exclude
instrumentalities of the national government from the taxing power of the local
government units.
In its comment respondent City of Cebu alleges that as local a government
unit and a political subdivision, it has the power to impose, levy, assess, and
collect taxes within its jurisdiction. Such power is guaranteed by the
Constitution10 and enhanced further by the LGC. While it may be true that
under its Charter the petitioner was exempt from the payment of realty
taxes,11 this exemption was withdrawn by Section 234 of the LGC. In
response to the petitioner's claim that such exemption was not repealed
because being an instrumentality of the National Government, Section 133 of
the LGC prohibits local government units from imposing taxes, fees, or
charges of any kind on it, respondent City of Cebu points out that the petitioner
is likewise a government-owned corporation, and Section 234 thereof does not
distinguish between government-owned corporation, and Section 234 thereof
does not distinguish between government-owned corporation, and Section
234 thereof does not distinguish between government-owned or controlled
corporations performing governmental and purely proprietary functions.
Respondent city of Cebu urges this the Manila International Airport Authority
is a governmental-owned corporation, 12 and to reject the application of Basco
because it was "promulgated . . . before the enactment and the singing into
law of R.A. No. 7160," and was not, therefore, decided "in the light of the spirit
and intention of the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited
in its range, acknowledging in its very nature no limits, so that security against
its abuse is to be found only in the responsibility of the legislature which
imposes the tax on the constituency who are to pay it. Nevertheless, effective
limitations thereon may be imposed by the people through their
Constitutions.13 Our Constitution, for instance, provides that the rule of
taxation shall be uniform and equitable and Congress shall evolve a
progressive system of taxation.14 So potent indeed is the power that it was
once opined that "the power to tax involves the power to destroy."15 Verily,
taxation is a destructive power which interferes with the personal and property
for the support of the government. Accordingly, tax statutes must be construed
55
strictly against the government and liberally in favor of the taxpayer.16 But
since taxes are what we pay for civilized society,17 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 taxpayers and
liberally in favor of the taxing authority.18 A claim of exemption from tax
payment must be clearly shown and based on language in the law too plain to
be mistaken.19 Elsewise stated, taxation is the rule, exemption therefrom is
the exception.20 However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction does not apply
because the practical effect of the exemption is merely to reduce the amount
of money that has to be handled by the government in the course of its
operations.21
The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely
by virtue of a valid delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution.22 Under the latter, the
exercise of the power may be subject to such guidelines and limitations as the
Congress may provide which, however, must be consistent with the basic
policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the petitioner
is exempt from the payment of realty taxes imposed by the National
Government or any of its political subdivisions, agencies, and instrumentalities.
Nevertheless, since taxation is the rule and exemption therefrom the
exception, the exemption may thus be withdrawn at the pleasure of the taxing
authority. The only exception to this rule is where the exemption was granted
to private parties based on material consideration of a mutual nature, which
then becomes contractual and is thus covered by the non-impairment clause
of the Constitution.23
The LGC, enacted pursuant to Section 3, Article X of the constitution provides
for the exercise by local government units of their power to tax, the scope
thereof or its limitations, and the exemption from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing
powers of local government units as follows:
Sec. 133. Common Limitations on the Taxing Power of Local
Government Units. — Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial
institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts, legacies and other acquisitions
mortis causa, except as otherwise provided herein
(d) Customs duties, registration fees of vessels and wharfage on
wharves, tonnage dues, and all other kinds of customs fees charges and dues
except wharfage on wharves constructed and maintained by the local
government unit concerned:
(e) Taxes, fees and charges and other imposition upon goods carried into
or out of, or passing through, the territorial jurisdictions of local government
units in the guise or charges for wharfages, tolls for bridges or otherwise, or
other taxes, fees or charges in any form whatsoever upon such goods or
merchandise;
(f) Taxes fees or charges on agricultural and aquatic products when sold
by marginal farmers or fishermen;
(g) Taxes on business enterprise certified to be the Board of Investment
as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively
from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on petroleum
products;
(i) Percentage or value added tax (VAT) on sales, barters or exchanges
or similar transactions on goods or services except as otherwise provided
herein;
(j) Taxes on the gross receipts of transportation contractor and person
engage in the transportation of passengers of freight by hire and common
carriers by air, land, or water, except as provided in this code;
(k) Taxes on premiums paid by ways reinsurance or retrocession;
(l) Taxes, fees, or charges for the registration of motor vehicles and for
the issuance of all kinds of licenses or permits for the driving of thereof, except,
tricycles;
(m) Taxes, fees, or other charges on Philippine product actually exported,
except as otherwise provided herein;
56
(n) Taxes, fees, or charges, on Countryside and Barangay Business
Enterprise and Cooperatives duly registered under R.A. No. 6810 and
Republic Act Numbered Sixty nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperative Code of the Philippines; and
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL
GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL
GOVERNMENT UNITS. (emphasis supplied)
Needless to say the last item (item o) is pertinent in this case. The "taxes, fees
or charges" referred to are "of any kind", hence they include all of these, unless
otherwise provided by the LGC. The term "taxes" is well understood so as to
need no further elaboration, especially in the light of the above enumeration.
The term "fees" means charges fixed by law or Ordinance for the regulation or
inspection of business activity,24 while "charges" are pecuniary liabilities such
as rents or fees against person or property.25
Among the "taxes" enumerated in the LGC is real property tax, which is
governed by Section 232. It reads as follows:
Sec. 232. Power to Levy Real Property Tax. — A province or city or a
municipality within the Metropolitan Manila Area may levy on an annual ad
valorem tax on real property such as land, building, machinery and other
improvements not hereafter specifically exempted.
Section 234 of LGC provides for the exemptions from payment of real property
taxes and withdraws previous exemptions therefrom granted to natural and
juridical persons, including government owned and controlled corporations,
except as provided therein. It provides:
Sec. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof had been granted,
for reconsideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenants thereto, mosques nonprofits or religious cemeteries and all
lands, building and improvements actually, directly, and exclusively used for
religious charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or controlled
corporations engaged in the supply and distribution of water and/or generation
and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided
for under R.A. No. 6938; and;
(e) Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemptions from payment of real property tax
previously granted to or presently enjoyed by, all persons whether natural or
juridical, including all government owned or controlled corporations are hereby
withdrawn upon the effectivity of his Code.
These exemptions are based on the ownership, character, and use of the
property. Thus;
(a) Ownership Exemptions. Exemptions from real property taxes on the
basis of ownership are real properties owned by: (i) the Republic, (ii) a
province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered
cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the
basis of their character are: (i) charitable institutions, (ii) houses and temples
of prayer like churches, parsonages or convents appurtenant thereto,
mosques, and (iii) non profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the
basis of the actual, direct and exclusive use to which they are devoted are: (i)
all lands buildings and improvements which are actually, directed and
exclusively used for religious, charitable or educational purpose; (ii) all
machineries and equipment actually, directly and exclusively used or by local
water districts or by government-owned or controlled corporations engaged in
the supply and distribution of water and/or generation and transmission of
electric power; and (iii) all machinery and equipment used for pollution control
and environmental protection.
To help provide a healthy environment in the midst of the modernization of the
country, all machinery and equipment for pollution control and environmental
protection may not be taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions previously
granted to natural or juridical persons including government-owned or
controlled corporations are withdrawn upon the effectivity of the Code.26
57
Section 193 of the LGC is the general provision on withdrawal of tax exemption
privileges. It provides:
Sec. 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. 6938, non stock and non profit hospitals and
educational constitutions, are hereby withdrawn upon the effectivity of this
Code.
On the other hand, the LGC authorizes local government units to grant tax
exemption privileges. Thus, Section 192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption Privileges. — Local
government units may, through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and conditions as they may
deem necessary.
The foregoing sections of the LGC speaks of: (a) the limitations on the taxing
powers of local government units and the exceptions to such limitations; and
(b) the rule on tax exemptions and the exceptions thereto. The use of
exceptions of provisos in these section, as shown by the following clauses:
(1) "unless otherwise provided herein" in the opening paragraph of
Section 133;
(2) "Unless otherwise provided in this Code" in section 193;
(3) "not hereafter specifically exempted" in Section 232; and
(4) "Except as provided herein" in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in section 133 seems to be inaccurately worded.
Instead of the clause "unless otherwise provided herein," with the "herein" to
mean, of course, the section, it should have used the clause "unless otherwise
provided in this Code." The former results in absurdity since the section itself
enumerates what are beyond the taxing powers of local government units and,
where exceptions were intended, the exceptions were explicitly indicated in
the text. For instance, in item (a) which excepts the income taxes "when livied
on banks and other financial institutions", item (d) which excepts "wharfage on
wharves constructed and maintained by the local government until
concerned"; and item (1) which excepts taxes, fees, and charges for the
registration and issuance of license or permits for the driving of "tricycles". It
may also be observed that within the body itself of the section, there are
exceptions which can be found only in other parts of the LGC, but the section
interchangeably uses therein the clause "except as otherwise provided herein"
as in items (c) and (i), or the clause "except as otherwise provided herein" as
in items (c) and (i), or the clause "excepts as provided in this Code" in item (j).
These clauses would be obviously unnecessary or mere surplus-ages if the
opening clause of the section were" "Unless otherwise provided in this Code"
instead of "Unless otherwise provided herein". In any event, even if the latter
is used, since under Section 232 local government units have the power to
levy real property tax, except those exempted therefrom under Section 234,
then Section 232 must be deemed to qualify Section 133.
Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that
as a general rule, as laid down in Section 133 the taxing powers of local
government units cannot extend to the levy of inter alia, "taxes, fees, and
charges of any kind of the National Government, its agencies and
instrumentalties, and local government units"; however, pursuant to Section
232, provinces, cities, municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, "real property owned by the
Republic of the Philippines or any of its political subdivisions except when the
beneficial used thereof has been granted, for consideration or otherwise, to a
taxable person", as provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural
or juridical persons, including government-owned and controlled corporations,
Section 193 of the LGC prescribes the general rule, viz., they are withdrawn
upon the effectivity of the LGC, except upon the effectivity of the LGC, except
those granted to local water districts, cooperatives duly registered under R.A.
No. 6938, non stock and non-profit hospitals and educational institutions, and
unless otherwise provided in the LGC. The latter proviso could refer to Section
234, which enumerates the properties exempt from real property tax. But the
last paragraph of Section 234 further qualifies the retention of the exemption
in so far as the real property taxes are concerned by limiting the retention only
to those enumerated there-in; all others not included in the enumeration lost
the privilege upon the effectivity of the LGC. Moreover, even as the real
property is owned by the Republic of the Philippines, or any of its political
subdivisions covered by item (a) of the first paragraph of Section 234, the
exemption is withdrawn if the beneficial use of such property has been granted
to taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from real property taxes granted to natural
or juridical persons, including government-owned or controlled corporations,
except as provided in the said section, and the petitioner is, undoubtedly, a
government-owned corporation, it necessarily follows that its exemption from
58
such tax granted it in Section 14 of its charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner can
seek refuge under any of the exceptions provided in Section 234, but not under
Section 133, as it now asserts, since, as shown above, the said section is
qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133
that the taxing powers of the local government units cannot extend to the levy
of:
(o) taxes, fees, or charges of any kind on the National Government, its
agencies, or instrumentalities, and local government units.
I must show that the parcels of land in question, which are real property, are
any one of those enumerated in Section 234, either by virtue of ownership,
character, or use of the property. Most likely, it could only be the first, but not
under any explicit provision of the said section, for one exists. In light of the
petitioner's theory that it is an "instrumentality of the Government", it could only
be within be first item of the first paragraph of the section by expanding the
scope of the terms Republic of the Philippines" to embrace . . . . . .
"instrumentalities" and "agencies" or expediency we quote:
(a) real property owned by the Republic of the Philippines, or any of the
Philippines, or any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person.
This view does not persuade us. In the first place, the petitioner's claim that it
is an instrumentality of the Government is based on Section 133(o), which
expressly mentions the word "instrumentalities"; and in the second place it fails
to consider the fact that the legislature used the phrase "National Government,
its agencies and instrumentalities" "in Section 133(o),but only the phrase
"Republic of the Philippines or any of its political subdivision "in Section 234(a).
The terms "Republic of the Philippines" and "National Government" are not
interchangeable. The former is boarder and synonymous with "Government of
the Republic of the Philippines" which the Administrative Code of the 1987
defines as the "corporate governmental entity though which the functions of
the government are exercised through at the Philippines, including, saves as
the contrary appears from the context, the various arms through which political
authority is made effective in the Philippines, whether pertaining to the
autonomous reason, the provincial, city, municipal or barangay subdivision or
other forms of local government."27 These autonomous regions, provincial,
city, municipal or barangay subdivisions" are the political subdivision.28
On the other hand, "National Government" refers "to the entire machinery of
the central government, as distinguished from the different forms of local
Governments."29 The National Government then is composed of the three
great departments the executive, the legislative and the judicial.30
An "agency" of the Government refers to "any of the various units of the
Government, including a department, bureau, office instrumentality, or
government-owned or controlled corporation, or a local government or a
distinct unit therein;"31 while an "instrumentality" refers to "any agency of the
National Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational
autonomy; usually through a charter. This term includes regulatory agencies,
chartered institutions and government-owned and controlled corporations".32
If Section 234(a) intended to extend the exception therein to the withdrawal of
the exemption from payment of real property taxes under the last sentence of
the said section to the agencies and instrumentalities of the National
Government mentioned in Section 133(o), then it should have restated the
wording of the latter. Yet, it did not Moreover, that Congress did not wish to
expand the scope of the exemption in Section 234(a) to include real property
owned by other instrumentalities or agencies of the government including
government-owned and controlled corporations is further borne out by the fact
that the source of this exemption is Section 40(a) of P.D. No. 646, otherwise
known as the Real Property Tax Code, which reads:
Sec 40. Exemption from Real Property Tax. — The exemption shall be as
follows:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions and any government-owned or controlled corporations so
exempt by is charter: Provided, however, that this exemption shall not apply to
real property of the above mentioned entities the beneficial use of which has
been granted, for consideration or otherwise, to a taxable person.
Note that as a reproduced in Section 234(a), the phrase "and any government-
owned or controlled corporation so exempt by its charter" was excluded. The
justification for this restricted exemption in Section 234(a) seems obvious: to
limit further tax exemption privileges, specially in light of the general provision
on withdrawal of exemption from payment of real property taxes in the last
paragraph of property taxes in the last paragraph of Section 234. These policy
considerations are consistent with the State policy to ensure autonomy to local
governments33 and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development
as self-reliant communities and make them effective partners in the attainment
59
of national goals.34 The power to tax is the most effective instrument to raise
needed revenues to finance and support myriad activities of local government
units for the delivery of basic services essential to the promotion of the general
welfare and the enhancement of peace, progress, and prosperity of the people.
It may also be relevant to recall that the original reasons for the withdrawal of
tax exemption privileges granted to government-owned and controlled
corporations and all other units of government were that such privilege resulted
in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises, and there was a need for this entities to share in the
requirements of the development, fiscal or otherwise, by paying the taxes and
other charges due from them.35
The crucial issues then to be addressed are: (a) whether the parcels of land in
question belong to the Republic of the Philippines whose beneficial use has
been granted to the petitioner, and (b) whether the petitioner is a "taxable
person".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All
existing public airport facilities, runways, lands, buildings and other properties,
movable or immovable, belonging to or presently administered by the airports,
and all assets, powers, rights, interests and privileges relating on airport works,
or air operations, including all equipment which are necessary for the
operations of air navigation, acrodrome control towers, crash, fire, and rescue
facilities are hereby transferred to the Authority: Provided however, that the
operations control of all equipment necessary for the operation of radio aids to
air navigation, airways communication, the approach control office, and the
area control center shall be retained by the Air Transportation Office. No
equipment, however, shall be removed by the Air Transportation Office from
Mactan without the concurrence of the authority. The authority may assist in
the maintenance of the Air Transportation Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan
International AirPort in the Province of Cebu",36 which belonged to the
Republic of the Philippines, then under the Air Transportation Office (ATO).37
It may be reasonable to assume that the term "lands" refer to "lands" in Cebu
City then administered by the Lahug Air Port and includes the parcels of land
the respondent City of Cebu seeks to levy on for real property taxes. This
section involves a "transfer" of the "lands" among other things, to the petitioner
and not just the transfer of the beneficial use thereof, with the ownership being
retained by the Republic of the Philippines.
This "transfer" is actually an absolute conveyance of the ownership thereof
because the petitioner's authorized capital stock consists of, inter alia "the
value of such real estate owned and/or administered by the airports."38 Hence,
the petitioner is now the owner of the land in question and the exception in
Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a "taxable person"
under its Charter. It was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax is conclusive proof
of the legislative intent to make it a taxable person subject to all taxes, except
real property tax.
Finally, even if the petitioner was originally not a taxable person for purposes
of real property tax, in light of the forgoing disquisitions, it had already become
even if it be conceded to be an "agency" or "instrumentality" of the
Government, a taxable person for such purpose in view of the withdrawal in
the last paragraph of Section 234 of exemptions from the payment of real
property taxes, which, as earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance on
Basco vs. Philippine Amusement and Gaming Corporation39 is unavailing
since it was decided before the effectivity of the LGC. Besides, nothing can
prevent Congress from decreeing that even instrumentalities or agencies of
the government performing governmental functions may be subject to tax.
Where it is done precisely to fulfill a constitutional mandate and national policy,
no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision and
order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-
16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
60
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
[G.R. No. 127708. March 25, 1999]
CITY GOVERNMENT OF SAN PABLO, LAGUNA, CITY TREASURER OF
SAN PABLO, LAGUNA, and THE SANGGUNIANG PANGLUNSOD
OF SAN PABLO, LAGUNA, petitioners, vs. HONORABLE
BIENVENIDO V. REYES, in his capacity as Presiding Judge, Regional
Trial Court, Branch 29, San Pablo City and the MANILA ELECTRIC
COMPANY, respondents.
SYNOPSIS
This is a petition for review under Rule 45 of the Revised Rules of Court assailing the
decision of the Regional Trial Court of San Pablo City declaring the imposition of
franchise tax under Section 2.09 Article D of Ordinance No. 56, otherwise known as
the Revenue Code of the City of San Pablo as ineffective and void insofar as private
respondent is concerned for being violative of Act No. 3648, Republic Act No. 2340
and PD 551. The RTC also granted private respondents claim for refund of franchise
taxes paid under protest.
Petitioners position was that RA 7160, The Local Government Code of 1991 (LGC),
expressly repealed Act No. 3648, RA No. 2340 and PD 551, and that pursuant to the
provisions of Sections 137 and 193 of the Local Government Code, the province or
city now has the power to impose a franchise tax on a business enjoying a franchise.
On the other hand, private respondent invoked the non-impairment clause of the
Constitution to justify its exemption from local tax.
The Supreme Court reversed and set aside the decision of the trial court. Petitioners
correctly relied on the provisions of Sections 137 and 193 of the LGC to support their
position that private respondents exemption has been withdrawn. The explicit
language of Section 137 which authorizes the province to impose franchise tax
notwithstanding any exemption granted by any law or other special law is all
encompassing and clear. The franchise tax is imposable despite any exemption
enjoyed under special laws. Moreover, Section 193 buttresses the withdrawal of extant
tax exemption privileges. Thus, in the absence of any provision of the Code to the
contrary, and which the Court found no other provision in point, private respondents
tax exemption privileges under existing law was clearly intended to be withdrawn.
Reading together Sections 137 and 193 of the LGC, the Court concluded that under
the LGC, the local government unit may now impose a local tax at a rate not exceeding
50% of 1% of the gross annual receipts for the preceding calendar year based on the
incoming receipts realized within its territorial jurisdiction.
Private respondents invocation of the non-impairment clause of the Constitution was
unavailing. Under the 1935, the 1973 and the 1987 Constitutions, no franchise or right
shall be granted except under the condition that it shall be subject to amendment,
alteration or repeal by the National Assembly when the public interest so requires.
With or without the reservation clause, franchises are subject to alterations through a
reasonable exercise of the police power. They are also subject to alteration by the
power to tax, which like police power cannot be contracted away.
SYLLABUS
1. POLITICAL LAW; PUBLIC CORPORATIONS; LOCAL GOVERNMENT
CODE; SECTION 534(f) THEREOF; PARTAKES OF THE NATURE OF
GENERAL REPEALING CLAUSE. -- Section 534 (f), the repealing clause of the
LGC, provides that all general and special laws, acts, city charters, decrees, executive
orders, proclamations and administrative regulations or parts thereof which are
inconsistent with any of the provisions of the Code are hereby repealed or modified
accordingly. This clause partakes of the nature of a general repealing clause. It is
certainly not an express repealing clause because it fails to designate the specific act
or acts identified by number or title, that are intended to be repealed.
2. ID.; ID.; ID.; SECTION 137 AND 193 THEREOF; TAX EXEMPTION
PRIVILEGES CONSIDERED WITHDRAWN UPON EFFECTIVITY THEREOF;
EXCEPTIONS; TAX EXEMPTIONS ENJOYED BY MERALCO CONSIDERED
WITHDRAWN; CASE AT BAR. -- It is our view that petitioners correctly rely on the
provisions of Section 137 and 193 of the LGC to support their position that
MERALCO's tax exemption has been withdrawn. The explicit language of Section
137 which authorizes the province to impose franchise tax notwithstanding any
exemption granted by any law or other special law is well-encompassing and clear.
The franchise tax is imposable despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating
that 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 1) local water districts, 2) cooperatives duly
registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of this code, the obvious import is to
limit the exemptions to the three enumerated entities. 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 exlcusio
alterius. In the absence of any provision of the Code to the contrary, and we find no
other provision in point, any existing tax exemption or incentive enjoyed by
MERALCO under existing law was clearly intended to be withdrawn.
3. ID.; ID.; ID.; ID.; LOCAL GOVERNMENT UNIT ALLOWED TO IMPOSE A
LOCAL TAX AT A RATE NOT EXCEEDING 50% OF 1% OF THE GROSS
61
ANNUAL RECEIPTS. -- Reading together Sections 137 and 193 of the LGC, we
conclude that under the LGC the local government unit may now impose a local tax at
a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar
year based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or charter is
clearly manifested by the language used in Sections 137 and 193 categorically
withdrawing such exemption subject only to the exceptions enumerated. Since it
would be not only tedious and impractical to attempt to enumerate all the existing
statutes providing for special tax exemptions or privileges, the LGC provided for an
express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used.
4. ID.; ID;; ID.; ID.; PHRASE SHALL BE IN LIEU OF ALL TAXES FOUND IN
SPECIAL FRANCHISES HAVE TO GIVE WAY TO THE PEREMPTORY
LANGUAGE THEREOF WITHDRAWING TAX EXEMPTION PRIVILEGES. -- It
is true that the phrase in lieu of all taxes found in special franchises has been held in
several cases to exempt the franchise holder from payment of tax on its corporate
franchise imposed by the Internal Revenue Code, as the charter is in the nature of a
private contract and the exemption is part of the inducement for the acceptance of the
franchise, and that the imposition of another franchise tax by the local authority would
constitute an impairment of contract between the government and the corporation. But
these magic words contained in the phrase shall be in lieu of all taxes have to give way
to the peremptory language of the LGC specifically providing for the withdrawal of
such exemption privileges. Accordingly in Mactan Cebu International Airport
Authority vs. Marcos, this Court held that Section 193 of the LGC prescribes the
general rule, viz., the tax exemptions or incentives granted to or presently enjoyed by
natural or juridical persons are withdrawn upon the effectivity of the LGC except with
respect to those entities expressly enumerated. In the same vein, We must hold that
the express withdrawal upon effectivity of the LGC of all exemptions only as provided
therein, can no longer be invoked by Meralco to disclaim liability for the local tax.
5. CONSTITUTIONAL LAW; BILL OF RIGHTS; NON-IMPAIRMENT CLAUSE;
CANNOT BE INVOKED TO UPHOLD MERALCO'S EXEMPTION FROM
LOCAL TAX; FRANCHISES SUBJECT TO ALTERATION THROUGH
REASONABLE EXERCISE OF THE POLICE POWER AND THE POWER TO
TAX. -- Private respondent's invocation of the non-impairment clause of the
Constitution is accordingly unavaling. The LGC was enacted in pursuance of the
constitutional policy to ensure autonomy to local governments and to enable them to
attain fullest development as self-reliant communities. There is further basis for the
conclusion that the non-impairment of contract clause cannot be invoked to uphold
Meralco's exemption from the local tax. Escudero Electric Co. was originally given
the legislative franchise under Act. 3648 to operate an electric light and power system
in the City of San Pablo and nearby municipalities. The term of the franchise under
Act No. 3648 is a period of fifty years from the Act's approval in 1929. The said law
provided that the franchise is granted upon the condition that it shall be subject to
amendment, or repeal by the Congress of the United States. Under the 1935, the 1973
and the 1987 Constitutions, no franchise or right shall be granted except under the
condition that it shall be subject to amendment, alteration or repeal by the National
Assembly when the public interest so requires. With or without the reservation clause,
franchises are subject to alterations through a reasonable exercise of the police power;
they are also subject to alteration by the power to tax, which like police power cannot
be contracted away.
6. STATUTORY CONSTRUCTION; IN INTERPRETING STATUTORY
PROVISIONS ON MUNICIPAL FISCAL POWERS, DOUBTS SHOULD BE
RESOLVED IN FAVOR OF MUNICIPAL CORPORATIONS. -- The power to tax is
primarily vested in Congress. However, in our jurisdiction, it may be exercised by
local legislative bodies, no longer merely by virtue of a valid delegation as before, but
pursuant to direct authority conferred by Section 5, Article X of the Constitution. The
important legal effect of Section 5 is that henceforth, in interpreting statutory
provisions on municipal fiscal powers, doubts will have to resolved in favor of
municipal corporations.
7. ID.; GENERAL LAW; CANNOT BE CONSTRUED TO HAVE REPEALED A
SPECIAL LAW BY MERE IMPLICATION UNLESS INTENT TO REPEAL IS
MANIFEST. -- We are mindful of the established rule that repeals by implication are
not favored as laws are presumed to be passed with deliberation and full knowledge of
all laws existing on the subject. A general law cannot be construed to have repealed a
special law by mere implication unless the intent to repeal or alter is manifest and it
must be convincingly demonstrated that the two laws are so clearly repugnant and
patently inconsistent that they cannot co-exist.
DECISION
GONZAGA-REYES, J.:
This is a petition under Rule 45 of the Rules of Court to review on a pure question
of law the decision of the Regional Trial Court (RTC) of San Pablo City, Branch 29 in
Civil Case No. SP-4459(96), entitled Manila Electric Company vs. City of San Pablo,
Laguna, City Treasurer of San Pablo Laguna, and the Sangguniang Panglunsod of San
Pablo City, Laguna. The RTC declared the imposition of franchise tax under Section
2.09 Article D of Ordinance No. 56 otherwise known as the Revenue Code of the City
of San Pablo as ineffective and void insofar as the respondent MERALCO is
concerned for being violative of Act No. 3648, Republic Act No. 2340 and PD
551. The RTC also granted MERALCOS claim for refund of franchise taxes paid
under protest.
The following antecedent facts are undisputed:
62
 Act No. 3648 granted the Escudero Electric Services Company, a legislative
franchise to maintain and operate an electric light and power system in the City of San
Pablo and nearby municipalities Section 10 of Act No. 3648 provides:
x x x In consideration of the franchise and rights hereby granted, the grantee shall pay
unto the municipal treasury of each municipality in which it is supplying electric
current to the public under this franchise, a tax equal to two percentum of the gross
earnings from electric current sold or supplied under this franchise in each said
municipality. Said tax shall be due and payable quarterly and shall be in lieu of any
and all taxes of any kind, nature or description levied, established or collected by any
authority whatsoever, municipal, provincial or insular, now or in the future, on its
poles, wires, insulators, switches, transformers, and structures, installations,
conductors, and accessories place in and over and under all public property, including
public streets and highways, provincial roads, bridges and public squares, and on its
franchise, rights, privileges, receipts, revenues and profits from which taxes the
grantee is hereby expressly exempted.
Escuderos franchise was transferred to the plaintiff (herein respondent)
MERALCO under Republic Act No. 2340.
Presidential Decree No. 551 was enacted on September 11, 1974. Section 1
thereof provides the following:
Section 1. Any provision of law or local ordinance to the contrary notwithstanding, the
franchise tax payable by all grantees of franchise to generate, distribute and sell electric
current for light, heat and power shall be two percent (2%) of their gross receipts
received from the sale of electric current and from transactions incident to the
generation, distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his
duly authorized representative on or before the twentieth day of the month following
the end of each calendar quarter or month as may be provided in the respective
franchise or pertinent municipal regulation and shall, any provision of the Local Tax
Code or any other law to the contrary notwithstanding, be in lieu of all taxes and
assessments of whatever nature imposed by any national or local authority on earnings,
receipts, income and privilege of generation, distribution and sale of electric current.
Republic Act No. 7160, otherwise known as the Local Government Code of 1991
(hereinafter referred to as the LGC) took effect on January 1, 1992. The said Code
authorizes the province/city to impose a tax on business enjoying a franchise at a rate
not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year realized within its jurisdiction.
On October 5, 1992, the Sangguniang Panglunsod of San Pablo City enacted
Ordinance No. 56, otherwise known as the Revenue Code of the City of San Pablo. The
said Ordinance took effect on October 30, 1992:[1]
Section 2.09 Article D of said Ordinance provides:
Sec. 2.09. Franchise Tax There is hereby imposed a tax on business enjoying a
franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
receipts, which shall include both cash sales and sales on account realized during the
preceding calendar year within the city.
Pursuant to the above-quoted Section 2.09, the petitioner City Treasurer sent to
private respondent a letter demanding payment of the aforesaid franchise tax. From
1994 to 1996, private respondent paid under protest a total amount of P1,857,711.67.[2]
The private respondent subsequently filed this action before the Regional Trial
Court to declare Ordinance No. 56 null and void insofar as it imposes the franchise tax
upon private respondent MERALCO[3] and to claim for a refund of the taxes paid.
The Court ruled in favor of MERALCO and upheld its argument that the LGC
did not expressly or impliedly repeal the tax exemption/incentive enjoyed by it under
its charter. The dispositive portion of the decision reads:
WHEREFORE, the imposition of a franchise tax under Sec. 2.09 Article D of
Ordinance No. 56 otherwise known as the Revenue Code of the City of San Pablo, is
declared ineffective and null and void insofar as the plaintiff MERALCO is concerned
for being violative of Republic Act No. 2340, PD 551, and Republic Act No. 7160 and
the defendants are ordered to refund to the plaintiff the amount of ONE MILLION
EIGHT HUNDRED FIFTY SEVEN THOUSAND SEVEN HUNDRED ELEVEN &
67/100 (P1,857,711.67) and such other amounts as may have been paid by the plaintiff
under said Revenue Ordinance No. 56 after the filing of the complaint. [4] SO
ORDERED.
Its motion for reconsideration having been denied by the trial court [5] the
petitioners filed the instant petition with this Court raising pure questions of law based
on the following grounds:
I. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT ACT NO.
3648, REPUBLIC ACT NO. 2340 AND PRESIDENTIAL DECREE NO. 551 AS
AMENDED, INSOFAR AS THEY GRANT TAX INCENTIVES, PRIVILEGES
AND IMMUNITIES TO PRIVATE RESPONDENT, HAVE NOT BEEN
REPEALED BY REPUBLIC ACT NO. 7160.
II. RESPONDENT JUDGE GRAVELY ERRED IN RULING THAT SECTION 193
OF REPUBLIC ACT NO. 7160 HAS NOT WITHDRAWN THE TAX
63
 INCENTIVES, PRIVILEGES AND IMMUNITIES BEING ENJOYED BY THE
PRIVATE RESPONDENT UNDER ACT NO. 3648, REPUBLIC ACT NO. 2340
AND PRESIDENTIAL DECREE NO. 551, AS AMENDED.
III. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT THE
FRANCHISE TAX IN QUESTION CONSTITUTES AN IMPAIRMENT OF
THE CONTRACT BETWEEN THE GOVERNMENT AND THE PRIVATE
RESPONDENT.
Petitioners position is the RA 7160 (LGC) expressly repealed Act No. 3648,
Republic Act No. 2340 and Presidential Decree 551 and that pursuant to the provisions
of Sections 137 and 193 of the LGC, the province or city now has the power to impose
a franchise tax on a business enjoying a franchise. Petitioners rely on the ruling in the
case of Mactan Cebu International Airport Authority vs. Marcos[6] where the Supreme
Court held that the exemption from real property tax granted to Mactan Cebu
International Airport Authority under its charter has been withdrawn upon the
effectivity of the LGC.
In addition, the petitioners cite in their Memorandum dated December 8, 1997 an
administrative interpretation made by the Bureau of Local Government Finance of the
Department of Finance in its 3rd indorsement dated February 15, 1994 to the effect that
the earlier ruling of the Department of Finance that holders of franchise which contain
the phrase in lieu of all taxes proviso are exempt from the payment of any kind of tax
is no longer applicable upon the effectivity of the LGC in view of the withdrawal of
tax exemption privileges as provided in Sections 193 and 234 thereof.
We resolve to reverse the court a quo.
The pivotal issue is whether the City of San Pablo may impose a local franchise
tax pursuant to the LGC upon the Manila Electric Company which pays a tax equal to
two percent of its gross receipts in lieu of all taxes and assessments of whatever nature
imposed by any national or local authority on savings or income.
It is necessary to reproduce the pertinent provisions of the LGC.
Section 137 Franchise Tax Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on business enjoying a franchise, at
a rate not exceeding fifty percent 50% of one percent 1% of the gross annual receipts
for the preceding calendar year based on the incoming receipts, or realized, within its
territorial jurisdiction. xxx
Section 151 Scope of Taxing Powers Except as otherwise provided in this Code, the
city, may levy the taxes, fees, and charges which the province or municipality may
impose: Provided, however, That the taxes, fees and charges levied and collected by
highly urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for
the province or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes.
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. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.
Section 534 (f) Repealing Clause All general and special laws, acts, city charters,
decrees, executive orders, proclamations and administrative regulations, or part or
parts thereof which are inconsistent with any of the provisions of this code are hereby
repealed or modified accordingly.
Section 534 (f), the repealing clause of the LGC, provides that all general and
special laws, acts, city charters, decrees, executive orders, proclamations and
administrative regulations or parts thereof which are inconsistent with any of the
provisions of the Code are hereby repealed or modified accordingly.
This clause partakes of the nature of a general repealing clause. [7] It is certainly
not an express repealing clause because it fails to designate the specific act or acts
identified by number or title, that are intended to be repealed. [8]
Was there an implied repeal by Republic Act No. 7160 of the MERALCO
franchise insofar as the latter impose a 2% tax in lieu of all taxes and assessments of
whatever nature?
We rule affirmatively.
We are mindful of the established rule that repeals by implication are not favored
as laws are presumed to be passed with deliberation and full knowledge of all laws
existing on the subject. A general law cannot be construed to have repealed a special
law by mere implication unless the intent to repeal or alter is manifest[9] and it must be
convincingly demonstrated that the two laws are so clearly repugnant and patently
inconsistent that they cannot co-exist.[10]
It is our view that petitioners correctly rely on the provisions of Section 137 and
193 of the LGC to support their position that MERALCOs tax exemption has been
withdrawn. The explicit language of Section 137 which authorizes the province to
impose franchise tax notwithstanding any exemption granted by any law or other
special laws" is all-encompassing and clear. The franchise tax is imposable despite any
exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By
stating that unless otherwise provided in this Code, tax exemptions or incentives
64
granted to or presently enjoyed by all persons whether natural or juridical, including
government-owned or controlled corporations except 1) local water districts, 2)
cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals
and educational institutions, are withdrawn upon the effectivity of this code, the
obvious import is to limit the exemptions to the three enumerated entities. 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 exlcusio alterius.[11] In the absence of any provision of the Code to the contrary,
and we find no other provision of the Code to the contrary, and we find no other
provision in point, any existing tax exemption or incentive enjoyed by MERALCO
under existing law was clearly intended to be withdrawn.
Reading together Sections 137 and 193 of the LGC, we conclude that under the
LGC the local government unit may now impose a local tax at a rate not exceeding
50% of 1% of the gross annual receipts for the preceding calendar year based on the
incoming receipts realized within its territorial jurisdiction. The legislative purpose to
withdraw tax privileges enjoyed under existing law or charter is clearly manifested by
the language used in Section 137 and 193 categorically withdrawing such exemption
subject only to the exceptions enumerated. Since it would be not only tedious and
impractical to attempt to enumerate all the existing statutes providing for special tax
exemptions or privileges, the LGC provided for an express, albeit general, withdrawal
of such exemptions or privileges. No more unequivocal language could have been
used.
It is true that the phrase in lieu of all taxes found in special franchises has been
held in several cases to exempt the franchise holder from payment of tax on its
corporate franchise imposed by the Internal Revenue Code, as the charter is in the
nature of a private contract and the exemption is part of the inducement for the
acceptance of the franchise, and that the imposition of another franchise tax by the
local authority would constitute an impairment of contract between the government
and the corporation.[12] But these magic words contained in the phrase shall be in lieu
of all taxes.[13] Have to give way to the peremptory language of the LGC specifically
providing for the withdrawal of such exemption privileges.
Accordingly in Mactan Cebu International Airport Authority vs. Marcos,[14] this
Court held that Section 193 of the LGC prescribes the general rule, viz., the tax
exemptions or incentives granted to or presently enjoyed by natural or juridical persons
are withdrawn upon the effectivity of the LGC except with respect to those entities
expressly enumerated. In the same vein We must hold that the express withdrawal
upon effectivity of the LGC of all exemptions only as provided therein, can no longer
be invoked by Meralco to disclaim liability for the local tax.
Private respondents further argue that the in lieu of provision contained in PD
551, Act No. 3648 and RA 2340 does not partake of the nature of an exemption, but is
a commutative tax. This contention was raised but was not upheld in Cagayan Electric
Power and Light Co. Inc. vs. Commissioner of Internal Revenue[15] wherein the
Supreme Court stated:
xxx Congress could impair petitioners legislative franchise by making it liable for
income tax from which heretofore it was exempted by virtue of the exemption
provided for in section 3 of its franchise xxx
xxx Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to
income tax all corporate tax payers not expressly exempted therein and in section 27
of the Code, had the effect of withdrawing petitioners exemption from income tax xxx
Private respondents invocation of the non-impairment clause of the Constitution
is accordingly unavailing. The LGC was enacted in pursuance of the constitutional
policy to ensure autonomy to local governments[16]and to enable them to attain fullest
development as self-reliant communities.[17] Thus in Mactan Cebu International
Airport Authority vs. Marcos, supra, this Court pointed out, in upholding the
withdrawal of the real estate tax exemption previously enjoyed by the Mactan Cebu
International Airport Authority, as follows:
Note that as reproduced in Section 234(a) the phrase and any government owned or
controlled corporation so exempt by its charter was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption
privileges especially in light of the general provision on withdrawal of tax exemption
privileges in Section 193 and the special provision on withdrawal of exemption from
payment of real property taxes in the last paragraph of Section 234. These policy
considerations are consistent with the State policy to ensure autonomy to local
governments and the objective of the LGC that they enjoy genuine and meaningful
local autonomy to enable them to attain their fullest development as self-reliant
communities and make them effective partners in attainment of national goals. The
power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the delivery of basic services
essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. It may also be relevant to recall that the original
reasons for the withdrawal of tax exemption privileges granted to government-owned
or controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises, and there was a need for these entities to share in the requirements
of development, fiscal or otherwise, by paying the taxes and other charges due from
them.[18]
The Court therein concluded that:
nothing can prevent Congress from decreeing that even instrumentalities or agencies
of the Government performing governmental functions may be subject to tax. Where
it is done precisely to fulfill a constitutional mandate and national policy, no one can
doubt its wisdom.[19]
65
 The power to tax is primarily vested in Congress. However, in our jurisdiction,
it may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5, Article X
of the Constitution.[20] Thus Article X, Section 5 of the Constitution reads:

Section 5 Each Local Government unit shall have the power to create its own sources
of revenue and to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments.

The important legal effect of Section 5 is that henceforth, in interpreting statutory

provisions on municipal fiscal powers, doubts will have to be resolved in favor of
municipal corporations.[21]
There is further basis for the conclusion that the non-impairment of contract
clause cannot be invoked to uphold Meralco's exemption from the local tax. Escudero
Electric Co. was originally given the legislative franchise under Act. 3648 to operate
an electric light and power system in the City of San Pablo and nearby
municipalities. The term of the franchise under Act No. 3648 is a period of fifty years
from the Acts approval in 1929. The said law provided that the franchise is granted
upon the condition that it shall be subject to amendment, or repeal by the Congress of
the United States.[22] Under the 1935,[23] the 1973[24] and the 1987[25]Constitutions, no
franchise or right shall be granted except under the condition that it shall be subject to
amendment, alteration or repeal by the National Assembly when the public interest so
requires. With or without the reservation clause, franchises are subject to alterations
through a reasonable exercise of the police power; they are also subject to alteration
by the power to tax, which like police power cannot be contracted away.[26]
Finally, while the matter is not of controlling significance, the Court notes that
whereas the original Escudero franchise exempted the franchise holder from all taxes
levied or collected now or in the future[27] this phrase is noticeably omitted in the
counterpart provision of P.D. 551 that said omission is intended not to foreclose future
taxes may reasonably be deduced by statutory construction.
WHEREFORE, the instant petition is GRANTED. The decision of the Regional
Trial Court of San Pablo City, appealed from is hereby reversed and set aside and the
complaint of MERALCO is hereby DISMISSED.
No pronouncement as to costs.
SO ORDERED.

66
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
G.R. No. L-22814 August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-
appellant, vs. CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL
BOARD, THE CITY MAYOR and THE CITY TREASURER, all of the CITY
OF BUTUAN, defendants-appellees.
CONCEPCION, C.J.:
Direct appeal to this Court, from a decision of the Court of First Instance of Agusan,
dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation
with offices and principal place of business in Quezon City. The defendants are the
City of Butuan, its City Mayor, the members of its municipal board and its City
Treasurer. Plaintiff — seeks to recover the sums paid by it to the City of
Butuan — hereinafter referred to as the City and collected by the latter,
pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance
No. 122, both series of 1960, which plaintiff assails as null and void, and to prevent
the enforcement thereof. Both parties submitted the case for decision in the lower
court upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products
the "Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the
municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are
bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff for
distribution and sale in the City of Butuan and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which
was subsequently amended by Ordinance No. 122 and effective November 28, 1960.
A copy of Ordinance No. 110, Series of 1960 and Ordinance No. 122 are
incorporated herein as Exhibits "A" and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person, association,
etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest
the amount of P4,926.63 from August 16 to December 31, 1960 and the amount of
P9,250.40 from January 1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the total amount
of P14,177.03 paid under protest and those that if may later on pay until the
termination of this case on the ground that Ordinance No. 110 as amended of the
City of Butuan is illegal, that the tax imposed is excessive and that it is
unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan
City, has prepared a form to be accomplished by the plaintiff for the computation of
the tax. A copy of the form is enclosed herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from January 1,
1961 to July 30, 1961 of its warehouse in Butuan City is incorporated herein as
Exhibits "D" to "D-1" to "D-5". In this Profit and Loss Statement, the defendants
claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only
P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to
P3,104.52. The plaintiff differs only on the claim of depreciation which the company
claims to be P3,052.62. This is in accordance with the findings of the representative
of the undersigned City Attorney who verified the records of the plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles
was increased to P1.92 which price is uniform throughout the Philippines. Said
increase was made due to the increase in the production cost of its manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality and
illegality of Ordinance No. 110, as amended of the City of Butuan in their respective
memoranda.
xxx xxx x x x1äwphï1.ñët
Section 1 of said Ordinance No. 110, as amended, states what products are "liquors",
within the purview thereof. Section 2 provides for the payment by "any agent and/or
consignee" of any dealer "engaged in selling liquors, imported or local, in the City,"
of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles
of the soft drinks and carbonated beverages therein named, and "all other soft drinks
or carbonated drinks." Section 3-A, defines the meaning of the term "consignee or
agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid
at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based
and computed from the cargo manifest or bill of lading or any other record showing
the number of cases of soft drinks, liquors or all other soft drinks or carbonated
drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be
added for failure to pay the taxes within the period prescribed and the penalties
imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2
and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of
lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale
in the City." Section 9 makes the ordinance applicable to soft drinks, liquors or
carbonated drinks "received outside" but "sold within" the City. Section 10 of the
ordinance provides that the revenue derived therefrom "shall be alloted as follows:
40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the School
Fund."
67
Plaintiff maintains that the disputed ordinance is null and void because: (1) it
partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it is
excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and
(5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted,
is an unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed —
independently of whether or not the tax in question, when considered in
relation to the sales tax prescribed by Acts of Congress, amounts to double
taxation, on which we need not and do not express any opinion - double taxation, in
general, is not forbidden by our fundamental law. We have not adopted, as part
thereof, the injunction against double taxation found in the Constitution of the United
States and of some States of the Union.1 Then, again, the general principle against
delegation of legislative powers, in consequence of the theory of separation of
powers2 is subject to one well-established exception, namely: legislative powers may
be delegated to local governments — to which said theory does not apply3 — in
respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles,"
of soft drinks or carbonated drinks — in the production and sale of which plaintiff
is engaged — or less than P0.0042 per bottle, is manifestly too small to be
excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this
connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No.
110, as originally approved, was imposed upon dealers "engaged in selling" soft
drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a
tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is,
however, imposed only upon "any agent and/or consignee of any person, association,
partnership, company or corporation engaged in selling ... soft drinks or carbonated
drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No.
122:
... — Definition of the Term Consignee or Agent. — For purposes of this
Ordinance, a consignee of agent shall mean any person, association,
partnership, company or corporation who acts in the place of another by authority
from him or one entrusted with the business of another or to whom is consigned or
shipped no less than 1,000 cases of hard liquors or soft drinks every month for resale,
either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks,
are not subject to the tax, unless they are agents and/or consignees of another dealer,
who, in the very nature of things, must be one engaged in business outside the City.
Besides, the tax would not be applicable to such agent and/or consignee, if less than
1,000 cases of soft drinks are consigned or shipped to him every month. When we
consider, also, that the tax "shall be based and computed from the cargo manifest or
bill of lading ... showing the number of cases" — not sold — but "received" by the
taxpayer, the intention to limit the application of the ordinance to soft drinks
and carbonated drinks brought into the City from outside thereof becomes
apparent. Viewed from this angle, the tax partakes of the nature of an import duty,
which is beyond defendant's authority to impose by express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and hence, violative of the
uniformity required by the Constitution and the law therefor, since only sales by
"agents or consignees" of outside dealers would be subject to the tax. Sales by local
dealers, not acting for or on behalf of other merchants, regardless of the volume of
their sales, and even if the same exceeded those made by said agents or consignees of
producers or merchants established outside the City of Butuan, would be exempt
from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation
does not require identity or equality under all circumstances, or negate the authority
to classify the objects of taxation.5 The classification made in the exercise of this
authority, to be valid, must, however, be reasonable6 and this requirement is not
deemed satisfied unless: (1) it is based upon substantial distinctions which make real
differences; (2) these are germane to the purpose of the legislation or ordinance; (3)
the classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the classification
applies equally all those who belong to the same class.7
These conditions are not fully met by the ordinance in question.8 Indeed, if its
purpose were merely to levy a burden upon the sale of soft drinks or carbonated
beverages, there is no reason why sales thereof by sealers other than agents or
consignees of producers or merchants established outside the City of Butuan should
be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall
be entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and
sentencing the City of Butuan to refund to plaintiff herein the amounts collected
from and paid under protest by the latter, with interest thereon at the legal rate from
the date of the promulgation of this decision, in addition to the costs, and defendants
herein are, accordingly, restrained and prohibited permanently from enforcing said
Ordinance, as amended. It is so ordered.
68
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
G.R. No. L-28138 August 13, 1986
MATALIN COCONUT CO., INC., petitioner-appellee, vs. THE MUNICIPAL
COUNCIL OF MALABANG, LANAO DEL SUR, AMIR M. BALINDONG and
HADJI PANGILAMUN MANALOCON, MUNICIPAL MAYOR and
MUNICIPAL TREASURER OF MALABANG, LANAO DEL SUR,
respondents-appellants. PURAKAN PLANTATION COMPANY, intervenor-
appellee.
YAP, J.:
On August 24, 1966, the Municipal Council of Malabang, Lanao del Sur, invoking the
authority of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy
Act, enacted Municipal Ordinance No. 45-46, entitled "AN ORDINANCE IMPOSING A
POLICE INSPECTION FEE OF P.30 PER SACK OF CASSAVA STARCH PRODUCED
AND SHIPPED OUT OF THE MUNICIPALITY OF MALABANG AND IMPOSING
PENALTIES FOR VIOLATIONS THEREOF." The ordinance made it unlawful for any
person, company or group of persons "to ship out of the Municipality of Malabang, cassava
starch or flour without paying to the Municipal Treasurer or his authorized representatives
the corresponding fee fixed by (the) ordinance." It imposed a "police inspection fee" of
P.30 per sack of cassava starch or flour, which shall be paid by the shipper before the same
is transported or shipped outside the municipality. Any person or company or group of
individuals violating the ordinance "is liable to a fine of not less than P100.00, but not more
than P1,000.00, and to pay Pl.00 for every sack of flour being illegally shipped outside the
municipality, or to suffer imprisonment of 20 days, or both, in the discretion of the court.
The validity of the ordinance was challenged by the Matalin Coconut, Inc. in a petition for
declaratory relief filed with the then Court of First Instance of Lanao del Sur against the
Municipal Council, the Municipal Mayor and the Municipal Treasurer of Malabang, Lanao
del Sur. Alleging among others that the ordinance is not only ultra vires, being violative of
Republic Act No. 2264, but also unreasonable, oppressive and confiscatory, the petitioner
prayed that the ordinance be declared null and void ab initio, and that the respondent
Municipal Treasurer be ordered to refund the amounts paid by petitioner under the
ordinance. The petitioner also prayed that during the pendency of the action, a preliminary
injunction be issued enjoining the respondents from enforcing the ordinance. The
application for preliminary injunction, however, was denied by the trial court; instead
respondent Municipal Treasurer was ordered to allow payment of the taxes imposed by the
ordinance under protest.
Claiming that it was also adversely affected by the ordinance, Purakan Plantation Company
was granted leave to intervene in the action. The intervenor alleged that while its cassava
flour factory was situated in another municipality, i.e., Balabagan, Lanao del Sur, it had to
transport the cassava starch and flour it produced to the seashore through the Municipality
of Malabang for loading in coastwise vessels; that the effect of the enactment of Ordinance
No. 45-46, is that intervenor had to refrain from transporting its products through the
Municipality of Malabang in order to ship them by sea to other places.
After trial, the Court a quo rendered a decision declaring the municipal ordinance in
question null and void; ordering the respondent Municipal Treasurer to refund to the
petitioner the payments it made under the said ordinance from September 27, 1966 to May
2, 1967, amounting to P 25,500.00, as well as all payments made subsequently thereafter;
and enjoining and prohibiting the respondents, their agents or deputies, from collecting the
tax of P.30 per bag on the cassava flour or starch belonging to intervenor, Purakan
Plantation Company, manufactured or milled in the Municipality of Balabagan, but shipped
out through the Municipality of Malabang.
After the promulgation of the decision, the Trial Court issued a writ of preliminary
mandatory injunction, upon motion of petitioner, requiring the respondent Municipal
Treasurer to deposit with the Philippine National Bank, Iligan Branch, in the name of the
Municipality of Malabang, whatever amounts the petitioner had already paid or shall pay
pursuant to the ordinance in question up to and until final termination of the case; the
deposit was not to be withdrawn from the said bank without any order from the court. On
motion for reconsideration by respondents, the writ was subsequently modified on July 20,
1967, to require the deposit only of amounts paid from the effectivity of the writ up to and
until the final termination of the suit.
From the decision of the trial court, the respondents appealed to this Court.
A motion to dismiss appeal filed by petitioner-appellee, was denied by this court in its
resolution of October 31, 1967. Subsequently, respondents-appellants filed a motion to
dissolve the writ of preliminary mandatory injunction issued by the trial court on July 20,
1967. This motion was also denied by this Court on January 10, 1968.
Of the assignments of error raised by the appellants in their Brief, only the following need
be discussed: (1) that the trial court erred in adjudicating the money claim of the petitioner
in an action for declaratory relief; and (2) that the trial court erred in declaring the municipal
ordinance in question null and void.
The respondents-appellants maintain that it was error for the trial court, in an action for
declaratory relief, to order the refund to petitioner-appellee of the amounts paid by the latter
under the municipal ordinance in question. It is the contention of respondents-appellants
that in an action for declaratory relief, all the court can do is to construe the validity of the
ordinance in question and declare the rights of those affected thereby. The court cannot
declare the ordinance illegal and at the same time order the refund to petitioner of the
amounts paid under the ordinance, without requiring petitioner to file an ordinary action to
claim the refund after the declaratory relief judgment has become final. Respondents
maintain that under Rule 64 of the Rules of Court, the court may advise the parties to file
the proper pleadings and convert the hearing into an ordinary action, which was not done
in this case.
We find no merit in such contention. Under Sec. 6 of Rule 64, the action for declaratory
relief may be converted into an ordinary action and the parties allowed to file such
pleadings as may be necessary or proper, if before the final termination of the case "a breach
or violation of an...ordinance, should take place." In the present case, no breach or violation
69
of the ordinance occurred. The petitioner decided to pay "under protest" the fees imposed
by the ordinance. Such payment did not affect the case; the declaratory relief action was
still proper because the applicability of the ordinance to future transactions still remained
to be resolved, although the matter could also be threshed out in an ordinary suit for the
recovery of taxes paid (Shell Co. of the Philippines, Ltd. vs. Municipality of Sipocot, L-
12680, March 20, 1959). In its petition for declaratory relief, petitioner-appellee alleged
that by reason of the enforcement of the municipal ordinance by respondents it was forced
to pay under protest the fees imposed pursuant to the said ordinance, and accordingly, one
of the reliefs prayed for by the petitioner was that the respondents be ordered to refund all
the amounts it paid to respondent Municipal Treasurer during the pendency of the case.
The inclusion of said allegation and prayer in the petition was not objected to by the
respondents in their answer. During the trial, evidence of the payments made by the
petitioner was introduced. Respondents were thus fully aware of the petitioner's claim for
refund and of what would happen if the ordinance were to be declared invalid by the court.
Respondents' contention, if sustained, would in effect require a separate suit for the
recovery of the fees paid by petitioner under protest. Multiplicity of suits should not be
allowed or encouraged and, in the context of the present case, is clearly uncalled for and
unnecessary.
The main issue to be resolve in this case whether not Ordinance No. 45-66 enacted by
respondent Municipal Council of Malabang, Lanao del Sur, is valid. The respondents-
appellants contend that the municipality has the power and authority to approve the
ordinance in question pursuant to Section 2 of the Local Autonomy Act (Republic Act No.
2264).
Since the enactment of the Local Autonomy Act, a liberal rule has been followed by this
Court in construing municipal ordinances enacted pursuant to the taxing power granted
under Section 2 of said law. This Court has construed the grant of power to tax under the
above-mentioned provision as sufficiently plenary to cover "everything, excepting those
which are mentioned" therein, subject only to the limitation that the tax so levied is for
public purposes, just and uniform (Nin Bay Mining Company vs. Municipality of Roxas,
Province of Palawan, 14 SCRA 661; C.N. Hodges vs. Municipal Board, Iloilo City, et al.,
19 SCRA 28).
We agree with the finding of the trial court that the amount collected under the ordinance
in question partakes of the nature of a tax, although denominated as "police inspection fee"
since its undeniable purpose is to raise revenue. However, we cannot agree with the trial
court's finding that the tax imposed by the ordinance is a percentage tax on sales which is
beyond the scope of the municipality's authority to levy under Section 2 of the Local
Autonomy Act. Under the said provision, municipalities and municipal districts are
prohibited from imposing" any percentage tax on sales or other taxes in any form based
thereon. " The tax imposed under the ordinance in question is not a percentage tax on sales
or any other form of tax based on sales. It is a fixed tax of P.30 per bag of cassava starch
or flour "shipped out" of the municipality. It is not based on sales.
However, the tax imposed under the ordinance can be stricken down on another ground.
According to Section 2 of the abovementioned Act, the tax levied must be "for public
purposes, just and uniform" (Emphasis supplied.) As correctly held by the trial court, the
so-called "police inspection fee" levied by the ordinance is "unjust and unreasonable." Said
the court a quo:
... It has been proven that the only service rendered by the Municipality of Malabang, by
way of inspection, is for the policeman to verify from the driver of the trucks of the
petitioner passing by at the police checkpoint the number of bags loaded per trip which are
to be shipped out of the municipality based on the trip tickets for the purpose of computing
the total amount of tax to be collect (sic) and for no other purpose. The pretention of
respondents that the police, aside from counting the number of bags shipped out, is also
inspecting the cassava flour starch contained in the bags to find out if the said cassava flour
starch is fit for human consumption could not be given credence by the Court because,
aside from the fact that said purpose is not so stated in the ordinance in question, the
policemen of said municipality are not competent to determine if the cassava flour starch
are fit for human consumption. The further pretention of respondents that the trucks of the
petitioner hauling the bags of cassava flour starch from the mill to the bodega at the beach
of Malabang are escorted by a policeman from the police checkpoint to the beach for the
purpose of protecting the truck and its cargoes from molestation by undesirable elements
could not also be given credence by the Court because it has been shown, beyond doubt,
that the petitioner has not asked for the said police protection because there has been no
occasion where its trucks have been molested, even for once, by bad elements from the
police checkpoint to the bodega at the beach, it is solely for the purpose of verifying the
correct number of bags of cassava flour starch loaded on the trucks of the petitioner as
stated in the trip tickets, when unloaded at its bodega at the beach. The imposition,
therefore, of a police inspection fee of P.30 per bag, imposed by said ordinance is unjust
and unreasonable.
The Court finally finds the inspection fee of P0.30 per bag, imposed by the ordinance in
question to be excessive and confiscatory. It has been shown by the petitioner, Matalin
Coconut Company, Inc., that it is merely realizing a marginal average profit of P0.40, per
bag, of cassava flour starch shipped out from the Municipality of Malabang because the
average production is P15.60 per bag, including transportation costs, while the prevailing
market price is P16.00 per bag. The further imposition, therefore, of the tax of P0.30 per
bag, by the ordinance in question would force the petitioner to close or stop its cassava
flour starch milling business considering that it is maintaining a big labor force in its
operation, including a force of security guards to guard its properties. The ordinance,
therefore, has an adverse effect on the economic growth of the Municipality of Malabang,
in particular, and of the nation, in general, and is contrary to the economic policy of the
government.
Having found the ordinance in question to be invalid, we find it unnecessary to rule on the
other errors assigned by the appellants.
WHEREFORE, petition is dismissed. The decision of the court a quo is hereby affirmed.
No costs.
SO ORDERED.
70
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
G.R. No. L-30745 January 18, 1978
PHILIPPINE MATCH CO., LTD., plaintiff-appellant, vs. THE CITY OF
CEBU and JESUS E. ZABATE, Acting City Treasurer, defendants-
appellees.
AQUINO, J.:
This case is about the legality of the tax collected by the City of Cebu on sales of
matches stored by the Philippine Match Co., Ltd. in Cebu City but delivered to
customers outside of the City.
Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and
also approved by the provincial board) is "an ordinance imposing a quarterly tax
on gross sales or receipts of merchants, dealers, importers and manufacturers of
any commodity doing business" in Cebu City. It imposes a sales tax of one percent
(1%) on the gross sales, receipts or value of commodities sold, bartered,
exchanged or manufactured in the city in excess of P2,000 a quarter.
Section 9 of the ordinance provides that, for purposes of the tax, "all deliveries of
goods or commodities stored in the City of Cebu, or if not stored are sold" in that
city, "shall be considered as sales" in the city and shall be taxable.
Thus, it would seem that under the tax ordinance sales of matches consummated
outside of the city are taxable as long as the matches sold are taken from the
company's stock stored in Cebu City.
The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in
the manufacture of matches. Its factory is located at Punta, Sta. Ana, Manila. It
ships cases or cartons of matches from Manila to its branch office in Cebu City for
storage, sale and distribution within the territories and districts under its Cebu
branch or the whole Visayas-Mindanao region. Cebu City itself is just one of the
eleven districts under the company's Cebu City branch office.
The company does not question the tax on the matches of matches consummated
in Cebu City, meaning matches sold and delivered within the city.
It assails the legality of the tax which the city treasurer collected on out-of- town
deliveries of matches, to wit: (1) sales of matches booked and paid for in Cebu City
but shipped directly to customers outside of the city; (2) transfers of matches to
newsmen assigned to different agencies outside of the city and (3) shipments of
matches to provincial customers pursuant to salesmen's instructions.
The company paid under protest to the city t the sum of P12,844.61 as one percent
sales tax on those three classes of out-of-town deliveries of matches for the second
quarter of 1961 to the second quarter of 1963.
In paying the tax the company accomplished the verified forms furnished by the
city treasurers office. It submitted a statement indicating the four kinds of
transactions enumerated above, the total sales, and a summary of the deliveries
to the different agencies, as well as the invoice numbers, names of customers, the
value of the sales, the transfers of matches to salesmen outside of Cebu City, and
the computation of taxes.
Sales of matches booked and paid for in Cebu City but shipped directly to
customers outside of the city refer to orders for matches made in the city by the
company's customers, by means of personal or phone calls, for which sales
invoices are issued, and then the matches are shipped from the bodega in the city,
where the matches had been stored, to the place of business or residences of the
customers outside of the city, duly covered by bills of lading The matches are used
and consumed outside of the city.
Transfers of matches to salesmen assigned to different agencies outside of the
city embrace equipments of matches from the branch office in the city to the
salesmen (provided with panel cars) assigned within the province of Cebu and in
the different districts in the Visayas and Mindanao under the jurisdiction or
supervision of the Cebu City branch office. The shipments are covered by bills of
lading. No sales invoices whatever are issued. The matches received by the
salesmen constitute their direct cash accountability to the company. The salesmen
sell the matches within their respective territories. They issue cash sales invoices
and remit the proceeds of the sales to the company's Cebu branch office. The
value of the unsold matches constitutes their stock liability. The matches are used
and consumed outside of the city.
Shipments of matches to provincial customers pursuant to newsmens instructions
embrace orders, by letter or telegram sent to the branch office by the company's
salesmen assigned outside of the city. The matches are shipped from the
company's bodega in the city to the customers residing outside of the city. The
salesmen issue the sales invoices. The proceeds of the sale, for which the
salesmen are accountable are remitted to the branch office. As in the first and
seconds of transactions above-mentioned, the matches are consumed and used
outside of the city.
The company in its letter of April 15, 1961 to the city treasurer sought the refund
of the sales tax paid for out-of-town deliveries of matches. It invoked Shell
Company of the Philippines, Ltd. vs. Municipality of Sipocot, Camarines Sur, 105
Phil. 1263. In that case sales of oil and petroleum products effected outside the
territorial limits of Sipocot, were held not to be subject to the tax imposed by an
ordinance of that municipality.
The city treasurer denied the request. His stand is that under section 9 of the
ordinance all out-of-town deliveries of latches stored in the city are subject to the
sales tax imposed by the ordinance.
71
On August 12, 1963 the company filed the complaint herein, praying that the
ordinance be d void insofar as it taxed the deliveries of matches outside of Cebu
City, that the city be ordered to refund to the company the said sum of P12,844.61
as excess sales tax paid, and that the city treasurer be ordered to pay damages.
After hearing, the trial court sustained the tax on the sales of matches booked and
paid for in Cebu City although the matches were shipped directly to customers
outside of the city. The lower court held that the said sales were consummated in
Cebu City because delivery to the carrier in the city is deemed to be a delivery to
the customers outside of the city.
But the trial court invalidated the tax on transfers of matches to salesmen assigned
to different agencies outside of the city and on shipments of matches to provincial
customers pursuant to the instructions of the newsmen It ordered the defendants
to refund to the plaintiff the sum of P8,923.55 as taxes paid out the said out-of-
town deliveries with legal rate of interest from the respective dates of payment.
The trial court characterized the tax on the other two transactions as a "storage
tax" and not a sales tax. It assumed that the sales were consummated outside of
the city and, hence, beyond the city's taxing power.
The city did not appeal from that decision. The company appealed from that portion
of the decision upholding the tax on sales of matches to customers outside of the
city but which sales were booked and paid for in Cebu City, and also from the
dismissal of its claim for damages against the city treasurer.
The issue is whether the City of Cebu can tax sales of matches which were
perfected and paid for in Cebu City but the matches were delivered to customers
outside of the City.
We hold that the appeal is devoid of merit bemuse the city can validly tax the sales
of matches to customers outside of the city as long as the orders were booked and
paid for in the company's branch office in the city. Those matches can be regarded
as sold in the city, as contemplated in the ordinance, because the matches were
delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to
the buyer (Art. 1523, Civil Code; Behn, Meyer & Co. vs. Yangco, 38 Phil. 602).
A different interpretation would defeat the tax ordinance in question or encourage
tax evasion through the simple expedient of arranging for the delivery of the
matches at the out. skirts of the city through the purchase were effected and paid
for in the company's branch office in the city.
The municipal board of Cebu City is empowered "to provide for the levy and
collection of taxes for general and purposes in accordance with law" (Sec. 17[a],
Commonwealth Act No. 58; Sec. 31[l], Rep. Act No. 3857, Revised Charter of Cebu
city).
The taxing power validly delegated to cities and municipalities is defined in the
Local Autonomy Act, Republic Act No. 2264 (Pepsi-Cola Bottling Co. of the
Philippines, Inc. vs. Municipality of Tanauan, Leyte, L-31156, February 27, 1976,
69 SCRA 460), which took effect on June 19, 1959 and which provides:
SEC. 2. Taxation. — Any provision of law to the contrary notwithstanding, all
chartered cities, municipalities and municipal districts shall have authority to
impose municipal license taxes or fees upon persons engaged in any occupation
or business, or exercising privileges in chartered cities,. municipalities or municipal
districts by requiring them to secure licenses at rates fixed by the municipal board
or city council of the city, the municipal council of the municipality, or the municipal
district council of the municipal district; to collect fees and charges for services
rendered by the city, municipality or municipal district; to regulate and impose
reasonable fees for services rendered in connection with any business, profession
or occupation being conducted within the city, municipality or municipal district and
otherwise to levy for public purposes, just and uniform taxes, licenses or fees;
Provided, That municipalities and municipal districts shall, in no case, impose any
percentage tax on sales or other taxes in any form based thereon nor impose taxes
on articles subject to specific tax, except gasoline, under the provisions of the
National International Revenue Code;
Provided, however, That no city, municipality or municipal districts may levy or
impose any of the following: (here follows an enumeration of internal revenue
taxes) xxx xxx xxx *
Note that the prohibition against the imposition of percentage taxes (formerly
provided for in section 1 of Commonwealth Act No. 472) refers to municipalities
and municipal districts but not to chartered cities. (See Local Tax Code, P.D. No.
231. Marinduque Iron Mines Agents, Inc. vs. Municipal Council of Hinabangan
Samar, 120 Phil. 413; Ormoc Sugar Co., Inc. vs. Treasurer of Ormoc City, L-23794,
February 17, 1968, 22 SCRA 603).
Note further that the taxing power of cities, municipalities and municipal districts
may be used (1) "upon any person engaged in any occupation or business, or
exercising any privilege" therein; (2) for services rendered by those political
subdivisions or rendered in connection with any business, profession or occupation
being conducted therein, and (3) to levy, for public purposes, just and uniform
taxes, licenses or fees (C. N. Hodges vs. Municipal Board of the City of Iloilo, 117
Phil. 164, 167. See sec. 31[251, Revised Charter of Cebu City).
Applying that jurisdictional test to the instant case, it is at once obvious that sales
of matches to customers outside oil Cebu City, which sales were booked and paid
for in the company's branch office in the city, are subject to the city's taxing power.
The instant case is easily distinguishable from the Shell Company case where the
price of the oil sold was paid outside of the municipality of Sipocot, the entity
imposing the tax.
72
On the other hand, the ruling in Municipality of Jose Panganiban, Province of
Camarines Norte vs. Shell Company of the Philippines, Ltd., L-18349, July 30,
1966, 17 SCRA 778 that the place of delivery determines the taxable situs of the
property to be taxed cannot properly be invoked in this case. Republic Act No.
1435, the law which enabled the Municipality of Jose Panganiban to levy the sales
tax involved in that case, specifies that the tax may be levied upon oils "distributed
within the limits of the city or municipality", meaning the place where the oils were
delivered. That feature of the Jose Panganiban case distinguished it from this case.
The sales in the instant case were in the city and the matches sold were stored in
the city. The fact that the matches were delivered to customers, whose places of
business were outside of the city, would not place those sales beyond the city's
taxing power. Those sales formed part of the merchandising business being
assigned on by the company in the city. In essence, they are the same as sales of
matches fully consummated in the city.
Furthermore, because the sellers place of business is in Cebu City, it cannot be
sensibly argued that such sales should be considered as transactions subject to
the taxing power of the political subdivisions where the customers resided and
accepted delivery of the matches sold.
The company in its second assignment of error contends that the trial court erred
in not ordering defendant acting city treasurer to pay exemplary damages of
P20,000 and attorney's fees.
The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the Civil
Code. It is argued that the city treasurer refused and neglected without just cause
to perform his duty and to act with justice and good faith. The company faults the
city treasurer for not following the opinion of the city fiscals, as legal adviser of the
city, that all out-of-town deliveries of matches are not subject to sales tax because
such transactions were effected outside of the city's territorial limits.
In reply, it is argued for defendant city treasurer that in enforcing the tax ordinance
in question he was simply complying with his duty as collector of taxes (Sec. 50,
Revised Charter of Cebu City). Moreover, he had no choice but to enforce the
ordinance because according to section 357 of the Revised Manual of Instruction
to Treasurer's "a tax ordinance win be enforced in accordance with its provisions"
until d illegal or void by a competent court, or otherwise revoked by the council or
board from which it originated.
Furthermore, the Secretary of Finance had reminded the city treasurer that a tax
ordinance approved by the provincial board is operative and must be enforced
without prejudice to the right of any affected taxpayer to assail its legality in the
judicial forum. The fiscals opinion on the legality of an ordinance is merely advisory
and has no binding effect.
Article 27 of the Civil Code provides that "any person suffering material or moral
lose because a public servant or employee refuses or neglects, without just cause,
to perform his official duty may file an action for damages and other relief against
the latter, without prejudice to any disciplinary administrative action that may be
taken."
Article 27 presupposes that the refuse or omission of a public official is attributable
to malice or inexcusable negligence. In this case, it cannot be said that the city
treasurer acted wilfully or was grossly t in not refunding to the plaintiff the taxes
which it paid under protest on out-of-town sales of matches.
The record clearly reveals that the city treasurer honestly believed that he was
justified under section 9 of the tax ordinance in collecting the sales tax on out-of-
town deliveries, considering that the company's branch office was located in Cebu
City and that all out-of-town purchase order for matches were filled up by the
branch office and the sales were duly reported to it.
The city treasurer acted within the scope of his authority and in consonance with
his bona fide interpretation of the tax ordinance. The fact that his action was not
completely sustained by the courts would not him liable for We have upheld his act
of taxing sales of matches booked and paid for in the city.
"As a rule, a public officer, whether judicial ,quasi-judicial or executive, is not y
liable to one injured in consequence of an act performed within the scope of his
official authority, and in the line of his official duty." "Where an officer is invested
with discretion and is empowered to exercise his judgment in matters brought
before him. he is sometimes called a quasi-judicial officer, and when so acting he
is usually given immunity from liability to persons who may be injured as the result
or an erroneous or mistaken decision, however erroneous his judgment may be.
provided the acts complained of are done within the scope of the officer's authority
and without malice, or corruption." (63 Am Jur 2nd 798, 799 cited in Philippine
Racing Club, Inc. vs. Bonifacio, 109 Phil. 233, 240-241).
It has been held that an erroneous interpretation of an ordinance does not
constitute nor does it amount to bad faith that would entitle an aggrieved party to
an award for damages (Cabungcal vs. Cordovan 120 Phil. 667, 572-3). That
salutary in addition to moral temperate, liquidated or compensatory damages (Art.
2229, Civil Code). Attorney's fees are being claimed herein as actual damages.
We find that it would not be just and equitable to award attorney's fees in this case
against the City of Cebu and its (See Art. 2208, Civil Code).
WHEREFORE, the trial court's judgment is affirmed. No costs.
SO ORDERED.
73
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
G.R. No. 143867 August 22, 2001
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner, vs.
CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City
Treasurer of Davao, respondents.
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure of the resolution, 1 dated June 23, 2000, of the Regional Trial Court,
Branch 13, Davao City, affirming the tax assessment of petitioner and the denial
of its claim for tax refund by the City Treasurer of Davao.
The facts are as follows:
On January 1999, petitioner Philippine Long Distance Telephone Co., Inc. (PLDT)
applied for a Mayor's Permit to operate its Davao Metro Exchange. Respondent
City of Davao withheld action on the application pending payment by petitioner of
the local franchise tax in the amount of P3,681,985.72 for the first to the fourth
quarter of 1999. 2 In a letter dated May 31, 1999, 3 petitioner protested the
assessment of the local franchise tax and requested a refund of the franchise tax
paid by it for the year 1997 and the first to the third quarters of 1998. Petitioner
contended that it was exempt from the payment of franchise tax based on an
opinion of the Bureau of Local Government Finance (BLGF), dated June 2, 1998,
which reads as follows:
PLDT:
Section 12 of RA 7082 provides as follows:
"SECTION 12. The grantee, its successors or assigns shall be liable to pay the
same taxes on their real estate, buildings, and personal property, exclusive of this
franchise, as other persons or corporations are now or hereafter may be required
by law to pay. In addition thereto, the grantee, its successors or assigns shall pay
a franchise tax equivalent to three percent (3%) of all gross receipts of the
telephone or other telecommunications businesses transacted under this franchise
by the grantee, its successors or assigns, and the said percentage shall be in lieu
of all taxes on this franchise or earnings thereof . . ."
It appears that RA 7082 further amending Act No. 3436 which granted to PLDT a
franchise to install, operate and maintain a telephone system throughout the
Philippine Islands was approved on August 3, 1991. Section 12 of said franchise,
likewise, contains the "in lieu of all taxes" proviso.
In this connection, Section 23 of RA 7925, quoted hereunder, which was approved
on March 1, 1995, provides for the equality of treatment in the telecommunications
industry:
"SECTION 23. Equality of Treatment in the Telecommunications Industry. —
Any advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of previously
granted telecommunications franchise and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life span of the
franchise, or the type of service authorized by the franchise." (Italics supplied.)
On the basis of the aforequoted Section 23 of RA 7925, PLDT as a
telecommunications franchise holder becomes automatically covered by the tax
exemption provisions of RA 7925, which took effect on March 16, 1995.
Accordingly, PLDT shall be exempt from the payment of franchise and business
taxes imposable by LGUs under Sections 137 and 143 (sic), respectively, of the
LGC, upon the effectivity of RA 7925 on March 16, 1995. However, PLDT shall be
liable to pay the franchise and business taxes on its gross receipts realized from
January 1, 1992 up to March 15, 1995, during which period PLDT was not enjoying
the "most favored clause" proviso of RA 7025 (sic).4
In a letter dated September 27, 1999, respondent Adelaida B. Barcelona, City
Treasurer of Davao, denied the protest and claim for tax refund of petitioner,5 citing
the legal opinion of the City Legal Officer of Davao and Art. 10, §1 of Ordinance
No. 230, Series of 1991, as amended by Ordinance No. 519, Series of 1992, which
provides:
Notwithstanding any exemption granted by any law or other special law, there is
hereby imposed a tax on businesses enjoying a franchise, at a rate of Seventy-five
percent (75%) of one percent (1%) of the gross annual receipts for the preceding
calendar year based on the income or receipts realized within the territorial
jurisdiction of Davao City.6
Petitioner received respondent City Treasurer's order of denial on October 1, 1999.
On November 3, 1999, it filed a petition in the Regional Trial Court of Davao
seeking a reversal of respondent City Treasurer's denial of petitioner's protest and
the refund of the franchise tax paid by it for the year 1998 in the amount of
P2,580,829.23. The petition was filed pursuant to §§195 and 196 of the Local
Government Code (R.A. No. 7160). No claim for refund of franchise taxes paid in
1997 was made as the same had already prescribed under §196 of the LGC, which
provides that claims for the refund of taxes paid under it must be made within two
(2) years from the date of payment of such taxes.7
The trial court denied petitioner's appeal and affirmed the City Treasurer's decision.
It ruled that the LGC withdrew all tax exemptions previously enjoyed by all persons
and authorized local government units to impose a tax on businesses enjoying a
franchise notwithstanding the grant of tax exemption to them. The trial court
likewise denied petitioner's claim for exemption under R.A. No. 7925 for the
following reasons: (1) it is clear from the wording of §193 of the Local Government
74
Code that Congress did not intend to exempt any franchise holder from the
payment of local franchise and business taxes; (2) the opinion of the Executive
Director of the Bureau of Local Government Finance to the contrary is not binding
on respondents; and (3) petitioner failed to present any proof that Globe and Smart
were enjoying local franchise and business tax exemptions.
Hence, this petition for review based on the following grounds:
I. THE LOWER COURT ERRED IN APPLYING SECTION 137 OF THE
LOCAL GOVERNMENT CODE, WHICH ALLOWS A CITY TO IMPOSE A
FRANCHISE TAX, AND SECTION 193 THEREOF, WHICH PROVIDES FOR
WITHDRAWAL OF TAX EXEMPTION PRIVILEGES.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER
PETITIONER'S FRANCHISE, AS IMPLICITLY AMENDED AND EXPANDED BY
SECTION 23 OF REPUBLIC ACT NO. 7925 (PUBLIC TELECOMMUNICATIONS
POLICY ACT), TAKING INTO ACCOUNT THE FRANCHISES OF GLOBE
TELECOM, INC. AND SMART COMMUNICATIONS, INC., WHICH WERE
ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO
FRANCHISE AND BUSINESS TAXES MAY BE IMPOSED ON PETITIONER BY
RESPONDENT CITY.
III. THE LOWER COURT ERRED IN NOT GIVING WEIGHT TO THE
RULING OF THE BUREAU OF LOCAL GOVERNMENT FINANCE THAT
PETITIONER IS EXEMPT FROM THE PAYMENT OF FRANCHISE AND
BUSINESS TAXES, AMONG OTHERS, IMPOSABLE BY LOCAL GOVERNMENT
UNITS UNDER THE LOCAL GOVERNMENT CODE.
First. The LGC, which took effect on January 1, 1992, provides:
SECTION 137. Franchise Tax. — Notwithstanding any exemption granted by any
law or other special law, the province may impose a tax on businesses enjoying a
franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth
(1/20) of one percent (1%) of the capital investment. In the succeeding calendar
year, regardless of when the business started to operate, the tax shall be based
on the gross receipts for the preceding calendar year, or any fraction thereof, as
provided herein.8
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. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.
The trial court held that, under these provisions, all exemptions granted to all
persons, whether natural and juridical, including those which in the future might be
granted, are withdrawn unless the law granting the exemption expressly states that
the exemption also applies to local taxes. We disagree. Sec. 137 does not state
that it covers future exemptions. In Philippine Airlines, Inc. v. Edu,9 where a
provision of the Tax Code enacted on June 27, 1968 (R.A. 5431) withdrew the
exemption enjoyed by PAL, it was held that a subsequent amendment of PAL's
franchise, exempting it from all other taxes except that imposed by its franchise,
again entitled PAL to exemption from the date of the enactment of such
amendment. The Tax Code provision withdrawing the tax exemption was not
construed as prohibiting future grants of exemptions from all taxes.
Indeed, the grant of taxing powers to local government units under the Constitution
and the LGC does not affect the power of Congress to grant exemptions to certain
persons, pursuant to a declared national policy. The legal effect of the
constitutional grant to local governments simply means that in interpreting statutory
provisions on municipal taxing powers, doubts must be resolved in favor of
municipal corporations.10
The question, therefore, is whether, after the withdrawal of its exemption by virtue
of §137 of the LGC, petitioner has again become entitled to exemption from local
franchise tax. Petitioner answers in the affirmative and points to §23 of R.A. No.
7925, in relation to the franchises of Globe Telecom (Globe) and Smart
Communications, Inc. (Smart), which allegedly grant the latter exemption from
local franchise taxes.
To begin with, tax exemptions are highly disfavored. The reason for this was
explained by this Court in Asiatic Petroleum Co. v. Llanes,11 in which it was held:
. . . Exemptions from taxation are highly disfavored, so much so that they may
almost be said to be odious to the law. He who claims an exemption must be able
to point to some positive provision of law creating the right. . . As was said by the
Supreme Court of Tennessee in Memphis vs. U. & P. Bank (91 Tenn., 546, 550),
"The right of taxation is inherent in the State. It is a prerogative essential to the
perpetuity of the government; and he who claims an exemption from the common
burden must justify his claim by the clearest grant of organic or statute law." Other
utterances equally or more emphatic come readily to hand from the highest
authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard, 416), it was said
by Chief Justice Taney, that the right of taxation will not be held to have been
surrendered, "unless the intention to surrender is manifested by words too plain to
be mistaken." In the case of the Delaware Railroad Tax (18 Wallace, 206, 226),
the Supreme Court of the United States said that the surrender, when claimed,
must be shown by clear, unambiguous language, which will admit of no reasonable
construction consistent with the reservation of the power. If a doubt arises as to
the intent of the legislature, that doubt must be solved in favor of the State. In Erie
Railway Company vs. Commonwealth of Pennsylvania (21 Wallace, 492, 499), Mr.
Justice Hunt, speaking of exemptions, observed that a State cannot strip itself of
75
the most essential power of taxation by doubtful words. "It cannot, by ambiguous
language, be deprived of this highest attribute of sovereignty." In Tennessee vs.
Whitworth (117 U.S., 129, 136), it was said: "In all cases of this kind the question
is as to the intent of the legislature, the presumption always being against any
surrender of the taxing power." In Farrington vs. Tennessee and County of Shelby
(95 U.S., 679, 686), Mr. Justice Swayne said: ". . . When exemption is claimed, it
must be shown indubitably to exist. At the outset, every presumption is against it.
A well-founded doubt is fatal to the claim. It is only when the terms of the
concession are too explicit to admit fairly of any other construction that the
proposition can be supported."
The tax exemption must be expressed in the statute in clear language that leaves
no doubt of the intention of the legislature to grant such exemption. And, even if it
is granted, the exemption must be interpreted in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority.12
In the present case, petitioner justifies its claim of tax exemption by strained
inferences. First, it cites R.A. No. 7925, otherwise known as the Public
Telecommunications Policy Act of the Philippines, §23 of which reads:
SECTION 23. Equality of Treatment in the Telecommunications Industry. —
Any advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of previously
granted telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life span of the
franchise, or the type of service authorized by the franchise.
Petitioner then claims that Smart and Globe enjoy exemption from the payment of
the franchise tax by virtue of their legislative franchises per opinion of the Bureau
of Local Government Finance of the Department of Finance. Finally, it argues that
because Smart and Globe are exempt from the franchise tax, it follows that it must
likewise be exempt from the tax being collected by the City of Davao because the
grant of tax exemption to Smart and Globe ipso facto extended the same
exemption to it.
The acceptance of petitioner's theory would result in absurd consequences. To
illustrate: In its franchise, Globe is required to pay a franchise tax of only one and
one-half percentum (1½%) of all gross receipts from its transactions while Smart
is required to pay a tax of three percent (3%) on all gross receipts from business
transacted. Petitioner's theory would require that, to level the playing field, any
"advantage, favor, privilege, exemption, or immunity" granted to Globe must be
extended to all telecommunications companies, including Smart. If, later, Congress
again grants a franchise to another telecommunications company imposing, say,
one percent (1%) franchise tax, then all other telecommunications franchises will
have to be adjusted to "level the playing field" so to speak. This could not have
been the intent of Congress in enacting §23 of Rep. Act 7925. Petitioner's theory
will leave the Government with the burden of having to keep track of all granted
telecommunications franchises, lest some companies be treated unequally. It is
different if Congress enacts a law specifically granting uniform advantages, favor,
privilege, exemption, or immunity to all telecommunications entities.
The fact is that the term "exemption" in §23 is too general. A cardinal rule in
statutory construction is that legislative intent must be ascertained from a
consideration of the statute as a whole and not merely of a particular provision.
For, taken in the abstract, a word or phrase might easily convey a meaning which
is different from the one actually intended. A general provision may actually have
a limited application if read together with other provisions.13 Hence, a
consideration of the law itself in its entirety and the proceedings of both Houses of
Congress is in order.14
Art. I of Rep. Act No. 7925 contains the general provisions, stating that the Act
shall be known as the Public Telecommunications Policy Act of the Philippines,
and a definition of terms.15 Art. II provides for its policies and objectives, which is
to foster the improvement and expansion of telecommunications services in the
country through: (1) the construction of telecommunications infrastructure and
interconnection facilities, having in mind the efficient use of the radio frequency
spectrum and extension of basic services to areas not yet served; (2) fair, just, and
reasonable rates and tariff charges; (3) stable, transparent, and fair administrative
processes; (4) reliance on private enterprise for direct provision of
telecommunications services; (5) dispersal of ownership of telecommunications
entities in compliance with the constitutional mandate to democratize the
ownership of public utilities; (6) encouragement of the establishment of
interconnection with other countries to provide access to international
communications highways and development of a competitive export-oriented
domestic telecommunications manufacturing industry; and (7) development of
human resources skills and capabilities to sustain the growth and development of
telecommunications.16
Art. III provides for its administration. The operational and administrative functions
are delegated to the National Telecommunications Commission (NTC), while
policy-making, research, and negotiations in international telecommunications
matters are left with the Department of Transportation and Communications.17
Art. IV classifies the categories of telecommunications entities as: Local Exchange
Operator, Inter-Exchange Carrier, International Carrier, Value-Added Service
Provider, Mobile Radio Services, and Radio Paging Services.18 Art. V provides for
the use of other services and facilities, such as customer premises equipment,
which may be used within the premises of telecommunications subscribers subject
only to the requirement that it is type-approved by the NTC, and radio frequency
spectrum, the assignment of which shall be subject to periodic review.19
Art. VI, entitled Franchise, Rates and Revenue Determination, provides for the
requirement to obtain a franchise from Congress and a Certificate of Public
Convenience and Necessity from the NTC before a telecommunications entity can
76
begin its operations. It also provides for the NTC's residual power to regulate the
rates or tariffs when ruinous competition results or when a monopoly or a cartel or
combination in restraint of free competition exists and the rates or tariffs are
distorted or unable to function freely and the public is adversely affected. There is
also a provision relating to revenue sharing arrangements between inter-
connecting carriers.20
contrast, the BLGF was created merely to provide consultative services and
technical assistance to local governments and the general public on local taxation,
real property assessment, and other related matters, among others.28 The
question raised by petitioner is a legal question, to wit, the interpretation of §23 of
R.A. No. 7925. There is, therefore, no basis for claiming expertise for the BLGF
that administrative agencies are said to possess in their respective fields.

Art. VII provides for the rights of telecommunications users.21
Art. VIII, entitled Telecommunications Development, where §23 is found, provides
for public ownership of telecommunications entities, privatization of existing
facilities, and the equality of treatment provision.22
Petitioner likewise argues that the BLGF enjoys the presumption of regularity in
the performance of its duty. It does enjoy this presumption, but this has nothing to
do with the question in this case. This case does not concern the regularity of
performance of the BLGF in the exercise of its duties, but the correctness of its
interpretation of a provision of law.

Art. IX contains the Final Provisions.23 In sum, it does not appear that, in approving §23 of R.A. No. 7925, Congress
intended it to operate as a blanket tax exemption to all telecommunications entities.
R.A. No. 7925 is thus a legislative enactment designed to set the national policy Applying the rule of strict construction of laws granting tax exemptions and the rule
on telecommunications and provide the structures to implement it to keep up with that doubts should be resolved in favor of municipal corporations in interpreting
the technological advances in the industry and the needs of the public. The thrust statutory provisions on municipal taxing powers, we hold that §23 of R.A. No. 7925
of the law is to promote gradually the deregulation of the entry, pricing, and cannot be considered as having amended petitioner's franchise so as to entitle it
operations of all public telecommunications entities and thus promote a level to exemption from the imposition of local franchise taxes. Consequently, we hold
playing field in the telecommunications industry.24 There is nothing in the that petitioner is liable to pay local franchise taxes in the amount of P3,681,985.72
language of §23 nor in the proceedings of both the House of Representatives and for the period covering the first to the fourth quarter of 1999 and that it is not entitled
the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant to a refund of taxes paid by it for the period covering the first to the third quarter of
of tax exemptions to all telecommunications entities, including those whose 1998.
exemptions had been withdrawn by the LGC.
WHEREFORE, the petition for review on certiorari is DENIED and the decision of
What this Court said in Asiatic Petroleum Co. v. Llanes25 applies mutatis mutandis the Regional Trial Court, Branch 13, Davao City is AFFIRMED.
to this case: "When exemption is claimed, it must be shown indubitably to exist. At
the outset, every presumption is against it. A well-founded doubt is fatal to the SO ORDERED.
claim. It is only when the terms of the concession are too explicit to admit fairly of
any other construction that the proposition can be supported." In this case, the
word "exemption" in §23 of R.A. No. 7925 could contemplate exemption from
certain regulatory or reporting requirements, bearing in mind the policy of the law.
It is noteworthy that, in holding Smart and Globe exempt from local taxes, the
BLGF did not base its opinion on §23 but on the fact that the franchises granted to
them after the effectivity of the LGC exempted them from the payment of local
franchise and business taxes.

Second. In the case of petitioner, the BLGF opined that §23 of R.A. No. 7925
amended the franchise of petitioner and in effect restored its exemptions from local
taxes. Petitioner contends that courts should not set aside conclusions reached by
the BLGF because its function is precisely the study of local tax problems and it
has necessarily developed an expertise on the subject.

To be sure, the BLGF is not an administrative agency whose findings on questions

of fact are given weight and deference in the courts. The authorities cited by
petitioner pertain to the Court of Tax Appeals,26 a highly specialized court which
performs judicial functions as it was created for the review of tax cases.27 In
77
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
[G.R. No. 131359. May 5, 1999]
MANILA ELECTRIC COMPANY, petitioner vs. PROVINCE OF LAGUNA and
BENITO R. BALAZO, in his capacity as Provincial Treasurer of Laguna,
respondents.
SYNOPSIS
Certain municipalities of the province of Laguna issued resolution through their
respective municipal councils granting franchise in favor of petitioner Manila
Electric Company (MERALCO) for the supply of electric light, heat and power
within the concerned areas. On 12 September 1991, Republic Act No. 7160,
otherwise known as the Local Government Code of 1991, was enacted to take
effect on 01 January 1992 enjoining local government units to create their own
sources of revenue and to levy taxes, fees and charges, subject to the limitations
expressed therein, consistent with the basic policy of local autonomy. Pursuant to
the provisions of the Code, franchise tax ordinance was enacted. On the basis of
this ordinance, respondent Provincial Treasurer sent a demand letter to
MERALCO for the corresponding tax payment. MERALCO paid the tax under
protest. A formal claim for refund was thereafter sent by MERALCO to the
Provincial Treasurer of Laguna claiming that the franchise tax it had paid and
continued to pay to the National Government pursuant to P.D. 551 already included
the franchise tax imposed by the Provincial Tax Ordinance. The claim for refund
of petitioner was denied. In denying the claim, respondents relied on a more recent
law, i.e., Republic Act No. 7160 or the Local Government Code of 1991, than the
old decree invoked by petitioner. Petitioner MERALCO filed with the Regional Trial
Court of Sta. Cruz, Laguna, a complaint for refund. The trial court dismissed the
complaint. In the instant petition, MERALCO assailed the trial courts ruling
contending that the franchise tax ordinance is violative of the non-impairment
clause of the Constitution.
The petition was dismissed by the Supreme Court. Truly, tax exemptions of this
kind may not be revoked without impairing the obligations of contracts. These
contractual tax exemptions, however, are not to be confused with tax exemptions
granted under franchises. A franchise partakes of the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution. While the
Court has referred to tax exemptions contained in special franchises as being in
the nature of contracts and a part of the inducement for carrying on the franchise,
these exemptions are far from being strictly contractual in nature.
SYLLABUS
1. POLITICAL LAW; LOCAL GOVERNMENT UNITS; POWER TO TAX; DEEMED
TO EXIST ALTHOUGH CONGRESS MAY PROVIDE STATUTORY LIMITATIONS
AND GUIDELINES; RATIONALE. Prefatorily, it might be well to recall that local
governments do not have the inherent power to tax except to the extent that such
power might be delegated to them either by the basic law or by statute. Presently,
under Article X of the 1987 Constitution, a general delegation of that power has
been given in favor of local government units. The 1987 Constitution has a
counterpart provision in the 1973 Constitution, which did come out with a similar
delegation of revenue making powers to local governments. Under the regime of
the 1935 Constitution no similar delegation of tax powers was provided, and local
government units instead derived their tax powers under a limited statutory
authority. Whereas, then, the delegation of tax powers granted at that time by
statute to local governments was confined and defined (outside of which the power
was deemed withheld), the present constitutional rule (starting with the 1973
Constitution), however, would broadly confer such tax powers subject only to
specific exceptions that the law might prescribe. Under the now prevailing
Constitution, where there is neither a grant nor a prohibition by statute, the tax
power must be deemed to exist although Congress may provide statutory
limitations and guidelines. The basic rationale for the current rule is to safeguard
the viability and self-sufficiency of local government units by directly granting them
general and broad tax powers. Nevertheless, the fundamental law did not intend
the delegation to be absolute and unconditional; the constitutional objective
obviously is to ensure that, while the local government units are being
strengthened and made more autonomous, the legislature must still see to it that
(a) the taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair share of
available resources, (c) the resources of the national government will not be unduly
disturbed; and (d) local taxation will be fair, uniform, and just.
2. ID.; ID.; ID.; CONTRACTUAL TAX EXEMPTIONS; DISTINGUISHED FROM
TAX EXEMPTIONS GRANTED UNDER FRANCHISES; CASE AT BAR. The
Court has viewed its previous rulings as laying stress more on the legislative intent
of the amendatory law whether the tax exemption privilege is to be withdrawn or
not rather than on whether the law can withdraw, without violating the Constitution,
the tax exemption or not. While the Court has, not too infrequently, referred to tax
exemptions contained in special franchises as being in the nature of contracts and
a part of the inducement for carrying on the franchise, these exemptions,
nevertheless, are far from being strictly contractual in nature. Contractual tax
exemptions, in the real sense of the term and where the non-impairment clause of
the Constitution can rightly be invoked, are those agreed to by the taxing authority
in contracts, such as those contained in government bonds or debentures, lawfully
entered into by them under enabling laws in which the government, acting in its
private capacity, sheds its cloak of authority and waives its governmental immunity.
Truly, tax exemptions of this kind may not be revoked without impairing the
obligations of contracts. These contractual tax exemptions, however, are not to be
confused with tax exemptions granted under franchises. 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.
DECISION
VITUG, J.:
78

On various dates, certain municipalities of the Province of Laguna including, Bian,
Sta Rosa, San Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing laws
then in effect, issued resolutions through their respective municipal councils
granting franchise in favor of petitioner Manila Electric Company (MERALCO) for
the supply of electric light, heat and power within their concerned areas. On 19
January 1983, MERALCO was likewise granted a franchise by the National
Electrification Administration to operate an electric light and power service in the
Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, was enacted to take effect on 01 January 1992
enjoining local government units to create their own sources of revenue and to levy
taxes, fees and charges, subject to the limitations expressed therein, consistent
with the basic policy of local autonomy. Pursuant to the provisions of the Code,
respondent province enacted Laguna Provincial Ordinance No. 01-92, effective 01
January 1993, providing, in part, as follows:
Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying
a franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
receipts, which shall include both cash sales and sales on account realized during
the preceding calendar year within this province, including the territorial limits on
any city located in the province[1]
On the basis of the above ordinance, respondent Provincial Treasurer sent a
demand letter to MERALCO for the corresponding tax payment. Petitioner
MERALCO paid the tax, which then amounted to P19,520,628.42, under protest.
A formal claim for refund was thereafter sent by MERALCO to the Provincial
Treasurer of Laguna claiming that the franchise tax it had paid and continued to
pay to the National Government pursuant to P.D. 551 already included the
franchise tax imposed by the Provincial Tax Ordinance. MERALCO contended that
the imposition of a franchise tax under Section 2.09 of Laguna Provincial
Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the
provisions of Section 1 of P.D. 551 which read:
Any provision of law or local ordinance to the contrary notwithstanding, the
franchise tax payable by all grantees of franchises to generate, distribute and sell
electric current for light, heat and power shall be two per cent (2%) of their gross
receipts received from the sale of electric current and from transactions incident to
the generation, distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or
his duly authorized representative on or before the twentieth day of the month
following the end of each calendar quarter or month, as may be provided in the
respective franchise or pertinent municipal regulation and shall, any provision of
the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of
all taxes and assessments of whatever nature imposed by any national or local
authority on earnings, receipts, income and privilege of generation, distribution and
sale of electric current.
On 28 August 1995, the claim for refund of petitioner was denied in a letter signed
by Governor Jose D. Lina. In denying the claim, respondents relied on a more
recent law, i.e., Republic Act No. 7160 or the Local Government Code of 1991,
than the old decree invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with the Regional Trial Court of
Sta Cruz, Laguna, a complaint for refund, with a prayer for the issuance of a writ
of preliminary injunction and/or temporary restraining order, against the Province
of Laguna and also Benito R. Balazo in his capacity as the Provincial Treasurer of
Laguna. Aside from the amount of P19,520,628.42 for which petitioner MERALCO
had priority made a formal request for refund, petitioner thereafter likewise made
additional payments under protest on various dates totaling P27,669,566.91.
The trial court, in its assailed decision of 30 September 1997, dismissed the
complaint and concluded:
WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS,
JUDGMENT is hereby rendered in favor of the defendants and against the plaintiff,
by:
1. Ordering the dismissal of the Complaint; and
2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid, binding,
reasonable and enforceable.[2]
In the instant petition, MERALCO assails the above ruling and brings up the
following issues; viz:
1. Whether the imposition of a franchise tax under Section 2.09 of Laguna
Provincial Ordinance No. 01-92, insofar as petitioner is concerned, is violative of
the non-impairment clause of the Constitution and Section 1 of Presidential Decree
No. 551.
2. Whether Republic Act. No. 7160, otherwise known as the Local Government
Code of 1991, has repealed, amended or modified Presidential Decree No. 551.
3. Whether the doctrine of exhaustion of administrative remedies is applicable in
this case.[3]
The petition lacks merit.
Prefatorily, it might be well to recall that local governments do not have the inherent
power to tax[4] except to the extent that such power might be delegated to them
either by the basic law or by statute. Presently, under Article X of the 1987
79
Constitution, a general delegation of that power has been given in favor of local
government units. Thus:
Sec. 3. The Congress shall enact a local government code which shall provide for
a more responsive and accountable local government structure instituted through
a system of decentralization with effective mechanisms of recall, initiative, and
referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and functions, and duties of local
officials, and all other matters relating to the organization and operation of the local
units.
xxxxxxxxx
Sec. 5. Each local government shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the local
governments.
The 1987 Constitution has a counterpart provision in the 1973 Constitution which
did come out with a similar delegation of revenue making powers to local
governments.[5]
Under the regime of the 1935 Constitution no similar delegation of tax powers was
provided, and local government units instead derived their tax powers under a
limited statutory authority. Whereas, then, the delegation of tax powers granted at
that time by statute to local governments was confined and defined (outside of
which the power was deemed withheld), the present constitutional rule (starting
with the 1973 Constitution), however, would broadly confer such tax powers
subject only to specific exceptions that the law might prescribe.
Under the now prevailing Constitution, where there is neither a grant nor a
prohibition by statute, the tax power must be deemed to exist although Congress
may provide statutory limitations and guidelines. The basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local government units by
directly granting them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute and unconditional;
the constitutional objective obviously is to ensure that, while the local government
units are being strengthened and made more autonomous,[6] the legislature must
still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple
and unreasonable impositions; (b) each local government unit will have its fair
share of available resources; (c) the resources of the national government will not
be unduly disturbed; and (d) local taxation will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by and large
the provisions of the now repealed Local Tax Code, which had been in effect since
01 July 1973, promulgated into law by Presidential Decree No. 231[7] pursuant to
the then provisions of Section 2, Article XI, of the 1973 Constitution. The 1991
Code explicitly authorizes provincial governments, notwithstanding any exemption
granted by any law or other special law, x x x (to) impose a tax on businesses
enjoying a franchise. Section 137 thereof provides:
Sec. 137. Franchise Tax Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a
franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the
gross annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction. In the case of a newly started
business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year, regardless of when the
business started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided herein. (Underscoring
supplied for emphasis)
Indicative of the legislative intent to carry out the Constitutional mandate of vesting
broad tax powers to local government units, the Local Government Code has
effectively withdrawn under Section 193 thereof, tax exemptions or incentives
theretofore enjoyed by certain entities. This law 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. (Underscoring supplied for
emphasis)
The Code, in addition, contains a general repealing clause in its Section 534; thus:
Section 534. Repealing Clause. x x x.
(f) All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly. (Underscoring supplied for emphasis)[8]
To exemplify, in Mactan Cebu International Airport Authority vs. Marcos,[9] the
Court upheld the withdrawal of the real estate tax exemption previously enjoyed
by Mactan Cebu International Airport Authority. The Court ratiocinated:
x x x These policy considerations are consistent with the State policy to ensure
autonomy to local governments and the objective of the LGC that they enjoy
genuine and meaningful local autonomy to enable them to attain their fullest
development as self-reliant communities and make them effective partners in the
attainment of national goals. The power to tax is the most effective instrument to
raise needed revenues to finance and support myriad activities of local government
80
units for the delivery of basic service essential to the promotion of the general
welfare and the enhancement of peace, progress, and prosperity of the people. It
may also be relevant to recall that the original reasons for the withdrawal of tax
exemption privileges granted to government-owned and controlled corporations
and all other units of government were that such privilege resulted in serious tax
base erosion and distortions in the tax treatment of similarly situated enterprises,
and there was a need for these entities to share in the requirements of
development, fiscal or otherwise, by paying the taxes and other charges due from
them.[10]
Petitioner in its complaint before the Regional Trial Court cited the ruling of this
Court in Province of Misamis Oriental vs. Cagayan Electric Power and Light
Company, Inc.;[11] thus:
In an earlier case, the phrase shall be in lieu of all taxes and at any time levied,
established by, or collected by any authority found in the franchise of the Visayan
Electric Company was held to exempt the company from payment of the 5% tax
on corporate franchise provided in Section 259 of the Internal Revenue Code
(Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385)
Similarly, we ruled that the provision: shall be in lieu of all taxes of every name and
nature in the franchise of the Manila Railroad (Subsection 12, Section 1, Act No.
1510) exempts the Manila Railroad from payment of internal revenue tax for its
importations of coal and oil under Act No. 2432 and the Amendatory Acts of the
Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).
The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act
No. 1497) justified the exemption of the Philippine Railway Company from payment
of the tax on its corporate franchise under Section 259 of the Internal Revenue
Code, as amended by R.A. No. 39 (Philippine Railway Co vs. Collector of Internal
Revenue, 91 Phil. 35).
Those magic words, shall be in lieu of all taxes also excused the Cotabato Light
and Ice Plant Company from the payment of the tax imposed by Ordinance No. 7
of the City of Cotabato (Cotabato Light and Power Co. vs. City of Cotabato, 32
SCRA 231).
So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company
when it was required to pay the corporate franchise tax under Section 259 of the
Internal Revenue Code as amended by R.A. No. 39 (Carcar Electric & Ice Plant
vs. Collector of Internal Revenue, 53 O.G. [No. 4] 1068). This Court pointed out
that such exemption is part of the inducement for the acceptance of the franchise
and the rendition of public service by the grantee.[12]
In the recent case of the City Government of San Pablo, etc., et al. vs. Hon.
Bienvenido V. Reyes, et al.,[13] the Court has held that the phrase in lieu of all
taxes have to give way to the peremptory language of the Local Government Code
specifically providing for the withdrawal of such exemptions, privileges, and that
upon the effectivity of the Local Government Code all exemptions except only as
provided therein can no longer be invoked by MERALCO to disclaim liability for the
local tax. In fine, the Court has viewed its previous rulings as laying stress more
on the legislative intent of the amendatory law whether the tax exemption privilege
is to be withdrawn or not rather than on whether the law can withdraw, without
violating the Constitution, the tax exemption or not.
While the Court has, not too infrequently, referred to tax exemptions contained in
special franchises as being in the nature of contracts and a part of the inducement
for carrying on the franchise, these exemptions, nevertheless, are far from being
strictly contractual in nature. Contractual tax exemptions, in the real sense of the
term and where the non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by them under
enabling laws in which the government, acting in its private capacity, sheds its
cloak of authority and waives its governmental immunity. Truly, tax exemptions of
this kind may not be revoked without impairing the obligations of contracts.[14]
These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant
which is beyond the purview of the non-impairment clause of the Constitution.[15]
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.
WHEREFORE, the instant petition is hereby DISMISSED. No costs.
SO ORDERED.
81
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
[G.R. No. 119172. March 25, 1999]
BELEN C. FIGUERRES, petitioner, vs. COURT OF APPEALS, CITY OF
ASSESSORS OF MANDALUYONG, CITY TREASURER OF MANDALUYONG,
and SANGGUNIANG BAYAN OF MANDALUYONG, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals,
dated February 8, 1995, dismissing a prohibition suit brought by petitioner against
respondent officials of the Municipality, now City, of Mandaluyong to prevent them
from enforcing certain ordinances revising the schedule of fair market values of the
various classes of real property in that municipality and the assessment levels
applicable thereto.
Petitioner Belen C. Figuerres is the owner of a parcel of land, covered by Transfer
Certificate of Title No. 413305, and located at Amarillo Street, Barangay Mauway,
City of Mandaluyong. In 1993, she received a notice of assessment, dated October
20, 1993, from the municipal assessor of the then Municipality of Mandaluyong,
containing the following specifics:
TYPE AREA BASE VALUE MARKET ASSESSMENT ASSESSED
PER SQ. M. VALUE LEVEL VALUE
Residential 530 sq.m. P2,500.00 P1,325,000.00 20 P265,000.00[1]
The assessment, effective in the year 1994, was based on Ordinance Nos. 119
and 125, series of 1993, and Ordinance No. 135, series of 1994, of the
Sangguniang Bayan of Mandaluyong. Ordinance No. 119, series of 1993, which
was promulgated on April 22, 1993, contains a schedule of fair market values of
the different classes of real property in the municipality.[2] Ordinance No. 125,
series of 1993, which was promulgated on November 11, 1993, on the other hand,
fixes the assessment levels applicable to such classes of real property.[3] Finally,
Ordinance No. 135, series of 1994, which was promulgated on February 24, 1994,
amended Ordinance No. 119, 6 by providing that only one third (1/3) of the
increase in the market values applicable to residential lands pursuant to the said
ordinance shall be implemented in the years 1994, 1995, and 1996.[4]
Petitioner brought a prohibition suit in the Court of Appeals against the Assessor,
the Treasurer, and the Sangguniang Bayan to stop them from enforcing the
ordinances in question on the ground that the ordinances were invalid for having
been adopted allegedly without public hearings and prior publication or posting and
without complying with the implementing rules yet to be issued by the Department
of Finance.[5]
In its decision, dated February 8, 1995,[6] the Court of Appeals threw out the
petition. The appellate court said in part:
Petitioners claim that Ordinance Nos. 119, 125 and 135 are null and void since
they were prepared without the approval and determination of the Department of
Finance is without merit.
The approval and determination by the Department of Finance is not needed under
the Local Government Code of 1991, since it is now the city council of
Mandaluyong that is empowered to determine and approve the aforecited
ordinances. Furthermore, contrary to the claim of petitioner that the Department of
Finance has not promulgated the necessary rules and regulations for the
classification, appraisal and assessment of real property as prescribed by the 1991
Local Government Code, Department of Finance Local Assessment Regulation
No. 1-92 dated October 6, 1992, which is addressed to provincial, city, and
municipal assessors and others concerned with the proper implementation of
Section 219 of R.A. No. 7160, provides for the rules relative to the conduct of
general revisions of real property assessments pursuant to Sections 201 and 219
of the Local Government Code of 1991.
Regarding petitioners claim that there is need for municipal ordinances to be
published in the Official Gazette for their effectivity, the same is also without merit.
Section 511 of R.A. No. 7160 provides that
....
The secretary to the Sanggunian concerned shall transmit official copies of such
ordinances to the chief executive officer of the Official Gazette within seven (7)
days following the approval of the said ordinances for publication purposes. The
Official Gazette may publish ordinances with penal sanctions for archival and
reference purposes.
Thus, the posting and publication in the Official Gazette of ordinances with penal
sanctions is not a prerequisite for their effectivity. This finds support in the case of
Taada v. Tuvera (146 SCRA 446), wherein the Supreme Court declared that
municipal ordinances are covered by the Local Government Code.
Moreover, petitioner failed to exhaust the administrative remedies available to him
as provided for under Section 187 of R.A. No. 7160, before filing the instant petition
with this Court.
....
In fact, aside from filing an appeal to the Secretary of Justice as provided under
Section 187 of R.A. No. 7160, the petitioner . . . could have appealed to the Local
Board of Assessment Appeals, the decision of which is in turn appealable to the
Central Board of Assessment Appeals as provided under Sections 226 and 230 of
the said law. According to current jurisprudence, administrative remedies must be
exhausted before seeking judicial intervention. (Gonzales v. Secretary of
82
Education, 5 SCRA 657). If a litigant goes to court without first pursuing the
available administrative remedies, his action is considered premature and not yet
ripe for judicial determination (Allied Brokerage Corporation v. Commissioner of
Customs, 40 SCRA 555).
As the petitioner has not pursued the administrative remedies available to him, his
petition for prohibition cannot prosper (Gonzales v. Provincial Auditor of Iloilo, 12
SCRA 711).
WHEREFORE, the petition is hereby DENIED due course and is hereby
DISMISSED.[7]
Petitioner Figuerres assails the above decision. She contends that
1. THE HONORABLE COURT OF APPEALS PATENTLY ERRED IN FINDING
LACK OF EXHAUSTION OF ADMINISTRATIVE REMEDIES ON THE PART OF
HEREIN PETITIONER WHEN UNDER THE CIRCUMSTANCES, EXHAUSTION
OF ADMINISTRATIVE REMEDIES IS NOT REQUIRED BY LAW AND WOULD
HAVE BEEN A USELESS FORMALITY.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT STATED THAT
THE CITY COUNCIL OF MANDALUYONG IS EMPOWERED TO DETERMINE
AND APPROVE THE AFORECITED ORDINANCES WITHOUT TAKING INTO
ACCOUNT THE MANDATORY PUBLIC HEARINGS REQUIRED BY R.A. No.
7160.
3. WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS PATENTLY
ERRED IN STATING THAT THERE IS NO NEED FOR PUBLICATION OF TAX
ORDINANCES.
4. THERE IS NON COMPLIANCE BY PUBLIC RESPONDENTS OF
ASSESSMENT REGULATION No. 1-92 DATED OCTOBER 6, 1992, EVEN IF
THE HONORABLE COURT OF APPEALS MENTIONED THE EXISTENCE OF
THE SAID ASSESSMENT REGULATIONS.[8]
On the other hand, the Municipality of Mandaluyong contends:
(1) the present case does not fall within any of the exceptions to the doctrine of
exhaustion of administrative remedies;
(2) apart from her bare allegations, petitioner Figuerres has not presented any
evidence to show that no public hearings were conducted prior to the enactment
of the ordinances in question;
(3) although an ordinance concerning the imposition of real property taxes is not
required to be published in the Official Gazette in order to be valid, still the subject
ordinances were disseminated before their effectivity in accordance with the
relevant provisions of R.A. No. 7160; and
(4) the Municipality of Mandaluyong complied with the regulations of the
Department of Finance in enacting the subject ordinances.
Exhaustion of administrative remedies
In Lopez v. City of Manila,[9] we recently held:
. . . Therefore, where a remedy is available within the administrative machinery,
this should be resorted to before resort can be made to the courts, not only to give
the administrative agency the opportunity to decide the matter by itself correctly,
but also to prevent unnecessary and premature resort to courts. . . .
With regard to questions on the legality of a tax ordinance, the remedies available
to the taxpayer are provided under Sections 187, 226, and 252 of R.A. 7160.
Section 187 of R.A. 7160 provides, that the taxpayer may question the
constitutionality or legality of a tax ordinance on appeal within thirty (30) days from
effectivity thereof, to the Secretary of Justice. The petitioner after finding that his
assessment is unjust, confiscatory, or excessive, may bring the case before the
Secretary of Justice for questions of legality or constitutionality of the city
ordinance.
Under Section 226 of R.A. 7160, an owner of real property who is not satisfied with
the assessment of his property may, within sixty (60) days from notice of
assessment, appeal to the Board of Assessment Appeals.
Should the taxpayer question the excessiveness of the amount of tax, he must first
pay the amount due, in accordance with Section 252 of R.A. No. 7160. Then, he
must request the annotation of the phrase paid under protest and accordingly
appeal to the Board of Assessment Appeals by filing a petition under oath together
with copies of the tax declarations and affidavits or documents to support his
appeal.
Although cases raising purely legal questions are excepted from the rule requiring
exhaustion of administrative remedies before a party may resort to the courts, in
the case at bar, the legal questions raised by petitioner require, as will presently
be shown, proof of facts for their resolution. Therefore, the petitioners action in the
Court of Appeals was premature, and the appellate court correctly dismissed her
action on the ground that she failed to exhaust available administrative remedies
as above stated.
Petitioner argues that resort to the Secretary of Justice is not mandatory but only
directory because R.A. No. 7160, 187 provides that any question on the
constitutionality or legality of tax ordinances or revenue measures may be
appealed to the Secretary of Justice. Precisely, the Secretary of Justice can take
cognizance of a case involving the constitutionality or legality of tax ordinances
where, as in this case, there are factual issues involved.
83
There need be no fear that compliance with the rule on exhaustion of administrative
remedies will unduly delay resort to the courts to the detriment of taxpayers.
Although R.A. No. 7160, 187 provides that an appeal to the Secretary of Justice
shall not have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein, it likewise requires
the Secretary of Justice to render a decision within sixty (60) days from the date of
receipt of the appeal, after which the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction.
Public hearings on tax ordinance
Petitioner is right in contending that public hearings are required to be conducted
prior to the enactment of an ordinance imposing real property taxes. R.A. No. 7160,
186 provides that an ordinance levying taxes, fees, or charges shall not be enacted
without any prior public hearing conducted for the purpose.
However, it is noteworthy that apart from her bare assertions, petitioner Figuerres
has not presented any evidence to show that no public hearings were conducted
prior to the enactment of the ordinances in question. On the other hand, the
Municipality of Mandaluyong claims that public hearings were indeed conducted
before the subject ordinances were adopted,[10] although it likewise failed to
submit any evidence to establish this allegation. However, in accordance with the
presumption of validity in favor of an ordinance, their constitutionality or legality
should be upheld in the absence of evidence showing that the procedure
prescribed by law was not observed in their enactment. In an analogous case,
United States v. Cristobal,[11] it was alleged that the ordinance making it a crime
for anyone to obstruct waterways had not been submitted by the provincial board
as required by 2232-2233 of the Administrative Code. In rejecting this contention,
the Court held:
From the judgment of the Court of First Instance the defendant appealed to this
court upon the theory that the ordinance in question was adopted without authority
on the part of the municipality and was therefore unconstitutional. The appellant
argues that there was no proof adduced during the trial of the cause showing that
said ordinance had been approved by the provincial board. Considering the
provisions of law that it is the duty of the provincial board to approve or disapprove
ordinances adopted by the municipal councils of the different municipalities, we
will assume, in the absence of proof to the contrary, that the law has been complied
with. We have a right to assume that officials have done that which the law requires
them to do, in the absence of positive proof to the contrary.[12]
Furthermore, the lack of a public hearing is a negative allegation essential to
petitioners cause of action in the present case. Hence, as petitioner is the party
asserting it, she has the burden of proof.[13] Since petitioner failed to rebut the
presumption of validity in favor of the subject ordinances and to discharge the
burden of proving that no public hearings were conducted prior to the enactment
thereof, we are constrained to uphold their constitutionality or legality.
Publication and posting of schedule of fair market values
Petitioner is also right that publication or posting of the proposed schedule of fair
market values of the different classes of real property in a local government unit is
required pursuant to R.A. No. 7160, 212 which in part states:
. . . . The schedule of fair market values shall be published in a newspaper of
general circulation in the province, city, or municipality concerned, or in the
absence thereof, shall be posted in the provincial capitol, city or municipal hall and
in two other conspicuous public places therein.
In Ty v. Trampe,[14] it was held that, if the local government unit is part of Metro
Manila, the abovequoted portion of 212 must be understood to refer to the
schedule of fair market values of the different classes of real property in the district
to which the city or municipality belongs, as prepared jointly by the local assessors
concerned.
In addition, an ordinance imposing real property taxes (such as Ordinance Nos.
119 and 135) must be posted or published as required by R.A. No. 7160, 188 which
provides:
Section 188. Publication of Tax Ordinances and Revenue Measures. Within ten
(10) days after their approval, certified true copies of all provincial, city, and
municipal tax ordinances or revenue measures shall be published in full for three
(3) consecutive days in a newspaper of local circulation: Provided, however, That
in provinces, cities and municipalities where there are no newspapers of local
circulation, the same may be posted in at least two (2) conspicuous and publicly
accessible places.
Hence, after the proposed schedule of fair market values of the different classes
of real property in a local government unit within Metro Manila, as prepared jointly
by the local assessors of the district to which the city or municipality belongs, has
been published or posted in accordance with 212 of R.A. No. 7160 and enacted
into ordinances by the sanggunians of the municipalities and cities concerned, the
ordinances containing the schedule of fair market values must themselves be
published or posted in the manner provided by 188 of R.A. No. 7160.
With respect to ordinances which fix the assessment levels (such as Ordinance
No. 125), being in the nature of a tax ordinance, 188 likewise applies. Moreover,
as Ordinance No. 125, 7 provides for a penal sanction for violations thereof by
means of a fine of not less than P1,000.00 nor more than P5,000.00, or
imprisonment of not less than one (1) month nor more than six (6) months, or both,
in the discretion of the court, not only 188 but 511(a) also must be observed:
Ordinances with penal sanctions shall be posted at prominent places in the
provincial capitol, city, municipal or barangay hall, as the case may be, for a
minimum period of three (3) consecutive weeks. Such ordinances shall also be
84
published in a newspaper of general circulation, where available, within the
territorial jurisdiction of the local government unit concerned, except in the case of
barangay ordinances. Unless otherwise provided therein, said ordinances shall
take effect on the day following its publication, or at the end of the period of posting,
whichever occurs later.

In view of 188 and 511(a) of R.A. No. 7160, an ordinance fixing the assessment
levels applicable to the different classes of real property in a local government unit
and imposing penal sanctions for violations thereof (such as Ordinance No. 125)
should be published in full for three (3) consecutive days in a newspaper of local
circulation, where available, within ten (10) days of its approval, and posted in at
least two (2) prominent places in the provincial capitol, city, municipal, or barangay
hall for a minimum of three (3) consecutive weeks.

Apart from her allegations, petitioner has not presented any evidence to show that
the subject ordinances were not disseminated in accordance with these provisions
of R.A. No. 7160. On the other hand, the Municipality of Mandaluyong presented
a certificate, dated November 12, 1993, of Williard S. Wong, Sanggunian Secretary
of the Municipality of Mandaluyong that Ordinance No. 125, S-1993 . . . has been
posted in accordance with 59(b) of R.A. No. 7160, otherwise known as the Local
Government Code of 1991.[15] Thus, considering the presumption of validity in
favor of the ordinances and the failure of petitioner to rebut such presumption, we
are constrained to dismiss the petition in this case.

Compliance with regulations issued by the Department of Finance

Also without merit is the contention of petitioner that Ordinance No. 119 and
Ordinance No. 135 are void for not having been enacted in accordance with Local
Assessment Regulation No. 1-92, dated October 6, 1992, of the Department of
Finance, which provides guidelines for the preparation of proposed schedules of
fair market values of the different classes of real property in a local government
unit, such as time tables for obtaining information from owners of affected lands
and buildings regarding the value thereof. As in the case of the procedural
requirements for the enactment of tax ordinances and revenue measures,
however, petitioner has not shown that the ordinances in this case were not
enacted in accordance with the applicable regulations of the Department of
Finance. The Municipality of Mandaluyong claims that, although the regulations
are merely directory, it has complied with them.[16] Hence, in the absence of proof
that the ordinances were not enacted in accordance with such regulations, said
ordinances must be presumed to have been enacted in accordance with such
regulations.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

85
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner, - versus - CITY OF
MANILA, LIBERTY M. TOLEDO City Treasurer and JOSEPH SANTIAGO Chief,
Licensing Division, Respondents.
G.R. No. 156252 June 27, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, assailing the Order[1] of the Regional Trial Court (RTC) of Manila, Branch
21, dated 8 May 2002, dismissing petitioners Petition for Injunction, and the Order[2]
dated 5 December 2002, denying petitioners Motion for Reconsideration.
Petitioner Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business
of manufacturing and selling beverages and maintains a sales office located in the City
of Manila.
On 25 February 2000, the City Mayor of Manila approved Tax Ordinance No. 7988,
otherwise known as Revised Revenue Code of the City of Manila repealing Tax
Ordinance No. 7794 entitled, Revenue Code of the City of Manila. Tax Ordinance No.
7988 amended certain sections of Tax Ordinance No. 7794 by increasing the tax rates
applicable to certain establishments operating within the territorial jurisdiction of the City
of Manila, including herein petitioner.
Aggrieved by said tax ordinance, petitioner filed a Petition[3] before the Department of
Justice (DOJ), against the City of Manila and its Sangguniang Panlungsod, invoking
Section 187[4] of the Local Government Code of 1991 (Republic Act No. 7160). Said
Petition questions the constitutionality or legality of Section 21 of Tax Ordinance No.
7988. According to petitioner:
Section 21 of the Old Revenue Code of the City of Manila (Ordinance No. 7794, as
amended) was reproduced verbatim as Section 21 under the new Ordinance except for
the last paragraph thereof which reads: PROVIDED, that all registered businesses in
the City of Manila that are already paying the aforementioned tax shall be exempted
from payment thereof, which was deleted; that said deletion would, in effect, impose
additional business tax on businesses, including herein petitioner, that are already
subject to business tax under the other sections, specifically Sec. 14, of the New
Revenue Code of the City of Manila, which imposition, petitioner claims, is beyond or
exceeds the limitation on the taxing power of the City of Manila under Sec. 143 (h) of
the LGC of 1991; and that deletion is a palpable and manifest violation of the Local
Government Code of 1991, and the clear mandate of Article X, Sec. 5 of the 1987
Constitution, hence Section 21 is illegal and unconstitutional.
On 17 August 2000, then DOJ Secretary Artemio G. Tuquero issued a Resolution
declaring Tax Ordinance No. 7988 null and void and without legal effect, the pertinent
portions of which read:
After a judicious scrutiny of the records of this case, in the light of the pertinent
provisions of the Local Government Code of 1991, this Department finds for the
petitioner.
The Local Government Code of 1991 provides:
Section 188. Publication of Tax Ordinances and Revenue Measures. Within ten (10)
days after their approval, certified true copies of all provincial, city and municipal tax
ordinances or revenue measures shall be published in full for three (3) consecutive
days in a newspaper of local circulation; Provided, however, that in provinces, cities,
and municipalities where there are no newspapers or local circulations the same may
be posted in at least two (2) conspicuous and publicly accessible places. (R.A. No.
7160) (stress supplied)
Upon the other hand, the Rules and Regulations Implementing the Local Government
Code of 1991, insofar as pertinent, mandates:
Art. 277. Publication of Tax Ordinances and Revenue Measures. (a) within ten (10)
days after their approval, certified true copies of all provincial, city and municipal tax
ordinances or revenue measures shall be published in full for three (3) consecutive
days in a newspaper of local circulation provided that in provinces, cities and
municipalities where there are no newspapers of local circulation, the same may be
posted in at least two (2) conspicuous and publicly accessible places.
If the tax ordinances or revenue measure contains penal provisions as authorized under
Art. 279 of this Rule, the gist of such tax ordinance or revenue measure shall be
published in a newspaper of general circulation within the province, posting of such
ordinance or measure shall be made in accessible and conspicuous public places in all
municipalities and cities of the province to which the sanggunian enacting the ordinance
or revenue measure belongs. xxx xxx xxx.
(emphasis ours)
It is clear from the above-quoted provisions of R.A. No. 7160 and its implementing rules
that the requirement of publication is MANDATORY and leaves no choice. The use of
the word shall in both provisions is imperative, operating to impose a duty that may be
enforced (Soco v. Militante, 123 SCRA 160, 167; Modern Coach Corp. v. Faver 173 SE
2d 497, 499).
Its essence is simply to inform the people and the entities who may likely be affected,
of the existence of the tax measure. It bears emphasis, that, strict observance of the
said procedural requirement is the only safeguard against any unjust and unreasonable
exercise of the taxing powers by ensuring that the taxpayers are notified through
publication of the existence of the measure, and are therefore able to voice out their
views or objections to the said measure. For, after all, taxes are obligatory exactions or
enforced contributions corollary to taking of property.
xxxx
In the case at bar, respondents, by its failure to file their comments and present
documentary evidence to show that the mandatory requirement of law on publication,
86
among other things, has been met, may be deemed to have waived its right to
controvert or dispute the documentary evidence submitted by petitioner which
indubitably show that subject tax ordinance was published only once, i.e., on the May
22, 2000 issue of the Philippine Post. Clearly, therefore, herein respondents failed to
satisfy the requirement that said ordinance shall be published for three (3) consecutive
days as required by law.
xxxx
In view of the foregoing, we find it unnecessary to pass upon the other issues raised by
the petitioner.
WHEREFORE, premises considered, Tax Ordinance No. 7988 of the City of Manila is
hereby declared NULL and VOID and WITHOUT LEGAL EFFECT for having been
enacted in contravention of the provisions of the Local Government Code of 1991 and
its implementing rules and regulations.[5]
The City of Manila failed to file a Motion for Reconsideration nor lodge an appeal of
said Resolution, thus, said Resolution of the DOJ Secretary declaring Tax Ordinance
No. 7988 null and void has lapsed into finality.
On 16 November 2000, Atty. Leonardo A. Aurelio wrote the Bureau of Local
Government Finance (BLGF) requesting in behalf of his client, Singer Sewing Machine
Company, an opinion on whether the Office of the City Treasurer of Manila has the right
to enforce Tax Ordinance No. 7988 despite the Resolution, dated 17 August 2000, of
the DOJ Secretary. Acting on said letter, the BLGF Executive Director issued an
Indorsement on 20 November 2000 ordering the City Treasurer of Manila to cease and
desist from enforcing Tax Ordinance No. 7988. According to the BLGF:
In the attached Resolution dated August 17, 2000 of the Department of Justice, it is
stated that x x x Ordinance No. 7988 of the City of Manila is hereby declared NULL
AND VOID AND WITHOUT LEGAL EFFECT for having been enacted in contravention
of the provisions of the Local Government Code of 1991 and its implementing rules and
regulations.
xxxx
In view thereof, that Office is hereby instructed to cease and desist from implementing
the aforementioned Manila Tax Ordinance No. 7988, inviting attention to Section 190
of the Local Government Code (LGC) of 1991, quoted hereunder:
Section 190. Attempt to Enforce Void or Suspended Tax Ordinances and Revenue
Measures.- The enforcement of any tax ordinance or revenue measures after due
notice of the disapproval or suspension thereof shall be sufficient ground to
administrative disciplinary action against the local officials and employees responsible
therefore.
Be guided accordingly.[6]
Despite the Resolution of the DOJ declaring Tax Ordinance No. 7988 null and void and
the directive of the BLGF that respondents cease and desist from enforcing said tax
ordinance, respondents continued to assess petitioner business tax for the year 2001
based on the tax rates prescribed under Tax Ordinance No. 7988. Thus, petitioner filed
a Complaint with the RTC of Manila, Branch 21, on 17 January 2001, praying that
respondents be enjoined from implementing the aforementioned tax ordinance.
On 28 November 2001, the RTC of Manila, Branch 21, rendered a Decision in favor of
petitioner, the decretal portion of which states:
The defendants did not follow the procedure in the enactment of Tax Ordinance No.
7988. The Court agrees with plaintiffs contention that the ordinance should first be
published for three (3) consecutive days in a newspaper of local circulation aside from
the posting of the same in at least four (4) conspicuous public places.
xxxx
WHEREFORE, premises considered, judgment is hereby rendered declaring the
injunction permanent. Defendants are enjoined from implementing Tax Ordinance No.
7988. The bond posted by the plaintiff is hereby CANCELLED.[7]
During the pendency of the said case, the City Mayor of Manila approved on 22
February 2001 Tax Ordinance No. 8011 entitled, An Ordinance Amending Certain
Sections of Ordinance No. 7988. Said tax ordinance was again challenged by petitioner
before the DOJ through a Petition questioning the legality of the aforementioned tax
ordinance on the grounds that (1) said tax ordinance amends a tax ordinance previously
declared null and void and without legal effect by the DOJ; and (2) said tax ordinance
was likewise not published upon its approval in accordance with Section 188 of the
Local Government Code of 1991.
On 5 July 2001, then DOJ Secretary Hernando Perez issued a Resolution declaring
Tax Ordinance No. 8011 null and void and legally not existing. According to the DOJ
Secretary:
After a careful examination/evaluation of the records of this case and applying the
pertinent provisions of the Local Government Code of 1991, this Department finds the
instant petition of Coca-Cola Bottlers, Philippines, Inc. meritorious.
It bears stress, at the outset, that the subject ordinance was passed and approved by
the respondents principally to amend Ordinance No. 7988 which was earlier nullified
by this Department in its Resolution Dated August 17, 2000, also at the instance of the
herein petitioner. x x x
xxxx
x x x [T]he only logical conclusion, therefore, is that Ordinance No. 8011, subject herein,
is also null and void, it being a mere amendatory ordinance of Ordinance No. 7988
which, as earlier stated, had been nullified by this Department. An invalid or
unconstitutional law or ordinance does not, in legal contemplation, exist (Manila Motors
87
Co., Inc. vs. Flores, 99 Phil. 738). Where a statute which has been amended is invalid,
nothing, in effect, has been amended. As held in People vs. Lim, 108 Phil. 1091:
If an order or law sought to be amended is invalid, then it does not legally exist. There
would be no occasion or need to amend it; x x x (at p. 1097)
Instead of amending Ordinance No. 7988, herein respondent should have enacted
another tax measure which strictly complies with the requirements of law, both
procedural and substantive. The passage of the assailed ordinance did not have the
effect of curing the defects of Ordinance No. 7988 which, any way, does not legally
exist.
xxxx
WHEREFORE, premises considered, Tax Ordinance No. 8011 is hereby declared
NULL and VOID and LEGALLY NOT EXISTING.[8]
Respondents Motion for Reconsideration of the Resolution of the DOJ was
subsequently denied in a Resolution,[9] dated 12 March 2002.
The City of Manila appealed the DOJ Resolution, dated 12 March 2002, denying its
Motion for Reconsideration of the Resolution nullifying Tax Ordinance No. 8011 before
the RTC of Manila, Branch 17, but the same was dismissed for lack of jurisdiction in an
Order, dated 2 December 2002. According to the trial court:
From whatever angle the recourse of herein petitioners was viewed, either from the
standpoint of Section 1, Rule 43, or Section 1 and the last sentence of the second
paragraph of Section 4, Rule 65 of the 1997 Rules of Civil Procedure, the conclusion
was inevitable that petitioners remedial measure from dispositions of the Secretary of
Justice should have been ventilated before the next judicial plane. x x x
Accordingly, by reason of the foregoing premises, Civil Case No. 02-103372 for
Certiorari is DISMISSED.
Consequently, respondents appealed the foregoing Order, dated 2 December 2002,
via a Petition for Review on Certiorari to the Supreme Court docketed as G.R. No.
157490. However, said appeal was dismissed in our Resolution, dated 23 June 2003,
the dispositive of which reads:
Pursuant to Rule 45 and other related provisions of the 1997 Rules of Civil Procedure
as amended governing appeals by certiorari to the Supreme Court, only petitions which
are accompanied by or which comply strictly with the requirements specified therein
shall be entertained. On the basis thereof, the Court resolves to DENY the instant
petition for review on certiorari of the orders of the Regional Trial Court, Manila, Branch
17 dated December 2, 2002 and March 7, 2003 for the late filing as the petition was
filed beyond the reglementary period of fifteen (15) days fixed in Sec. 2, Rule 45 in
relation to Sec. 5(a), Rule 56.
The omnibus motion of petitioners for reconsideration of the resolution of April 23, 2003
which denied the motion for an extension of time to file a petition is DENIED for lack of
merit.
Respondents Motion for Reconsideration was subsequently denied in a Resolution,
dated 11 August 2003, in which the Court resolved as follows:
Acting on the motion of petitioners for reconsideration of the resolution of June 23, 2003
which denied the petition for review on certiorari and considering that there is no
compelling reason to warrant a modification of this Courts resolution, the Court resolves
to DENY reconsideration with FINALITY.
Meanwhile, on the basis of the enactment of Tax Ordinance No. 8011, the City of Manila
filed a Motion for Reconsideration with the RTC of Manila, Branch 21, of its Decision,
dated 28 November 2001, which the court a quo granted in the herein assailed Order
dated 8 May 2002, the full text of which reads:
Considering that Ordinance No. 7988 (Amended Revenue Code of the City of Manila)
has already been amended by Ordinance No. 8011 entitled An Ordinance Amending
Certain Sections of Ordinance No. 7988 approved by the City Mayor of Manila on
February 22, 2001, let the above-entitled case be as it is hereby DISMISSED. Without
pronouncement as to costs.[10]
Petitioners Motion for Reconsideration of the abovequoted Order was denied by the
trial court in the second challenged Order, dated 5 December 2002; hence the instant
Petition.
The case at bar revolves around the sole pivotal issue of whether or not Tax Ordinance
No. 7988 is null and void and of no legal effect. However, respondents, in their
Comment and Memorandum, raise the procedural issue of whether or not the instant
Petition has complied with the requirements of the 1997 Rules on Civil Procedure; thus,
the Court resolves to first pass upon this issue before tackling the substantial matters
involved in this case.
Respondents insist that the instant Petition raises questions of fact that are proscribed
under Rule 45 of the 1997 Rules of Civil Procedure which states that Petitions for
Certiorari before the Supreme Court shall raise only questions of law. We do not agree.
There is a question of fact when doubt or controversy arises as to the truth or falsity of
the alleged facts, when there is no dispute as to fact, the question of whether or not the
conclusion drawn therefrom is correct is a question of law.[11] A thorough reading of
the Petition will reveal that petitioner does not present an issue in which we are called
to rule on the truth or falsity of any fact alleged in the case. Furthermore, the resolution
of whether or not the court a quo erred in dismissing petitioners case in light of the
enactment of Tax Ordinance No. 8011, allegedly amending Tax Ordinance No. 7988,
does not necessitate an incursion into the facts attending the case.
Contrarily, it is respondents who actually raise questions of fact before us. While
accusing petitioner of raising questions of fact, respondents, in the same breath,
proceeded to allege that the RTC of Manila, Branch 21, in its Decision, dated 28
88
November 2001, failed to take into account the evidence presented by respondents
allegedly proving that Tax Ordinance No. 7988 was published for four times in a
newspaper of general circulation in accordance with the requirements of law. A
determination of whether or not the trial court erred in concluding that Tax Ordinance
No. 7988 was indeed published for four times in a newspaper of general circulation
would clearly involve a calibration of the probative value of the evidence presented by
respondents to prove such allegation. Therefore, said issue is a question of fact which
this Court, not being a trier of facts, will decline to pass upon.
Respondents also point out that the Petition was not properly verified and certified
because Nelson Empalmado, the Vice President for Tax and Financial Services of
Coca-Cola Bottlers Philippines, Inc. who verified the subject Petition was not duly
authorized to file said Petition. Respondents assert that nowhere in the attached
Secretarys Certificate can it be found the authority of Nelson Empalmado to institute
the instant Petition. Thus, there being a lack of proper verification, respondents contend
that the Petition must be treated as a mere scrap of paper, which has no legal effect as
declared in Section 4, Rule 7 of the 1997 Rules of Civil Procedure.
An inspection of the Secretarys Certificate attached to the petition will show that Nelson
Empalmado is not among those designated as representative to prosecute claims in
behalf of Coca-Cola Bottlers Philippines, Inc. However, it would seem that the authority
of Mr. Empalmado to file the instant Petition emanated from a Special Power of Attorney
signed by Ramon V. Lapez, Jr., Associate Legal Counsel/Assistant Corporate
Secretary of Coca-Cola Bottlers Philippines, Inc. and one of those named in the
Secretarys Certificate as authorized to file a Petition in behalf of the corporation. A
careful perusal of said Secretarys Certificate will further reveal that the persons
authorized therein to represent petitioner corporation in any suit are also empowered
to designate and appoint any individual as attorney-in-fact of the corporation for the
prosecution of any suit. Accordingly, by virtue of the Special Power of Attorney
executed by Ramon V. Lapez, Jr. authorizing Nelson Emplamado to file a Petition
before the Supreme Court, the instant Petition has been properly verified, in
accordance with the 1997 Rules of Civil Procedure.
only for one day in the 22 May 2000 issue of the Philippine Post in contravention of the
unmistakable directive of the Local Government Code of 1991.
Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order,
dated 8 May 2002, went on to dismiss petitioners case on the force of the enactment
of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988. Significantly, said
amending ordinance was likewise declared null and void by the DOJ Secretary in a
Resolution, dated 5 July 2001, elucidating that [I]nstead of amending Ordinance No.
7988, [herein] respondent should have enacted another tax measure which strictly
complies with the requirements of law, both procedural and substantive. The passage
of the assailed ordinance did not have the effect of curing the defects of Ordinance No.
7988 which, any way, does not legally exist. Said Resolution of the DOJ Secretary had,
as well, attained finality by virtue of the dismissal with finality by this Court of
respondents Petition for Review on Certiorari in G.R. No. 157490 assailing the
dismissal by the RTC of Manila, Branch 17, of its appeal due to lack of jurisdiction in its
Order, dated 11 August 2003.
Based on the foregoing, this Court must reverse the Order of the RTC of Manila, Branch
21, dismissing petitioners case as there is no basis in law for such dismissal. The
amending law, having been declared as null and void, in legal contemplation, therefore,
does not exist. Furthermore, even if Tax Ordinance No. 8011 was not declared null and
void, the trial court should not have dismissed the case on the reason that said tax
ordinance had already amended Tax Ordinance No. 7988. As held by this Court in the
case of People v. Lim,[12] if an order or law sought to be amended is invalid, then it
does not legally exist, there should be no occasion or need to amend it.[13]
WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The
Orders of the RTC of Manila, Branch 21, dated 8 May 2002 and 5 December 2002,
respectively, are hereby REVERSED and SET ASIDE. SO ORDERED.

Having disposed of the procedural issues raised by respondents, We now come to the
pivotal issue in this petition.

It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already
been declared by the DOJ Secretary, in its Order, dated 17 August 2000, as null and
void and without legal effect due to respondents failure to satisfy the requirement that
said ordinance be published for three consecutive days as required by law. Neither is
there quibbling on the fact that the said Order of the DOJ was never appealed by the
City of Manila, thus, it had attained finality after the lapse of the period to appeal.

Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001,
reiterated the findings of the DOJ Secretary that respondents failed to follow the
procedure in the enactment of tax measures as mandated by Section 188 of the Local
Government Code of 1991, in that they failed to publish Tax Ordinance No. 7988 for
three consecutive days in a newspaper of local circulation. From the foregoing, it is
evident that Tax Ordinance No. 7988 is null and void as said ordinance was published

89
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
LUZ R. YAMANE, in her capacity as the CITY TREASURER OF MAKATI
CITY, Petitioner,- versus - BA LEPANTO CONDOMINUM Promulgated:
CORPORATION, Respondent. G.R. No. 154993October 25, 2005
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Petitioner City Treasurer of Makati, Luz Yamane (City Treasurer), presents for
resolution of this Court two novel questions: one procedural, the other substantive,
yet both of obvious significance. The first pertains to the proper mode of judicial
review undertaken from decisions of the regional trial courts resolving the denial of
tax protests made by local government treasurers, pursuant to the Local
Government Code. The second is whether a local government unit can, under the
Local Government Code, impel a condominium corporation to pay business
taxes.[1]
While we agree with the City Treasurers position on the first issue, there ultimately
is sufficient justification for the Court to overlook what is essentially a procedural
error. We uphold respondents on the second issue. Indeed, there are disturbing
aspects in both procedure and substance that attend the attempts by the City of
Makati to flex its taxing muscle. Considering that the tax imposition now in question
has utterly no basis in law, judicial relief is imperative. There are fewer indisputable
causes for the exercise of judicial review over the exercise of the taxing power than
when the tax is based on whim, and not on law.
The facts, as culled from the record, follow.
Respondent BA-Lepanto Condominium Corporation (the Corporation) is a duly
organized condominium corporation constituted in accordance with the
Condominium Act,[2] which owns and holds title to the common and limited
common areas of the BA-Lepanto Condominium (the Condominium), situated in
Paseo de Roxas, Makati City. Its membership comprises the various unit owners
of the Condominium. The Corporation is authorized, under Article V of its Amended
By-Laws, to collect regular assessments from its members for operating expenses,
capital expenditures on the common areas, and other special assessments as
provided for in the Master Deed with Declaration of Restrictions of the
Condominium.
On 15 December 1998, the Corporation received a Notice of Assessment dated
14 December 1998 signed by the City Treasurer. The Notice of Assessment stated
that the Corporation is liable to pay the correct city business taxes, fees and
charges, computed as totaling P1,601,013.77 for the years 1995 to 1997.[3] The
Notice of Assessment was silent as to the statutory basis of the business taxes
assessed.
Through counsel, the Corporation responded with a written tax protest dated 12
February 1999, addressed to the City Treasurer. It was evident in the protest that
the Corporation was perplexed on the statutory basis of the tax assessment.
With due respect, we submit that the Assessment has no basis as the Corporation
is not liable for business taxes and surcharges and interest thereon, under the
Makati [Revenue] Code or even under the [Local Government] Code.
The Makati [Revenue] Code and the [Local Government] Code do not contain any
provisions on which the Assessment could be based. One might argue that Sec.
3A.02(m) of the Makati [Revenue] Code imposes business tax on owners or
operators of any business not specified in the said code. We submit, however, that
this is not applicable to the Corporation as the Corporation is not an owner or
operator of any business in the contemplation of the Makati [Revenue] Code and
even the [Local Government] Code.[4]
Proceeding from the premise that its tax liability arose from Section 3A.02(m) of
the Makati Revenue Code, the Corporation proceeded to argue that under both
the Makati Code and the Local Government Code, business is defined as trade or
commercial activity regularly engaged in as a means of livelihood or with a view to
profit. It was submitted that the Corporation, as a condominium corporation, was
organized not for profit, but to hold title over the common areas of the
Condominium, to manage the Condominium for the unit owners, and to hold title
to the parcels of land on which the Condominium was located. Neither was the
Corporation authorized, under its articles of incorporation or by-laws to engage in
profit-making activities. The assessments it did collect from the unit owners were
for capital expenditures and operating expenses.[5]
The protest was rejected by the City Treasurer in a letter dated 4 March 1999. She
insisted that the collection of dues from the unit owners was effected primarily to
sustain and maintain the expenses of the common areas, with the end in view [sic]
of getting full appreciative living values [sic] for the individual condominium
occupants and to command better marketable [sic] prices for those occupants who
would in the future sell their respective units.[6] Thus, she concluded since the
chances of getting higher prices for well-managed common areas of any
condominium are better and more effective that condominiums with poor [sic]
managed common areas, the corporation activity is a profit venture making [sic].[7]
From the denial of the protest, the Corporation filed an Appeal with the Regional
Trial Court (RTC) of Makati.[8] On 1 March 2000, the Makati RTC Branch 57
rendered a Decision[9] dismissing the appeal for lack of merit. Accepting the
premise laid by the City Treasurer, the RTC acknowledged, in sadly risible
language:
Herein appellant, to defray the improvements and beautification of the common
areas, collect [sic] assessments from its members. Its end view is to get appreciate
living rules for the unit owners [sic], to give an impression to outsides [sic] of the
90
quality of service the condominium offers, so as to allow present owners to
command better prices in the event of sale.[10]
With this, the RTC concluded that the activities of the Corporation fell squarely
under the definition of business under Section 13(b) of the Local Government
Code, and thus subject to local business taxation.[11]
From this Decision of the RTC, the Corporation filed a Petition for Review under
Rule 42 of the Rules of Civil Procedure with the Court of Appeals. Initially, the
petition was dismissed outright[12] on the ground that only decisions of the RTC
brought on appeal from a first level court could be elevated for review under the
mode of review prescribed under Rule 42.[13] However, the Corporation pointed
out in its Motion for Reconsideration that under Section 195 of the Local
Government Code, the remedy of the taxpayer on the denial of the protest filed
with the local treasurer is to appeal the denial with the court of competent
jurisdiction.[14] Persuaded by this contention, the Court of Appeals reinstated the
petition.[15]
On 7 June 2002, the Court of Appeals Special Sixteenth Division rendered the
Decision[16] now assailed before this Court. The appellate court reversed the RTC
and declared that the Corporation was not liable to pay business taxes to the City
of Makati.[17] In doing so, the Court of Appeals delved into jurisprudential
definitions of profit,[18] and concluded that the Corporation was not engaged in
profit. For one, it was held that the very statutory concept of a condominium
corporation showed that it was not a juridical entity intended to make profit, as its
sole purpose was to hold title to the common areas in the condominium and to
maintain the condominium.[19]
The Court of Appeals likewise cited provisions from the Corporations Amended
Articles of Incorporation and Amended By-Laws that, to its estimation, established
that the Corporation was not engaged in business and the assessment collected
from unit owners limited to those necessary to defray the expenses in the
maintenance of the common areas and management the condominium.[20]
Upon denial of her Motion for Reconsideration,[21] the City Treasurer elevated the
present Petition for Review under Rule 45. It is argued that the Corporation is
engaged in business, for the dues collected from the different unit owners is utilized
towards the beautification and maintenance of the Condominium, resulting in full
appreciative living values for the condominium units which would command better
market prices should they be sold in the future. The City Treasurer likewise avers
that the rationale for business taxes is not on the income received or profit earned
by the business, but the privilege to engage in business. The fact that the
Corporation is empowered to acquire, own, hold, enjoy, lease, operate and
maintain, and to convey sell, transfer or otherwise dispose of real or personal
property allegedly qualifies as incident to the fact of [the Corporations] act of
engaging in business.[22]
The City Treasurer also claims that the Corporation had filed the wrong mode of
appeal before the Court of Appeals when the latter filed its Petition for Review
under Rule 42. It is reasoned that the decision of the Makati RTC was rendered in
the exercise of original jurisdiction, it being the first court which took cognizance of
the case. Accordingly, with the Corporation having pursued an erroneous mode of
appeal, the RTC Decision is deemed to have become final and executory.
First, we dispose of the procedural issue, which essentially boils down to whether
the RTC, in deciding an appeal taken from a denial of a protest by a local treasurer
under Section 195 of the Local Government Code, exercises original jurisdiction
or appellate jurisdiction. The question assumes a measure of importance to this
petition, for the adoption of the position of the City Treasurer that the mode of
review of the decision taken by the RTC is governed by Rule 41 of the Rules of
Civil Procedure means that the decision of the RTC would have long become final
and executory by reason of the failure of the Corporation to file a notice of
appeal.[23]
There are discernible conflicting views on the issue. The first, as expressed by the
Court of Appeals, holds that the RTC, in reviewing denials of protests by local
treasurers, exercises appellate jurisdiction. This position is anchored on the
language of Section 195 of the Local Government Code which states that the
remedy of the taxpayer whose protest is denied by the local treasurer is to appeal
with the court of competent jurisdiction.[24] Apparently though, the Local
Government Code does not elaborate on how such appeal should be undertaken.
The other view, as maintained by the City Treasurer, is that the jurisdiction
exercised by the RTC is original in character. This is the first time that the position
has been presented to the court for adjudication. Still, this argument does find
jurisprudential mooring in our ruling in Garcia v. De Jesus,[25] where the Court
proffered the following distinction between original jurisdiction and appellate
jurisdiction: Original jurisdiction is the power of the Court to take judicial cognizance
of a case instituted for judicial action for the first time under conditions provided by
law. Appellate jurisdiction is the authority of a Court higher in rank to re-examine
the final order or judgment of a lower Court which tried the case now elevated for
judicial review.[26]
The quoted definitions were taken from the commentaries of the esteemed Justice
Florenz Regalado. With the definitions as beacon, the review taken by the RTC
over the denial of the protest by the local treasurer would fall within that courts
original jurisdiction. In short, the review is the initial judicial cognizance of the
matter. Moreover, labeling the said review as an exercise of appellate jurisdiction
is inappropriate, since the denial of the protest is not the judgment or order of a
lower court, but of a local government official.
The stringent concept of original jurisdiction may seemingly be neutered by Rule
43 of the 1997 Rules of Civil Procedure, Section 1 of which lists a slew of
administrative agencies and quasi-judicial tribunals or their officers whose
decisions may be reviewed by the Court of Appeals in the exercise of its appellate
91
jurisdiction. However, the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P.
129),[27] ineluctably confers appellate jurisdiction on the Court of Appeals over
final rulings of quasi-judicial agencies, instrumentalities, boards or commission, by
explicitly using the phrase appellate jurisdiction.[28] The power to create or
characterize jurisdiction of courts belongs to the legislature. While the traditional
notion of appellate jurisdiction connotes judicial review over lower court decisions,
it has to yield to statutory redefinitions that clearly expand its breadth to encompass
even review of decisions of officers in the executive branches of government.
Yet 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).
Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA
exercises exclusive appellate jurisdiction to review on appeal decisions, orders or
resolutions of the Regional Trial Courts in local tax cases original decided or
resolved by them in the exercise of their originally or appellate jurisdiction.
Moreover, the provision also states that the review is triggered by filing a petition
for review under a procedure analogous to that provided for under Rule 42 of the
1997 Rules of Civil Procedure.[29]
Republic Act No. 9282, however, would not apply to this case simply because it
arose prior to the effectivity of that law. To declare otherwise would be to institute
a jurisdictional rule derived not from express statutory grant, but from implication.
The jurisdiction of a court to take cognizance of a case should be clearly conferred
and should not be deemed to exist on mere implications,[30] and this settled rule
would be needlessly emasculated should we declare that the Corporations position
is correct in law.
Be that as it may, characteristic of all procedural rules is adherence to the precept
that they should not be enforced blindly, especially if mechanical application would
defeat the higher ends that animates our civil procedurethe just, speedy and
inexpensive disposition of every action and proceeding.[31] Indeed, we have
repeatedly upheldand utilized ourselvesthe discretion of courts to nonetheless take
cognizance of petitions raised on an erroneous mode of appeal and instead treat
these petitions in the manner as they should have appropriately been filed.[32] The
Court of Appeals could very well have treated the Corporations petition for review
as an ordinary appeal.
Moreover, we recognize that the Corporations error in elevating the RTC decision
for review via Rule 42 actually worked to the benefit of the City Treasurer. There
is wider latitude on the part of the Court of Appeals to refuse cognizance over a
petition for review under Rule 42 than it would have over an ordinary appeal under
Rule 41. Under Section 13, Rule 41, the stated grounds for the dismissal of an
ordinary appeal prior to the transmission of the case records are when the appeal
was taken out of time or when the docket fees were not paid.[33] On the other
hand, Section 6, Rule 42 provides that in order that the Court of Appeals may allow
due course to the petition for review, it must first make a prima facie finding that
the lower court has committed an error that would warrant the reversal or
modification of the decision under review.[34] There is no similar requirement of a
prima facie determination of error in the case of ordinary appeal, which is perfected
upon the filing of the notice of appeal in due time.[35]
Evidently, by employing the Rule 42 mode of review, the Corporation faced a
greater risk of having its petition rejected by the Court of Appeals as compared to
having filed an ordinary appeal under Rule 41. This was not an error that worked
to the prejudice of the City Treasurer.
We now proceed to the substantive issue, on whether the City of Makati may
collect business taxes on condominium corporations.
We begin with an overview of the power of a local government unit to impose
business taxes.
The power of local government units to impose taxes within its territorial jurisdiction
derives from the Constitution itself, which recognizes the power of these units to
create its own sources of revenue and to levy taxes, fees, and charges subject to
such guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy.[36] These guidelines and limitations as provided
by Congress are in main contained in the Local Government Code of 1991 (the
Code), which provides for comprehensive instances when and how local
government units may impose taxes. The significant limitations are enumerated
primarily in Section 133 of the Code, which include among others, a prohibition on
the imposition of income taxes except when levied on banks and other financial
institutions.[37] None of the other general limitations under Section 133 find
application to the case at bar.
The most well-known mode of local government taxation is perhaps the real
property tax, which is governed by Title II, Book II of the Code, and which bears
no application in this case. A different set of provisions, found under Title I of Book
92
II, governs other taxes imposable by local government units, including business
taxes. Under Section 151 of the Code, cities such as Makati are authorized to levy
the same taxes fees and charges as provinces and municipalities. It is in Article II,
Title II, Book II of the Code, governing municipal taxes, where the provisions on
business taxation relevant to this petition may be found.[38]
Section 143 of the Code specifically enumerates several types of business on
which municipalities and cities may impose taxes. These include manufacturers,
wholesalers, distributors, dealers of any article of commerce of whatever nature;
those engaged in the export or commerce of essential commodities; contractors
and other independent contractors; banks and financial institutions; and peddlers
engaged in the sale of any merchandise or article of commerce. Moreover, the
local sanggunian is also authorized to impose taxes on any other businesses not
otherwise specified under Section 143 which the sanggunian concerned may
deem proper to tax.
The coverage of business taxation particular to the City of Makati is provided by
the Makati Revenue Code (Revenue Code), enacted through Municipal Ordinance
No. 92-072. The Revenue Code remains in effect as of this
writing. Article A, Chapter III of the Revenue Code governs business taxes in
Makati, and it is quite specific as to the particular businesses which are covered
by business taxes. To give a sample of the specified businesses under the
Revenue Code which are not enumerated under the Local Government Code, we
cite Section 3A.02(f) of the Code, which levies a gross receipt tax :
(f) On contractors and other independent contractors defined in Sec. 3A.01(q) of
Chapter III of this Code, and on owners or operators of business establishments
rendering or offering services such as: advertising agencies; animal hospitals;
assaying laboratories; belt and buckle shops; blacksmith shops; bookbinders;
booking officers for film exchange; booking offices for transportation on
commission basis; breeding of game cocks and other sporting animals belonging
to others; business management services; collecting agencies; escort services;
feasibility studies; consultancy services; garages; garbage disposal contractors;
gold and silversmith shops; inspection services for incoming and outgoing cargoes;
interior decorating services; janitorial services; job placement or recruitment
agencies; landscaping contractors; lathe machine shops; management
consultants not subject to professional tax; medical and dental laboratories;
mercantile agencies; messsengerial services; operators of shoe shine stands;
painting shops; perma press establishments; rent-a-plant services; polo players;
school for and/or horse-back riding academy; real estate appraisers; real estate
brokerages; photostatic, white/blue printing, Xerox, typing, and mimeographing
services; rental of bicycles and/or tricycles, furniture, shoes, watches, household
appliances, boats, typewriters, etc.; roasting of pigs, fowls, etc.; shipping agencies;
shipyard for repairing ships for others; shops for shearing animals; silkscreen or T-
shirt printing shops; stables; travel agencies; vaciador shops; veterinary clinics;
video rentals and/or coverage services; dancing schools/speed reading/EDP;
nursery, vocational and other schools not regulated by the Department of
Education, Culture and Sports, (DECS), day care centers; etc.[39]
Other provisions of the Revenue Code likewise subject hotel and restaurant
owners and operators[40], real estate dealers, and lessors of real estate[41] to
business taxes.
Should the comprehensive listing not prove encompassing enough, there is also a
catch-all provision similar to that under the Local Government Code. This is found
in Section 3A.02(m) of the Revenue Code, which provides:
(m) On owners or operators of any business not specified above shall pay the tax
at the rate of two percent (2%) for 1993, two and one-half percent (2 %) for 1994
and 1995, and three percent (3%) for 1996 and the years thereafter of the gross
receipts during the preceding year.[42]
The initial inquiry is what provision of the Makati Revenue Code does the City
Treasurer rely on to make the Corporation liable for business taxes. Even at this
point, there already stands a problem with the City Treasurers cause of action.
Our careful examination of the record reveals a highly disconcerting fact. At no
point has the City Treasurer been candid enough to inform the Corporation, the
RTC, the Court of Appeals, or this Court for that matter, as to what exactly is the
precise statutory basis under the Makati Revenue Code for the levying of the
business tax on petitioner. We have examined all of the pleadings submitted by
the City Treasurer in all the antecedent judicial proceedings, as well as in this
present petition, and also the communications by the City Treasurer to the
Corporation which form part of the record. Nowhere therein is there any citation
made by the City Treasurer of any provision of the Revenue Code which would
serve as the legal authority for the collection of business taxes from condominiums
in Makati.
Ostensibly, the notice of assessment, which stands as the first instance the
taxpayer is officially made aware of the pending tax liability, should be sufficiently
informative to apprise the taxpayer the legal basis of the tax. Section 195 of the
Local Government Code does not go as far as to expressly require that the notice
of assessment specifically cite the provision of the ordinance involved but it does
require that it state the nature of the tax, fee or charge, the amount of deficiency,
surcharges, interests and penalties. In this case, the notice of assessment sent to
the Corporation did state that the assessment was for business taxes, as well as
the amount of the assessment. There may have been prima facie compliance with
the requirement under Section 195. However in this case, the Revenue Code
provides multiple provisions on business taxes, and at varying rates. Hence, we
could appreciate the Corporations confusion, as expressed in its protest, as to the
exact legal basis for the tax.[43] Reference to the local tax ordinance is vital, for
the power of local government units to impose local taxes is exercised through the
appropriate ordinance enacted by the sanggunian, and not by the Local
Government Code alone.[44] What determines tax liability is the tax ordinance, the
Local Government Code being the enabling law for the local legislative body.
93
Moreover, a careful examination of the Revenue Code shows that while Section
3A.02(m) seems designed as a catch-all provision, Section 3A.02(f), which
provides for a different tax rate from that of the former provision, may be construed
to be of similar import. While Section 3A.02(f) is quite exhaustive in enumerating
the class of businesses taxed under the provision, the listing, while it does not
include condominium-related enterprises, ends with the abbreviation etc., or et
cetera.
We do note our discomfort with the unlimited breadth and the dangerous
uncertainty which are the twin hallmarks of the words et cetera. Certainly, we
cannot be disposed to uphold any tax imposition that derives its authority from
enigmatic and uncertain words such as et cetera. Yet we cannot even say with
definiteness whether the tax imposed on the Corporation in this case is based on
et cetera, or on Section 3A.02(m), or on any other provision of the Revenue Code.
Assuming that the assessment made on the Corporation is on a provision other
than Section 3A.02(m), the main legal issue takes on a different complexion. For
example, if it is based on et cetera under Section 3A.02(f), we would have to
examine whether the Corporation faces analogous comparison with the other
businesses listed under that provision.
Certainly, the City Treasurer has not been helpful in that regard, as she has been
silent all through out as to the exact basis for the tax imposition which she wishes
that this Court uphold. Indeed, there is only one thing that prevents this Court from
ruling that there has been a due process violation on account of the City Treasurers
failure to disclose on paper the statutory basis of the taxthat the Corporation itself
does not allege injury arising from such failure on the part of the City Treasurer.
We do not know why the Corporation chose not to put this issue into litigation,
though we can ultimately presume that no injury was sustained because the City
Treasurer failed to cite the specific statutory basis of the tax. What is essential
though is that the local treasurer be required to explain to the taxpayer with
sufficient particularity the basis of the tax, so as to leave no doubt in the mind of
the taxpayer as to the specific tax involved.
In this case, the Corporation seems confident enough in litigating despite the failure
of the City Treasurer to admit on what exact provision of the Revenue Code the
tax liability ensued. This is perhaps because the Corporation has anchored its
central argument on the position that the Local Government Code itself does not
sanction the imposition of business taxes against it. This position was sustained
by the Court of Appeals, and now merits our analysis.
As stated earlier, local tax on businesses is authorized under Section 143 of the
Local Government Code. The word business itself is defined under Section 131(d)
of the Code as trade or commercial activity regularly engaged in as a means of
livelihood or with a view to profit.[45] This definition of business takes on
importance, since Section 143 allows local government units to impose local taxes
on businesses other than those specified under the provision. Moreover, even
those business activities specifically named in Section 143 are themselves
susceptible to broad interpretation. For example, Section 143(b) authorizes the
imposition of business taxes on wholesalers, distributors, or dealers in any article
of commerce of whatever kind or nature.
It is thus imperative that in order that the Corporation may be subjected to business
taxes, its activities must fall within the definition of business as provided in the
Local Government Code. And to hold that they do is to ignore the very statutory
nature of a condominium corporation.
The creation of the condominium corporation is sanctioned by Republic Act No.
4726, otherwise known as the Condominium Act. Under the law, a condominium
is an interest in real property consisting of a separate interest in a unit in a
residential, industrial or commercial building and an undivided interest in common,
directly or indirectly, in the land on which it is located and in other common areas
of the building.[46] To enable the orderly administration over these common areas
which are jointly owned by the various unit owners, the Condominium Act permits
the creation of a condominium corporation, which is specially formed for the
purpose of holding title to the common area, in which the holders of separate
interests shall automatically be members or shareholders, to the exclusion of
others, in proportion to the appurtenant interest of their respective
units.[47] The necessity of a condominium corporation has not gained widespread
acceptance[48], and even is merely permissible under the Condominium Act.[49]
Nonetheless, the condominium corporation has been resorted to by many
condominium projects, such as the Corporation in this case.
In line with the authority of the condominium corporation to manage the
condominium project, it may be authorized, in the deed of restrictions, to make
reasonable assessments to meet authorized expenditures, each condominium unit
to be assessed separately for its share of such expenses in proportion (unless
otherwise provided) to its owners fractional interest in any common areas.[50] It is
the collection of these assessments from unit owners that form the basis of the
City Treasurers claim that the Corporation is doing business.
The Condominium Act imposes several limitations on the condominium
corporation that prove crucial to the disposition of this case. Under Section 10 of
the law, the
corporate purposes of a condominium corporation are limited to the holding of the
common areas, either in ownership or any other interest in real property recognized
by law; to the management of the project; and to such other purposes as may be
necessary, incidental or convenient to the accomplishment of such purpose.[51]
Further, the same provision prohibits the articles of incorporation or by-laws of the
condominium corporation from containing any provisions which are contrary to the
provisions of the Condominium Act, the enabling or master deed, or the declaration
of restrictions of the condominium project.[52]
We can elicit from the Condominium Act that a condominium corporation is
precluded by statute from engaging in corporate activities other than the holding of
the common areas, the administration of the condominium project, and other acts
94
necessary, incidental or convenient to the accomplishment of such purposes.
Neither the maintenance of livelihood, nor the procurement of profit, fall within the
scope of permissible corporate purposes of a condominium corporation under the
Condominium Act.
The Court has examined the particular Articles of Incorporation and By-Laws of
the Corporation, and these documents unmistakably hew to the limitations
contained in the Condominium Act. Per the Articles of Incorporation, the
Corporations corporate purposes are limited to: (a) owning and holding title to the
common and limited common areas in the Condominium Project; (b) adopting such
necessary measures for the protection and safeguard of the unit owners and their
property, including the power to contract for security services and for insurance
coverage on the entire project; (c) making and adopting needful rules and
regulations concerning the use, enjoyment and occupancy of the units and
common areas, including the power to fix penalties and assessments for violation
of such rules; (d) to provide for the maintenance, repair, sanitation, and cleanliness
of the common and limited common areas; (e) to provide and contract for public
utilities and other services to the common areas; (f) to contract for the services of
persons or firms to assist in the management and operation of the Condominium
Project; (g) to discharge any lien or encumbrances upon the Condominium Project;
(h) to enforce the terms contained in the Master Deed with Declaration of
Restrictions of the Project; (i) to levy and
collect those assessments as provided in the Master Deed, in order to defray the
costs, expenses and losses of the condominium; (j) to acquire, own, hold, enjoy,
lease operate and maintain, and to convey, sell transfer, mortgage or otherwise
dispose of real or personal property in connection with the purposes and activities
of the corporation; and (k) to exercise and perform such other powers reasonably
necessary, incidental or convenient to accomplish the foregoing purposes.[53]
Obviously, none of these stated corporate purposes are geared towards
maintaining a livelihood or the obtention of profit. Even though the Corporation is
empowered to levy assessments or dues from the unit owners, these amounts
collected are not intended for the incurrence of profit by the Corporation or its
members, but to shoulder the multitude of necessary expenses that arise from the
maintenance of the Condominium Project. Just as much is confirmed by Section
1, Article V of the Amended By-Laws, which enumerate the particular expenses to
be defrayed by the regular assessments collected from the unit owners. These
would include the salaries of the employees of the Corporation, and the cost of
maintenance and ordinary repairs of the common areas.[54]
The City Treasurer nonetheless contends that the collection of these assessments
and dues are with the end view of getting full appreciative living values for the
condominium units, and as a result, profit is obtained once these units are sold at
higher prices. The Court cites with approval the two counterpoints raised by the
Court of Appeals in rejecting this contention. First, if any profit is obtained by the
sale of the units, it accrues not to the corporation but to the unit owner. Second, if
the unit owner does obtain profit from the sale of the corporation, the owner is
already required to pay capital gains tax on the appreciated value of the
condominium unit.[55]
Moreover, the logic on this point of the City Treasurer is baffling. By this rationale,
every Makati City car owner may be considered as being engaged in business,
since the repairs or improvements on the car may be deemed oriented towards
appreciating the value of the car upon resale. There is an evident distinction
between persons who spend on repairs and improvements on their personal and
real property for the purpose of increasing its resale value, and those who defray
such expenses for the purpose of preserving the property. The vast majority of
persons fall under the second category, and it would be highly specious to subject
these persons to local business taxes. The profit motive in such cases is hardly
the driving factor behind such improvements, if it were contemplated at all. Any
profit that would be derived under such circumstances would merely be incidental,
if not accidental.
Besides, we shudder at the thought of upholding tax liability on the basis of the
standard of full appreciative living values, a phrase that defies statutory explication,
commonsensical meaning, the English language, or even definition from Google.
The exercise of the power of taxation constitutes a deprivation of property under
the
due process clause,[56] and the taxpayers right to due process is violated when
arbitrary or oppressive methods are used in assessing and collecting taxes.[57]
The fact that the Corporation did not fall within the enumerated classes of taxable
businesses under either the Local Government Code or the Makati Revenue Code
already forewarns that a clear demonstration is essential on the part of the City
Treasurer on why the Corporation should be taxed anyway. Full appreciative living
values is nothing but blather in search of meaning, and to impose a tax hinged on
that standard is both arbitrary and oppressive.
The City Treasurer also contends that the fact that the Corporation is engaged in
business is evinced by the Articles of Incorporation, which specifically empowers
the Corporation to acquire, own, hold, enjoy, lease, operate and maintain, and to
convey, sell, transfer mortgage or otherwise dispose of real or personal
property.[58] What the City Treasurer fails to add is that every corporation
organized under the Corporation Code[59] is so specifically empowered. Section
36(7) of the Corporation Code states that every corporation incorporated under the
Code has the power and capacity to purchase, receive, take or grant, hold, convey,
sell, lease, pledge, mortgage and otherwise deal with such real and personal
property . . . as the transaction of the lawful business of the corporation may
reasonably and necessarily require . . . .[60] Without this power, corporations, as
juridical persons, would be deprived of the capacity to engage in most meaningful
legal relations.
95
Again, whatever capacity the Corporation may have pursuant to its power to
exercise acts of ownership over personal and real property is limited by its stated
corporate purposes, which are by themselves further limited by the Condominium
Act. A condominium corporation, while enjoying such powers of ownership, is
prohibited by law from transacting its properties for the purpose of gainful profit.

Accordingly, and with a significant degree of comfort, we hold that condominium

corporations are generally exempt from local business taxation under the Local
Government Code, irrespective of any local ordinance that seeks to declare
otherwise.

Still, we can note a possible exception to the rule. It is not unthinkable that the unit
owners of a condominium would band together to engage in activities for profit
under the shelter of the condominium corporation.[61] Such activity would be
prohibited under the Condominium Act, but if the fact is established, we see no
reason why the condominium corporation may be made liable by the local
government unit for business taxes. Even though such activities would be
considered as ultra vires, since they are engaged in beyond the legal capacity of
the condominium corporation[62], the principle of estoppel would preclude the
corporation or its officers and members from invoking the void nature of its
undertakings for profit as a means of acquitting itself of tax liability.

Still, the City Treasurer has not posited the claim that the Corporation is engaged
in business activities beyond the statutory purposes of a condominium corporation.
The assessment appears to be based solely on the Corporations collection of
assessments from unit owners, such assessments being utilized to defray the
necessary expenses for the Condominium Project and the common areas. There
is no contemplation of business, no orientation towards profit in this case. Hence,
the assailed tax assessment has no basis under the Local Government Code or
the Makati Revenue Code, and the insistence of the city in its collection of the void
tax constitutes an attempt at deprivation of property without due process of law.

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.

96
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
[G.R. No. 127139. February 19, 1999]
JAIME C. LOPEZ, petitioner, vs. CITY OF MANILA and HON. BENJAMIN
A.G. VEGA, Presiding Judge, RTC, Manila, Branch 39, respondents.
SYNOPSIS
Section 219 of republic Act 7160, or the Local Government Code
of 1991, requires the conduct of the general revision of real property. In
September 1995, the City Assessors Office submitted the proposed
schedule of fair market values to the City Council for its appropriate
action. The council, acting on the proposed schedule, conducted public
hearings as required by law. The proposed ordinance was subjected to
the regular process in the enactment of ordinances pursuant to the City
Charter of Manila. The ordinance was approved by the City Mayor and
was made effective on January 1, 1996. With the implementation of
Manila Ordinace No. 7894, the tax on the land owned by the petitioner
was increased by 580%. With respect to the improvement, the tax was
increased by 250%. Consequently, petitioner filed a special proceeding
for the declaration of nullity of the ordinance. The case was raffled, but
on the same day, Manila Ordinance No 7905 took effect, reducing by
50% the assessment levels for the computation of the tax due. The court
directed the issuance of a writ of injunction and denied a motion to
dismiss by the respondent. The latter filed motion for reconsideration
and cited the happening of a supervening event, i.e., the enactment and
approval of Manila Ordinance No. 7905. The trial court granted the
motion to dismiss, which was justified by the failure of the petitioner to
exhaust the administrative remedies and that the petition had become
moot and academic. Petitioner filed a motion for reconsideration, but it
was denied for lack of merit. Hence, this petition.
The Supreme Court found no cogent reason to depart from the
findings of the trial court. As correctly found by the trial court, the
petition does not fall under any of the exceptions to excuse compliance
with the rule on exhaustion of administrative remedies. The Court,
likewise was in full accord with the ruling of the trial court that Manila
Ordinance No. 7905 affects the resulting tax imposed on the market
values of real properties as specified in Manila Ordinance No.
7894. Therefore, this supervening circumstance had rendered the
petition moot and academic, for failure of petitioner to amend his cause
of action.
SYLLABUS
1. ADMINISTRATIVE LAW; EXHAUSTION OF ADMINISTRATIVE
REMEDIES; RELIEF TO COURTS CAN BE SOUGHT ONLY AFTER
EXHAUSTING ALL REMEDIES PROVIDED; RATIONALE. -- As a
general rule, where the law provides for the remedies against the action of an
administrative board, body, or officer, relief to courts can be sought only after
exhausting all remedies provided. The reason rests upon the presumption that
the administrative body, if given the chance to correct its mistake or error, may
amend its decision on a given matter and decide it properly. Therefore, where a
remedy is available within the administrative machinery, this should be resorted
to before resort can be made to the courts, not only to give the administrative
agency the opportunity to decide the matter by itself correctly, but also to prevent
unnecessary and premature resort to courts. This rule, however, admits certain
exceptions.
2. ID.; ID.; ID.; EXCEPTIONS; NOT APPLICABLE IN CASE AT BAR. -- As
correctly found by the trial court, the petition does not fall under any of the
exceptions to excuse compliance with the rule on exhaustion of administrative
remedies, to wit: One of the reasons for the doctrine of exhaustion is the
separation of powers which enjoins upon the judiciary a becoming policy of non-
interference with matters coming primarily within the competence of other
department. xxx There are however a number of instances when the doctrine may
be dispensed with the judicial action validly resorted to immediately. Among
these exceptional cases are: (1) when the question raised is purely legal, (2) when
the administrative body is in estoppel; (3) when the act complained of is patently
illegal; (4) when there is urgent need for judicial intervention; (5) when the claim
involved is small; (6) when irreparable damage will be suffered; (7) when there
is no other plain, speedy and adequate remedy; (8) when strong public interest is
involved; (9) when the subject of controversy is private land; and (10) in quo-
warranto proceeding. In the court's opinion, however, the instant petition does
not fall within any of the exception above-mentioned. xxx Instant petition
involves not only questions of law but more importantly the questions of facts
which therefore needed the reception of evidence contrary to the position of the
respondent before the hearing of its motion for reconsideration. Now, on the
second exception on the rule of exhaustion of administrative
remedies, supra, there is no showing that administrative bodies, viz., the
Secretary of Justice, the City Treasurer, Board of Assessment Appeals, and the
Central Board of Assessment Appeals are in estoppel. On the third exception, it
does not appear that Ordinance No. 7894 or the amendatory Ordinance No. 7905
are patently illegal. Re the fourth exception, in the light of circumstances as
pointed elsewhere herein, the matter does not need a compelling judicial
intervention. On the fifth exception, the claim of the petitioner is not small. Re
97
 the sixth exception, the court does not see any irreparable damage that the
petitioner will suffer if he had paid or will pay under protest as per the
ordinance. He could always ask for a refund of the excess amount he paid under
protest or be credited thereof if the administrative bodies mentioned in the law
(R.A. 7180) will find that his position is meritorious. Re the seventh exception,
the court is of the opinion that administrative relief provided for in the law are
plain, speedy and adequate. On the eight exception, while the controversy
involves public interest, judicial intervention as the petitioner would like this
court to do should be avoided as demonstrated herein below in the discussion of
the third issue. The ninth and tenth exception obviously are not applicable in the
instant case.
3. TAXATION; TAX ORDINANCE; REMEDIES AVAILABLE TO
TAXPAYER WITH REGARD TO QUESTIONS ON THE LEGALITY
THEREOF. -- With regard to questions on the legality of a tax ordinance, the
remedies available to the taxpayer are provided under Section 187, 226, and 252
of R.A. 7160. Section 187 of R.A. 7160 provides, that the taxpayer may question
the constitutionality or legality of tax ordinance on appeal within thirty (30) days
from effectivity thereof, to the Secretary of Justice. The petitioner after finding
that his assessment is unjust, confiscatory, or excessive, must have brought the
case before the Secretary of Justice for questions of legality or constitutionality
of the city ordinance. Under Section 226 of R.A. 7160, an owner of real property
who is not satisfied with the assessment of his property may, within sixty (60)
days from notice of assessment, appeal to the Board of Assessment Appeals.
Should the taxpayer question the excessiveness of the amount of tax, he must
first pay the amount due, in accordance with Section 252 of R.A. 7160. Then, he
must request the annotation of the phrase paid under protest and accordingly
appeal to the Board of Assessment Appeals by filing a petition under oath
together with copies of the tax declarations and affidavits or documents to
support his appeal. The rule is well-settled that courts will not interfere in matters
which are addressed to the sound discretion of government agencies entrusted
with the regulations of activities coming under the special technical knowledge
and training of such agencies. Furthermore, the crux of petitioner's cause of
action is the determination of whether or not the tax is excessive, oppressive or
confiscatory. This issue is essentially a question of fact and thereby, precludes
this Court from reviewing the same.
4. ID.; REAL PROPERTY TAX; STEPS TO FOLLOW FOR THE GENERAL
REVISION OF REAL PROPERTY ASSESSMENTS; SUBSTANTIAL
COMPLIANCE IN CASE AT BAR. -- Based on the evidence presented by the
parties, the steps to be followed for the mandatory conduct of General Revision
of Real Property assessments, pursuant to the provision of Sec. 219 of R.A. No.
7160 are as follows: 1. The preparation of Schedule of Fair Market Values. 2.
The enactment of Ordinances: a) levying an annual ad valorem tax on real
property and an additional tax accruing to the SEF; b) fixing the assessment
levels to be applied to the market values of real properties; c) providing necessary
appropriation to defray expenses incident to general revision of real property
assessments; and d) adopting the Schedule of Fair Market Values prepared by
the assessors. The preparation of fair market values as a preliminary step in the
conduct of general revision was set forth in Section 212 of R.A. 7160, to wit: (1)
The city or municipal assessor shall prepare a schedule of fair market values for
the different classes of real property situated in their respective Local
Government Units for the enactment of an ordinance by the sanggunian
concerned. (2) The schedule of fair market values shall be published in a
newspaper of general circulation in the province, city or municipality concerned
or the posting in the provincial capitol or other places as required by law. It was
clear from the records that Mrs. Lourdes Laderas, the incumbent City Assessor,
prepared the fair market values of real properties and in preparation thereof, she
considered the fair market values prepared in the calendar year 1992. Upon that
basis, the City Assessor's Office updated the schedule for the year 1995. In fact,
the initial schedule of fair market values of real properties showed an increase in
real estate costs, which ranges from 600% - 3,330% over the values determined
in the year 1979. However, after a careful study on the movement of prices, Mrs.
Ladera eventually lowered the average increase to 1,020%. Thereafter, the
proposed ordinance with the schedule of the fair market values of real properties
was published in the Manila Standard on October 28, 1995 and the Balita on
November 1, 1995. Under the circumstances of this case, there was compliance
with the requirement provided under Sec. 212 of R.A. 7160.
5. ID.; ID.; PROCEDURAL STEPS IN THE COMPUTATION THEREOF. --
- With the introduction of assessment levels, tax rates could be maintained,
although tax payments can be made either higher or lower depending on their
percentage (assessment level) applied to the fair market value of property to
derive its assessed value which is subject to tax. Moreover, classes, and values
of real properties can be given proper consideration, like assigning lower
assessment levels to residential properties and higher levels to properties used in
business. The procedural steps in computing the real property tax are as follows:
1) Ascertain the assessment level of the property 2) Multiply the market value by
the applicable assessment level of the property 3) Find the tax rate which
corresponds to the class (use) of the property and multiply the assessed value by
the applicable tax rates
DECISION
QUISUMBING, J.:
This petition for review on certiorari, assails the Order[1] of the
Regional Trial Court of Manila, Branch 39, promulgated on October 24,
1996, dismissing Civil Case No. 96-77510 which sought the declaration
98
of nullity of City of Manila Ordinance No. 7894, filed by petitioner
Jaime C. Lopez.
The facts as found by the trial court are as follows:
Section 219 of Republic Act 7160 (R.A. 7160) or the Local
Government Code of 1991 requires the conduct of the general revision
of real property as follows:
General Revision of Assessments[2] and Property Classification -- The
provincial, city or municipal assessor shall undertake a general
revision of real property assessments within two (2) years after the
effectivity of this Code and every three (3) years thereafter.
Although R.A. 7160 took effect on January 1, 1992, the revision of
real property assessments prescribed therein was not yet enforced in the
City of Manila. However, the process of real property valuation had
already been started and done by the former city assessor.
In 1992, the schedule of real property values in the city was
prepared and submitted to the City Council of Manila, but for unknown
reason, was not acted upon. Nevertheless, despite the inaction of the
City Council, there was a continuous update of the fair market values of
the real properties within the city.
Until the year 1995, the basis for collection of real estate taxes in
the City of Manila was the old, year-1979, real estate market values.
Mrs. Lourdes Laderas, the newly appointed City Assessor of
Manila, received Memorandum Circular No. 04-95 dated March 20,
1995, from the Bureau of Local Government Finance, Department of
Finance. This memorandum relates to the failure of most of the cities
and municipalities of Metropolitan Manila, including the City of
Manila, to conduct the general revision of real property. For this
purpose, Mrs. Laderas embarked in a working dialogue with the Office
of the City Mayor and the City Council for the completion of the task.
After obtaining the necessary funds from the City Council, the City
Assessor began the process of general revision based on the updated fair
market values of the real properties.
In the year 1995, the increase in valuation of real properties
compared to the year-1979 market values ranges from 600% to 3,330%,
but the City Assessors office initially fixed the general average of
increase to 1,700%. Mrs. Laderas felt that the increase may have
adverse reactions from the public, hence, she ended up reducing the
increase in the valuation of real properties to 1,020%.
In September 1995, the City Assessors Office submitted the
proposed schedule of fair market values to the City Council for its
appropriate action. The Council acting on the proposed schedule,
conducted public hearings as required by law. The proposed ordinance
was subjected to the regular process in the enactment of ordinances
pursuant to the City Charter of Manila. The first reading was held on
September 12, 1995, the second on October 28, 1995, and the third on
December 12, 1995. In between these dates, public hearings on the
general revision, which included the schedule of values of real
properties, were had, viz.; on September 28, 1995, October 5, 12 and 19,
1995 and November 27 and 29, 1995.
The proposed ordinance with the schedule of fair market values of
real properties was published in the Manila Standard on October 28,
1995, and the Balita on November 1, 1995. On December 12, 1995, the
City Council enacted Manila Ordinance No. 7894, entitled: An
Ordinance Prescribed as the Revised Schedule of Fair Market Values of
Real Properties of the City of Manila. The ordinance was approved by
the City Mayor on December 27, 1995, and made effective on Jan. 01,
1996. Thereafter, notices of the revised assessments were distributed to
the real property owners of Manila pursuant to Sec. 223 of R.A. 7160.[3]
With the implementation of Manila Ordinance No. 7894, the tax on
the land owned by the petitioner was increased by five hundred eighty
percent (580%). With respect to the improvement on petitioners
property, the tax increased by two hundred fifty percent (250%).
As a consequence of these increases, petitioner Jaime C. Lopez,
filed on March 18, 1996, a special proceeding for the declaration of
nullity of the City of Manila Ordinance No. 7894 with preliminary
injunction and prayer for temporary restraining order (TRO). The
petition alleged that Manila Ordinance No. 7894 appears to be unjust,
excessive, oppressive or confiscatory. The case was originally raffled to
99
the Regional Trial Court of Manila, Branch 5, which issued the TRO on
April 10, 1996.
On the same date, Manila Ordinance No. 7905[4] took effect,
reducing by fifty percent (50%) the assessment levels[5] (depending on
the use of property, e.g., residential, commercial) for the computation of
tax due.The new ordinance amended the assessment levels provided by
Section 74,[6] paragraph (A) of Manila Ordinance No. 7794.
Moreover, Section 2 of Manila Ordinance No. 7905[7] provides that
the amendment embodied therein shall take effect retroactively to
January 1, 1996. The same provision indicates the maximum realty tax
increases, as follows:
Sec. 2 - x x x Provided, however, that the tax increase on residential
lands and improvements shall in no case exceed by two hundred
percent (200%) of the tax levied thereon in calendar year 1995 and the
tax increase on commercial and industrial land, buildings and other
structures shall not exceed by three hundred percent (300%) of the tax
imposed thereon in calendar year 1995; Provided further, that the tax
on all lands and improvements shall in no case be lower than the tax
imposed thereon in calendar year 1995.
As a result, Manila Ordinance No. 7905 reduced the tax increase of
petitioners residential land to one hundred fifty-five percent (155%),
while the tax increase for residential improvement was eighty-two
percent (82%).
The maximum tax increase on classified commercial estates is three
hundred percent (300%) but the tax increase on commercial land was
only, two hundred eighty-eight percent (288%), and seventy-two
percent (72%) on commercial portion of the improvement.
On April 12, 1996, respondent filed a motion for inhibition of the
presiding judge of RTC, Branch 5, alleging that Judge Amelia Andrade
had shown markedly indulgent attitude towards the petitioner. Hence,
Judge Andrade inhibited herself and directed the forwarding of the case
record to the Clerk of Court for its re-raffle to another branch of the
court.
Despite the amendment brought about by Manila Ordinance No.
7905, the controversy proceeded and the case was re-raffled to Branch
39 of the court which acted on the motions submitted by the parties for
resolution, viz.: 1) application for preliminary injunction by the
petitioner, and 2) motion to dismiss by the respondent. The reason relied
upon by the City of Manila for the dismissal of the petition was for
failure of the petitioner to exhaust administrative remedies.
On May 9, 1996, the court directed the issuance of a writ of
injunction and denied, in the meanwhile, the motion to dismiss by the
respondent. The reason for the denial of the respondents motion to
dismiss was not detailed to avoid a repetition of the unfortunate situation
in RTC-Manila, Branch 5, wherein the counsel for the respondent
assumed bias on the part of Judge Andrade.
On May 22, 1996, the respondent filed the instant motion for
reconsideration on the denial of its motion to dismiss. The movant-
respondent aside from reiterating the basic ground alleged in its motion
to dismiss underscored the additional premise, which is the happening
of a supervening event, i.e., the enactment and approval of the City
Mayor of Manila Ordinance No. 7905.
On October 24, 1996, the trial court granted the motion to dismiss
filed by the respondent. The dismissal order was justified by petitioners
failure to exhaust the administrative remedies and that the petition had
become moot and academic when Manila Ordinance No. 7894 was
repealed by Manila Ordinance No. 7905. Notwithstanding, the trial
court likewise resolved all other interlocking issues.
The dispositive portion of the trial courts order is as follows:
WHEREFORE, finding the motion dated May 19, 1996 filed by the
herein respondent on May 22, 1996 sufficiently well-taken, the order
dated May 9, 1996 is hereby set aside. Let the petition filed by the
herein petitioner on March 8, 1996 be, as it is, hereby
DISMISSED. The order of preliminary injunction dated May 9, 1996,
is also set aside and the writ of injunction likewise issued pursuant
thereto, dissolved.
100
SO ORDERED.[8]
The petitioner filed a motion for reconsideration, but it was denied
for lack of merit.
Hence, the petitioner now comes before this Court raising in his
petition the following issues:
I. DID THE RESPONDENT TRIAL COURT IN CIVIL CASE NO.
96-77510 ERR IN HOLDING THAT THE PETITIONER
FAILED TO EXHAUST ALL ADMINISTRATIVE
REMEDIES, AND THEREFORE, THE PETITION OUGHT TO
BE DISMISSED? AND;
II. DID THE RESPONDENT COURT ERR IN FAILING TO
CORRECTLY APPLY SECTIONS 212 AND 221 OF THE
LOCAL GOVERNMENT CODE OF 1991?
Petitioner contends that when the trial court ruled that it has
jurisdiction over the case, the question of whether he needs to resort to
the exhaustion of administrative remedies becomes moot and
academic. He claims that resort to administrative remedies on
constitutionality of law is merely permissive as provided by Sec. 187 of
R.A. 7160, viz.:
x x x Provided, further, That any question on the constitutionality or
legality of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from the effectivity thereof to the
Secretary of Justice who shall render a decision within sixty (60) days
from the date of receipt of the appeal. x x x (emphasis supplied)
Petitioner further asserts that the question of the constitutionality of
the city ordinance may be raised on appeal, either to the Secretary of
Justice or the Regional Trial Court, both having concurrent jurisdiction
over the case, in accordance with Batas Pambansa Blg. 129. He states
that at the time he instituted this complaint, it was premature to resort to
the remedies provided by R.A. 7160 because he has not received the
formal notice of assessment yet, hence, he could not be expected to pay
under protest and elevate the exorbitant assessment to the Board of
Assessment Appeals.
On the other hand, respondent argues that the adjustment of the fair
market values of real properties in the City of Manila was long overdue,
being updated only after fifteen (15) years. According to the
respondent,petitioner filed the case, merely to take advantage of the
situation to gain political mileage and help advance his mayoralty bid.
As a general rule, where the law provides for the remedies against
the action of an administrative board, body, or officer, relief to courts
can be sought only after exhausting all remedies provided. The reason
rests upon the presumption that the administrative body, if given the
chance to correct its mistake or error, may amend its decision on a given
matter and decide it properly. Therefore, where a remedy is available
within the administrative machinery, this should be resorted to before
resort can be made to the courts, not only to give the administrative
agency the opportunity to decide the matter by itself correctly, but also
to prevent unnecessary and premature resort to courts.[9] This rule,
however, admits certain exceptions.[10]
With regard to questions on the legality of a tax ordinance, the
remedies available to the taxpayer are provided under Sections 187, 226,
and 252 of R.A. 7160.
Section 187 of R.A. 7160 provides, that the taxpayer may question
the constitutionality or legality of tax ordinance on appeal within thirty
(30) days from effectivity thereof, to the Secretary of Justice. The
petitioner after finding that his assessment is unjust, confiscatory, or
excessive, must have brought the case before the Secretary of Justice for
questions of legality or constitutionality of the city ordinance.
Under Section 226 of R.A. 7160, an owner of real property who is
not satisfied with the assessment of his property may, within sixty (60)
days from notice of assessment, appeal to the Board of Assessment
Appeals.[11]
Should the taxpayer question the excessiveness of the amount of
tax, he must first pay the amount due, in accordance with Section 252 of
R.A. 7160. Then, he must request the annotation of the phrase paid under
protest and accordingly appeal to the Board of Assessment Appeals by
filing a petition under oath together with copies of the tax declarations
and affidavits or documents to support his appeal.[12]
101
 The rule is well-settled that courts will not interfere in matters
which are addressed to the sound discretion of government agencies
entrusted with the regulations of activities coming under the special
technical knowledge and training of such agencies.[13] Furthermore, the
crux of petitioners cause of action is the determination of whether or not
the tax is excessive, oppressive or confiscatory. This issue is essentially
a question of fact and thereby, precludes this Court from reviewing the
same.[14]
We have carefully scrutinized the record of this case and we found
no cogent reason to depart from the findings made by the trial court on
this point. As correctly found by the trial court, the petition does not fall
under any of the exceptions to excuse compliance with the rule on
exhaustion of administrative remedies, to wit:
One of the reasons for the doctrine of exhaustion is the separation of
powers which enjoins upon the judiciary a becoming policy of non-
interference with matters coming primarily within the competence of
other department. x x x
There are however a number of instances when the doctrine may be
dispensed with and judicial action validly resorted to
immediately. Among these exceptional cases are: (1) when the
question raised is purely legal, (2) when the administrative body is in
estoppel; (3) when the act complained of is patently illegal; (4) when
there is urgent need for judicial intervention; (5) when the claim
involved is small; (6) when irreparable damage will be suffered; (7)
when there is no other plain, speedy and adequate remedy; (8) when
strong public interest is involved; (9) when the subject of controversy
is private land; and (10) in quo-warranto proceeding (citation omitted).
In the courts opinion, however, the instant petition does not fall within
any of the exceptions above-mentioned. x x x
x x x Instant petition involves not only questions of law but more
importantly the questions of facts which therefore needed the reception
of evidence contrary to the position of the respondent before the
hearing of its motion for reconsideration
Now, on the second exception on the rule of exhaustion of
administrative remedies, supra, there is no showing that administrative
bodies, viz., The Secretary of Justice, the City Treasurer, Board of
Assessment Appeals, and the Central Board of Assessment Appeals
are in estoppel. On the third exception, it does not appear that
Ordinance No. 7894 or the amendatory Ordinance No. 7905 are
patently illegal. Re the fourth exception, in the light of circumstances
as pointed elsewhere herein, the matter does not need a compelling
judicial intervention. On the fifth exception, the claim of the petitioner
is not small. Re the sixth exception, the court does not see any
irreparable damage that the petitioner will suffer if he had paid or will
pay under protest as per the ordinance. He could always ask for a
refund of the excess amount he paid under protest or be credited
thereof if the administrative bodies mentioned in the law (R.A.
7180[15]) will find that his position is meritorious. Re the seventh exception, the
court is of the opinion that administrative relief provided for in the law are plain,
speedy and adequate. On the eight exception, while the controversy involves public
interest, judicial intervention as the petitioner would like this court to do should be
avoided as demonstrated herein below in the discussion of the third issue. The ninth
and tenth exception obviously are not applicable in the instant case.[16]
Proceeding to the second issue, petitioner contends that the
respondent court failed to apply correctly Sections 212 and 221 of R.A.
7160. The pertinent provisions are set forth below:
Sec. 212 Preparation of Schedule of Fair Market Values -- Before any
general revision of property assessment is made pursuant to the
provisions of this Title, there shall be prepared a schedule of fair
market values by the provincial, city and the municipal assessors of the
municipalities within the Metropolitan Manila Area for the different
classes of real property situated in their respective local government
units [LGU] for enactment by ordinance of the sanggunian
concerned. The schedule of fair market values shall be published in a
newspaper of general circulation in the province, city or municipality
concerned, or in the absence thereof, shall be posted in the provincial
capitol, city or municipal hall and in two other conspicuous public
places therein.
102
Sec. 221. Date of Effectivity of Assessment or Reassessment -- All
assessments or reassessments made after the first (1st) day of January
of any year shall take effect on the first (1st) day of January of the
succeeding year:Provided, however, That the reassessment of real
property due to its partial or total destruction, or to a major change in
its actual use, or to any great and sudden inflation or deflation of real
property values, or to the gross illegality of the assessment when made
or to any other abnormal cause, shall be made within ninety (90) days
from the date any such cause or causes occurred, and shall take effect
at the beginning of the quarter next following assessment.
The petitioner claims that the effectivity date of Manila Ordinance
No. 7894 and the schedule of the fair market values is January 1,
1996. He contends that Sec. 212 of the R.A. 7160 prohibits the general
revision of real property assessment before the approval of the schedule
of the fair market values. Thus, the alleged revision of real property
assessment in 1995 is illegal.
Based on the evidence presented by the parties, the steps to be
followed for the mandatory conduct of General Revision of Real
Property assessments, pursuant to the provision of Sec. 219 of R.A. No.
7160 are as follows:
1. The preparation of Schedule of Fair Market Values.
2. The enactment of Ordinances:
a) levying an annual ad valorem tax on real property and an
additional tax accruing to the SEF.
b) fixing the assessment levels to be applied to the market
values of real properties;
c) providing necessary appropriation to defray expenses
incident to general revision of real property
assessments; and
d) adopting the Schedule of Fair Market Values prepared by
the assessors.[17]
The preparation of fair market values as a preliminary step in the
conduct of general revision was set forth in Section 212 of R.A. 7160,
to wit: (1) The city or municipal assessor shall prepare a schedule of fair
market values for the different classes of real property situated in their
respective Local Government Units for the enactment of an ordinance
by the sanggunian concerned. (2) The schedule of fair market values
shall be published in a newspaper of general circulation in the province,
city or municipality concerned or the posting in the provincial capitol or
other places as required by law.
It was clear from the records that Mrs. Lourdes Laderas, the
incumbent City Assessor, prepared the fair market values of real
properties and in preparation thereof, she considered the fair market
values prepared in the calendar year 1992. Upon that basis, the City
Assessors Office updated the schedule for the year 1995. In fact, the
initial schedule of fair market values of real properties showed an
increase in real estate costs, which ranges from 600% - 3,330% over the
values determined in the year 1979. However, after a careful study on
the movement of prices, Mrs. Laderas eventually lowered the average
increase to 1,020%. Thereafter, the proposed ordinance with the
schedule of the fair market values of real properties was published in
the Manila Standard on October 28, 1995 and the Balita on November
1, 1995.[18] Under the circumstances of this case, there was compliance
with the requirement provided under Sec. 212 of R.A. 7160.
Thereafter, on January 1, 1996, the Sanggunian approved Manila
Ordinance No. 7894. The schedule of values of real properties in the
City of Manila, which formed an integral part of the ordinance, was
likewise approved on the same date.
When Manila Ordinance No. 7894 took effect on January 1, 1996,
the existing assessment levels to be multiplied by the market value of
the property in computing the assessed value (taxable value) subject to
tax were those enumerated in Section 74 paragraph (A) of Manila
Ordinance Number 7794.
103
 Coming down to specifics, we find it desirable to lay down the (1) On Lands:
procedure in computing the real property tax. With the introduction of Class
assessment levels, tax rates could be maintained, although tax payments Residential 20% 10%
can be made either higher or lower depending on their percentage Commercial 50% 25%
(assessment level) applied to the fair market value of property to derive Industrial 50% 25%
its assessed value which is subject to tax. Moreover, classes and values
of real properties can be given proper consideration, like assigning (2) On Buildings and other structures:
lower assessment levels to residential properties and higher levels to (a) Residential Fair Market Value
properties used in business.[19] The procedural steps in computing the
real property tax are as follows: Over Not Over
P 175,000.00 0% 0%
1) Ascertain the assessment level of the property 175,000.00 P 300,000.00 10% 5%
300,000.00 500,000.00 20% 10%
2) Multiply the market value by the applicable assessment level 500,000.00 750,000.00 25% 12.5%
of the property 750,000.00 1,000,000.00 30% 15%
1,000,000.00 2,000,000.00 35% 17.5%
3) Find the tax rate which corresponds to the class (use) of the 2,000,000.00 5,000,000.00 40% 20%
property and multiply the assessed value by the applicable 5,000,000.00 10,000,000.00 50% 25%
tax rates.[20] 10,000,000.00 60% 30%

For easy reference, the computation of real property tax is cited (b) Commercial/Industrial Fair Market Value
below:
Over Not Over
Market Value P x x x
300,000.00 30% 15%
Multiplied by Assessment Level ( x %)
300,000.00 500,000.00 35% 17.5%
Assessed Value P x x x
500,000.00 750,000.00 40% 20%
Multiplied by Rate of Tax ( x %)
750,000.00 1,000,000.00 50% 25%
Real Property Tax P x x
1,000,000.00 2,000,000.00 60% 30%
=====
2,000,000.00 5,000,000.00 70% 35%
On April 10, 1996, Manila Ordinance No. 7905 was enacted and 5,000,000.00 10,000,000.00 75% 37.5%
approved to take effect, retroactively to January 1, 1996. As a result of 10,000,000.00 80% 40%
this new ordinance, the assessment levels applicable to the market
values of real properties were lowered into half. A comparative (3) On Machineries:
evaluation between the old and the new assessment levels is as follows:
Class
Assessment Levels
Residential 50% 25%
Ordinance 7794 Ordinance 7905
Commercial 80% 40%
Old New
Industrial 66% 40%
104
(4) On special classes - The assessment levels for all lands, buildings, all interlocking issues in order to render justice to all concerned and
machineries and other improvements shall be as follows: end litigation once and for all.[21]

Actual Use
Cultural 15% 7.5%
Scientific 15% 7.5%
Hospital 15% 7.5%
Local Water Districts 15% 7.5%
GOCC engaged in the supply and
and distribution of water and/or
degeneration and transmission of
electric power 10% 5%
Despite the favorable outcome of Manila Ordinance No. 7905, the
petitioner insists that since it was approved on April 10, 1996, it cannot
be implemented in the year 1996. Using Section 221 of R.A. 7160 as
basis for his argument, petitioner claims that the assessments or
reassessments made after the first (1st) day of January of any year shall
take effect on the first (1st) day of January of the succeeding year.
Contrarily, the trial court viewed that Manila Ordinance No. 7905
affects the resulting tax imposed on the market values of real properties
as specified in Manila Ordinance No. 7894. Therefore, this supervening
circumstance has rendered the petition, moot and academic, for failure
of the petitioner to amend his cause of action. The trial court said:
Although, we are in full accord with the ruling of the trial court, it
is likewise necessary to stress that Manila Ordinance No. 7905 is
favorable to the taxpayers when it specifically states that the reduced
assessment levels shall be applied retroactively to January 1, 1996. The
reduced assessment levels multiplied by the schedule of fair market
values of real properties, provided by Manila Ordinance No. 7894,
resulted to decrease in taxes. To that extent, the ordinance is likewise, a
social legislation intended to soften the impact of the tremendous
increase in the value of the real properties subject to tax. The lower taxes
will ease, in part, the economic predicament of the low and middle-
income groups of taxpayers. In enacting this ordinance, the due process
of law was considered by the City of Manila so that the increase in realty
tax will not amount to the confiscation of the property.
WHEREFORE, the instant petition is hereby DENIED, and the
assailed Order of Regional Trial Court of Manila, Branch 39 in Civil
Case No. 96-77510 is hereby AFFIRMED. COSTS against the
petitioner.
SO ORDERED.

A mere cursory reading of his petition that he questioned fair market

values and the assessment levels and the resulting tax based thereon as
imposed by Ordinance No. 7894. The petitioner, however, failed to
amend his petition. Thus, it is clear that the petition has become moot
and academic. As correctly stated by the respondent, the facts, viz., the
tax rates on level prescribed by Ordinance 7894 upon which the
petition was anchored no longer exist because the tax rates in
Ordinance No. 7894 have been amended, otherwise, impliedly
repealed by Ordinance No. 7905. If only for this, the petition could be
dismissed but this court followed the advice of the Supreme Court in
the case of National Housing Authority vs. Court of Appeals, et. al.
(121 SCRA 777) that the case may be decided in its totality resolving
105
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
G.R. No. L-52019 August 19, 1988
ILOILO BOTTLERS, INC., plaintiff-appellee, vs. CITY OF ILOILO, defendant-
appellant.
CORTES, J.:
The fundamental issue in this appeal is whether the Iloilo Bottlers, Inc. which had its
bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under
Iloilo City tax Ordinance No. 5, series of 1960, as amended, which imposes a
municipal license tax on distributors of soft-drinks.
On July 12,1972, Iloilo Bottlers, Inc. filed a complaint docketed as Civil Case No.
9046 with the Court of First Instance of Iloilo praying for the recovery of the sum of
P3,329.20, which amount allegedly constituted payments of municipal license taxes
under Ordinance No. 5 series of 1960, as amended, that the company paid under
protest.
On November 15,1972, the parties submitted a partial stipulation of facts, the
material portions of which state xxx xxx xxx
2. That plaintiff is engaged in the business of bottling softdrinks under the trade
name of Pepsi Cola And 7-up and selling the same to its customers, with a bottling
plant situated at Barrio Ungca Municipality of Pavia, Iloilo, Philippines and which is
outside the jurisdiction of defendant;
3. That defendant enacted an ordinance on January 11, 1960 known as
Ordinance No. 5, Series of 1960 which ordinance was successively amended by
Ordinance No. 28, Series of 1960; Ordinance No. 15, Series of 1964; and Ordinance
No. 45, Series of 1964; which provides as follows:
Section l. — Any person, firm or corporation engaged in the distribution,
manufacture or bottling of coca-cola, pepsi cola, tru-orange, seven-up and
other soft drinks within the jurisdiction of the City of Iloilo, shall pay a municipal
license tax of ten (P0.10) centavos for every case of twenty-four bottles; PROVIDED,
HOWEVER, that softdrinks sold to the public at not more than five (P0.05) centavos
per bottle shall pay a tax of one and one half (P0.015) (centavos) per case of twenty
four bottles.
Section 1-A—For purposes of this Ordinance, all deliveries and/or dispatches
emanating or made at the plant and all goods or stocks taken out of the plant
for distribution, sale or exchange irrespective (of) where it would take place shall
be covered by the operation of this Ordinance.
4. That prior to September, 1966, Santiago Syjuco Inc., owned and operated a
bottling plant at Muelle Loney Street, Iloilo City, which was doing business under
the name of Seven-up Bottling Company of the Philippines and bottled the soft-
drinks Pepsi-Cola and 7-up; however sometime on September 14,1966, Santiago
Syjuco, Inc., informed all its employees that it (was) closing its Iloilo Plant due to
financial losses and in fact closed the same and later sold the plant to the plaintiff
Iloilo Bottlers, Inc.
5. That thereafter, plaintiff operated the said plant by bottling the soft drinks
Pepsi-Cola and 7-up; however, sometime in July 1968, plaintiff closed said bottling
plant at Muelle Loney, Iloilo City, and transferred its bottling operations to its new
plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo, and which is outside
the jurisdiction of the City of Iloilo;
6. That from the time of (the) enactment (of the ordinance), the Seven Up
Bottling Company of the Philippines under Santiago Syjuco Inc., had been religiously
paying the defendant City of Iloilo the above- mentioned municipal license tax due
therefrom for bottler because its bottling plant was then still situated at Muelle
Loney St., Iloilo City; but the plaintiff stopped paying the municipal license tax
(after) October 21, 1968 (when) it transferred its plant to Barrio Ungca Municipality
of Pavia, Iloilo which is outside the jurisdiction of the City of Iloilo;
7. That sometime on July 31, 1969, the defendant demanded from the
plaintiff the payment of the municipal license tax under the above-mentioned
ordinance, a xerox copy of the said letter is attached to the complaint as Annex "A"
and made an integral part hereof by reference.
8. That plaintiff explained in a letter to the defendant that it could not
anymore be liable to pay the municipal license fee because its bottling plant (was)
not anymore inside the City of Iloilo, and that moreover, since it itself (sold) its own
products to its (customers) directly, it could not be considered as a distributor in
line with the doctrines enunciated by the Supreme Court in the cases of City of
Manila vs. Bugsuk Lumber Co., L- 8255, July 11, 1957; Manila Trading & Supply Co.,
Inc. vs. City of Manila L-1 2156, April 29, 1959; Central Azucarera de Don Pedro vs.
City of Manila et al., G.R. No. L7679, September 29,1955; Cebu Portland Cement vs.
City of Manila and City Treasurer of Manila, L-1 4229,July 26,1960. A xerox copy of
the said letter is attached as Annex "B" to the complaint and made an integral part
hereof by reference. As a result of the said letter of the plaintiff, the defendant did
not anymore press the plaintiff to pay the said municipal license tax;
9. That sometime on January 25, 1972, the defendant demanded from the
plaintiff compliance with the said ordinance for 1972 in view of the fact that it was
engaged in distribution of the softdrinks in the City of Iloilo, and it further
106
demanded from the plaintiff payment of back taxes from the time it transferred its Ungca Municipality of Pavia, Iloilo, directly to its customers in the different towns of
bottling plant to the Municipality of Pavia, Iloilo; the Province of Iloilo as well as the City of Iloilo;

10. That the plaintiff demurred to the said demand of the defendant raising as 14. That the plaintiff is already paying the National Government a percentage
its jurisdiction the reason that its bottling plant is situated outside the City of Iloilo Tax of 71/t, as manufacturer's sales tax on all the softdrinks it manufactures as
and as bottler could not be considered as distributor under the said ordinance follows:
although it sells its product directly to the consumer, in line with the jurisprudence
enunciated by the Supreme Court but due to insistence of the defendant, the O.R. No. 4683995 - January, 1972 Sales P17,222.90
plaintiff paid on April 20, 1972, the first quarter payment of the municipal licence O.R. No. 5614767 - February " " 17,024.81
tax in the sum of P3,329.20, under protest, and thereafter has been paying O.R. No. .5614870 - March " " 17,589.19
O.R. No. 5614891 - April " " 18,726.77
defendant every quarter under protest;
O.R. No. 5614897 - May " " 16,710.99
O.R. No. 5614935 - June " " 14,791.20
11. That on June l5, 1972,the defendant informed the plaintiff that it must pay O.R. No. 5614967 - July " " 13,952.00
all the taxes due since July, 1968 up to the last quarter of 1971, otherwise it shall be O.R. No. 5614973 - August " " 15,726.16
constrained to cancel the operation of the business of the plaintiff, and because of O.R. No. 56'L4999 - September " " 19,159.54
this threat, and so as not to occasion disruption of its business operation, the
plaintiff under protest agreed to the payment of the back taxes, on staggered basis, and is also paying the municipal license tax to the municipality of Pavia, Iloilo in the
which was acceded to by the defendant; amount of P l0,000.00 every year, plus a municipal license tax for engaging in its
business to the municipality of Pavia in its amount of P2,000.00 every year.
12. That as computed by the plaintiff the following are its softdrinks sold in xxx xxx xxx [Rollo, P. 10 (Record on Appeal, pp. 25-31)]
Iloilo City since it transferred its bottling plant from the City of Iloilo to Barrio Ungca
Pavia, Iloilo in July 1968, to wit: On the basis of the above stipulations, the court a quo rendered on January 26,
1973 a decision in favor of Iloilo Bottlers, Inc. declaring the Corporation not liable
No. of Cases sold SEVEN-UP PEPSI-COLA TOTAL TAX DUE under the ordinance and directing the City of Iloilo to pay the sum of' P3,329.20.
The decision was amended in an Order dated March 15, 1973, so as to include the
1968 Jul to Dec amounts paid by the company after the filing of the complaint. The City of Iloilo
39,340 49,060 88,400 P8,840 appealed to the Court of Appeals which certified the case to this Court.
1969 Jan. to Dec.
The tax ordinance imposes a tax on persons, firms, and corporations engaged in the
81,240 87,660 168,900 16,890
business of:
1970 Jan. to Dec.
79,389 89,211 168,600 16,600 1. distribution of soft-drinks

1971 Jan. to Dec. 2. manufacture of soft-drinks, and

80,670 88,480 169,150 16,915
3. bottling of softdrinks within the territorial jurisdiction of the City of Iloilo.
TOTAL
280,639 314,411 595,050 P 59,505
There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo
Bottlers, Inc. no longer manufactured/bottled its softdrinks within Iloilo City. Thus,
13. That the plaintiff does not maintain any store or commercial establishment
it cannot be taxed as one falling under the second or the third type of business. The
in the City of Iloilo from which it distributes its products, but by means of a fleet of
resolution of this case therefore hinges on whether the company may be
delivery trucks, plaintiff distributes its products from its bottling plant at Barrio
considered engaged in the distribution of softdrinks in Iloilo City, even after it had

107
transferred its bottling plant to Pavia, so as to be within the purview of the
ordinance.
Iloilo Bottlers, Inc. disclaims liability on two grounds: First, it contends that since it is
not engaged in the independent business of distributing soft-drinks, but that its
activity of selling is merely an incident to, or is a necessary consequence of its main
or principal business of bottling, then it is NOT liable under the city tax ordinance.
Second, it claims that only manufacturers or bottlers having their plants inside the
territorial jurisdiction of the city are covered by the ordinance.
The second ground is manifestly devoid of merit. It is clear from the ordinance that
three types of activities are covered: (1) distribution, (2) manufacture and (3)
bottling of softdrinks. A person engaged in any or all of these activities is subject to
the tax.
The first ground, however, merits serious consideration.
This Court has always recognized that the right to manufacture implies the right to
sell/distribute the manufactured products [See Central Azucarera de Don Pedro v.
City of Manila and Sarmiento, 97 Phil. 627 (1955); Caltex (Philippines), Inc. v. City of
Manila and Cudiamat, G.R. No. L-22764, July 28, 1969, 28 SCRA 840, 843.] Hence,
for tax purposes, a manufacturer does not necessarily become engaged in the
separate business of selling simply because it sells the products it manufactures. In
certain cases, however, a manufacturer may also be considered as engaged in the
separate business of selling its products.
To determine whether an entity engaged in the principal business of manufacturing,
is likewise engaged in the separate business of selling, its marketing system or sales
operations must be looked into.
In several cases [See Central Azucarera de Don Pedro v. City of Manila and
Sarmiento, supra; Cebu Portland Cement Co. v. City of Manila and the City
Treasurer, 108 Phil. 1063 (1960); Caltex (Philippines), Inc. v. City of Manila and
Cudiamat, supra], this Court had occasion to distinguish two marketing systems:
Under the first system, the manufacturer enters into sales transactions and invoices
the sales at its main office where purchase orders are received and approved before
delivery orders are sent to the company's warehouses, where in turn actual
deliveries are made. No warehouse sales are made; nor are separate stores
maintained where products may be sold independently from the main office. The
warehouses only serve as storage sites and delivery points of the products earlier
sold at the main office. Under the second system, sales transactions are entered
into and perfected at stores or warehouses maintained by the company. Any one
who desires to purchase the product may go to the store or warehouse and there
purchase the merchandise. The stores and warehouses serve as selling centers.
Entities operating under the first system are NOT considered engaged in the
separate business of selling or dealing in their products, independent of their
manufacturing business. Entities operating under the second system are considered
engaged in the separate business of selling.
In the case at bar, the company distributed its softdrinks by means of a fleet of
delivery trucks which went directly to customers in the different places in lloilo
province. Sales transactions with customers were entered into and sales were
perfected and consummated by route salesmen. Truck sales were made
independently of transactions in the main office. The delivery trucks were not used
solely for the purpose of delivering softdrinks previously sold at Pavia. They served
as selling units. They were what were called, until recently, "rolling stores". The
delivery trucks were therefore much the same as the stores and warehouses under
the second marketing system. Iloilo Bottlers, Inc. thus falls under the second
category above. That is, the corporation was engaged in the separate business of
selling or distributing soft-drinks, independently of its business of bottling them.
The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of
distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be
levied by the taxing authority only when the acts, privileges or businesses are done
or performed within the jurisdiction of said authority [Commissioner of Internal
Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773-
74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs of the act of
distributing, bottling or manufacturing softdrinks must be within city limits, before
an entity engaged in any of the activities may be taxed in Iloilo City.
As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have
no option but to declare the company liable under the tax ordinance.
With the foregoing discussion, it becomes unnecessary to discuss the other issues
raised by the parties.
WHEREFORE, the appealed decision is hereby REVERSED. The complaint in Civil Case
No. 9046 is ordered DISMISSED. No Costs.
SO ORDERED.
108
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
G.R. No. L-37684 September 10, 1975
ARABAY, INC., petitioner, vs. THE COURT OF FIRST INSTANCE OF
ZAMBOANGA DEL NORTE, BRANCH II, THE CITY OF DIPOLOG and
EMILIO L. TAGAILO, in his capacity as City Treasurer of the City of
Dipolog, et al., respondents.
CASTRO, J.:
Before us is a petition for review of the decision of the Court of First
Instance of Zamboanga del Norte, Branch II, dismissing the complaint of
the herein petitioner Arabay, Inc., for annulment of a tax ordinance of the
Municipal Council of Dipolog, Zamboanga del Norte, and for refund of the
taxes it had paid thereunder. On December 17, 1965 the Municipal
Council of Dipolog enacted Ordinance No. 19 amending Section I of
Ordinance No. 53 series of 1964. As thus amended the said Section I
reads as follows:
Section 1. There shall be charged for the selling and
distribution of refined and manufactured mineral oils,
motor and diesel fuels, and petroleum based on the
monthly allocation actually delivered and distributed and
intended for sale, in any manner whatsoever, by the
Company or supplier to any person, firm, entity, or
corporation, whether as dealer of such refined and
manufactured mineral oils, motor and diesel fuels, and
petroleum or as operator of any station thereof, the
following tax payable monthly:
Gasoline — P0.01 per liter
Lubricating oils — P0.01 per liter
Diesel Fuel oils ¼ centavo per liter
Petroleum or P0.05 per gallon can
kerosene or
— P0.02 per half gallon tin
Provided, however, that retail seller of not more than 5
gallon cans or its equivalent shall be exempted from the
provisions of this ordinance.
Section 2. This Ordinance shall take effect on January 1,
1966.
On June 21, 1969 Republic Act No. 5520 was approved. It provided for
the creation of the City of Dipolog from the then of the Municipality of
Dipolog, to take effect on January 1, 1970.
On July 28, 1971 the Arabay, Inc., a distributor of gas, oil and other
petroleum products, filed with the Court of First Instance of Zamboanga
del Norte a complaint against the City of Dipolog contesting the validity of
the above-mentioned Section 1 of Ordinance No. 53 on the ground that
the same imposed a sales tax which is beyond the power of a
municipality to levy under Section 2 of Republic Act No. 2264, otherwise
known as the Local Autonomy Act of 1959. Said Section 2 provides:
SEC. 2 Taxation — Any provision of law to the contrary
notwithstanding, all chartered cities, municipalities and
municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in
any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts by
requiring them to secure licenses at rates fixed by the
municipal board or city council of the city, the municipal
council of the municipality, or the municipal district council
of the municipal district; to collect fees and charges for
service rendered by the city, municipality or municipal
district; to regulate and impose reasonable fees for
services rendered in connection with any business,
profession or occupation being conducted within the city,
municipality or municipal district and otherwise to levy for
public purposes, just and uniform taxes, licenses or
fees: Provided, That municipalities and municipal districts
shall, in no case, impose any percentage tax on sales or
other taxes in any form based thereon nor impose taxes
on articles subject to specific tax, except gasoline, under
the provisions of the National Internal Revenue: Provided,
however, That no city, municipality or municipal district
may levy or impose any of the following: ... (emphasis
supplied)
109
On August 30, 1972 the Arabay, Inc. filed a supplemental complaint
which prayed, among others, for a refund of the taxes it had paid under
the ordinance in question.
On October 30, 1972 the parties entered into a stipulation of facts
which, inter alia, states:
2. That plaintiff, pursuant to the above ordinance, paid
sales taxes for the sale of Diesel fuel oils, lubricating oils,
petroleum, kerosene and other related petroleum
products, to the defendant City of Dipolog, from
December, 1969 to July, 1972 in the total amount of FIVE
THOUSAND FOUR HUNDRED PESOS (P5,400.00). A
schedule of the payments made by plaintiff is hereto
attached as Annex "A" and is made an integral part
hereof. However, the payments made from April, 1972 to
July, 1972, in the total amount of P69.80 have been
refunded by defendant City of Dipolog to plaintiff.
WHEREFORE, on the basis of the foregoing stipulation of
facts and of the Memorandum of Arguments to be
submitted by the parties, the latter, through, their
respective counsels, hereby submit the case for the
determination of this Honor.
On January 16, 1973 the court a quo rendered judgment upholding the
validity of the questioned provision of Ordinance No. 53, as amended,
essentially on the grounds that the Arabay, Inc. failed to present evidence
that the tax provision in question imposed a sales tax, and the tax
prescribed therein was, moreover, not a specific tax on the products
themselves but on the privilege of selling them.
The basic issues in the case at bar are: (1) whether or not the questioned
tax provision imposes a sales tax; and (2) if it imposes a sales tax,
whether the Arabay, Inc. is entitled to a tax refund, considering that
Dipolog is now a city.
1. It is settled rule in this jurisdiction that for purposes of Section 2 of the
Local Autonomy Act, supra, a municipal tax ordinance which prescribes a
set ratio between the amount of the tax and the volume of sales of the
taxpayer imposes a sales tax and is null and void for being beyond the
power of a municipality to enact.1
In our view, the questioned section of Ordinance No. 53 of the Municipal
Council of Dipolog levies a sales tax, not only because the character of
the ordinance as a sales tax ordinance was admitted by the parties
below, but as well because the phraseology of the said provision reveals
in clear terms the intention to impose a tax on the sale of oil, gasoline and
other petroleum products. Thus, the ordinance provides: "There shall be
charged for the selling and distribution of refined and manufactured oils ...
based on the monthly allocation actually delivered and distributed and
intended for sale ... by the Company or supplier to any person ... whether
as dealer ... or as operator of any station ... the following tax payable
monthly: ..." It is quite evident from these terms that the amount of the tax
that may be collected is directly dependent upon or bears a direct
relationship to the volume of sales which the owner or supplier of the
itemized products generates every month. The ordinance in question
therefore exacts a tax based on sales; it follows that the Municipality of
Dipolog was not authorized to enact such an ordinance under the local
Autonomy Act.
2. The obligation of the City of Dipolog to refund the sum collected under
the void provisions of an ordinance enacted while it was still a
municipality, is not open to doubt. In San Miguel Corporation vs. The
Municipal Council of Mandaue, Cebu, supra, the Court ordered, the
return to the taxpayer of the sums paid under an ordinance enacted
under circumstances similar to the case at bar, and rejected the
argument that the municipality of Mandaue had in the meantime been
converted into a city. The Court said:
Respondent however claim that with the conversion of
Mandaue into a city pursuant to Republic Act No. 5519,
which was approved on June 21, 1969, the issue has
already become moot, since the prohibition contained in
section 2 of Republic Act 2264 applies only to
municipalities and not to chartered cities. The same
contention has been rejected in City of Naga v. Court of
Appeals, and Laoag Producers' Cooperative Marketing
Association, Inc. vs. Municipality of Laoag, where We
ruled that the legality of an ordinance depends upon the
power of the municipality at the time of the enactment of
the challenged ordinance. Since the municipality of
Mandaue had no authority to enact the said ordinance,
the subsequent approval of Republic Act No. 5519 which
became effective on June 21, 1969, did not remove the
original infirmity of the ordinance. Indeed there is no
110
 provision in the aforecited statute which invests a curative
effect upon the ordinances of the municipality which when
enacted were beyond its statutory authority.
The right of the Arabay, Inc. to a refund of the local sales taxes it had
paid under the questioned ordinance may not, however, include those
levied on its gasoline sales. The relevant proviso of Section 2 of the Local
Autonomy Act states:
... Provided, That municipalities and municipal districts
shall, in no case, impose any percentage tax on sales or
other taxes on articles subject to specific tax, except
gasoline, under the provisions of the National Internal
Revenue Code:
xxx xxx xxx (Emphasis supplied)
put it within the power of such local governments to impose whatever
type or form of taxes the latter may deem proper to levy on gasoline
including a sales tax or one in that form. There is after all no clearly
demonstrable and convincing reason why the law would allow municipal
imposition of taxes on gasoline and yet withhold such power if the
imposition is in the form of a sales tax, when it was a known fact at the
time of the enactment of the Local Autonomy Act in 1959 — and this still
is true to this day — that gasoline is of no profitable use to the companies
which own it unless turned over to the consuming public which, perforce,
must pay for the right to obtain that commodity.
ACCORDINGLY, the judgment a quo is set aside. The City of Dipolog is
hereby ordered to refund to the Arabay, Inc. the taxes the latter has paid
under Section 1 of Ordinance No. 53, series of 1964, as amended,
deducting therefrom the amount representing the taxes paid by the
Arabay, Inc. on its gasoline sales. No costs.

Under the foregoing proviso of Section 2 of R.A. 2264, two courses of

action in the exercise of their taxing powers are denied to municipalities
and municipal districts, to wit, (1) to levy any sales tax in whatever form;
and (2) to levy any tax on articles subject to specific tax under the
National Internal Revenue Code. It is not difficult to see that these two
prohibitions overlap in the sense that while the first clause of the
said proviso forbids the levying of sales taxes of whatever form or guise,
the second clause of the same proviso forbids the levying of "taxes"
without any distinction as to the kind of tax, i.e.' whether percentage tax,
sales tax, specific tax or license tax, although this latter prohibition
applies only to a limited class of articles, viz., those subject to the specific
tax under the Tax Code.

Such an overlap would probably carry or connote no legal significance

but for the exclusion of gasoline from the prohibition contained in the
second clause of the mentioned proviso. For, with the exemption of
gasoline from the coverage of the same, it becomes relevant to
determine the effect which such exclusion has on the previous prohibition
against the levying of the sales tax.

In our opinion, a reasonable and practical interpretation of the terms of

the proviso in question results in the conclusion that Congress, in
excluding gasoline from the general disability imposed on municipalities
and municipal districts to exact any kind of taxes on articles subject to
specified tax under the Tax Code, deliberately and intentionally meant to

111
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
G.R. No. L-40296 November 21, 1984
ALLIED THREAD CO., INC., and KER & COMPANY, LTD., petitioners,
vs. HON. CITY MAYOR OF MANILA, HON. CITY TREASURER OF
MANILA, HON. LORENZO RELOVA, in his capacity as Presiding
Judge, Branch II, CFI of Manila, respondents.
ABAD SANTOS, J.:
This is a Petition for Review challenging the decision of the then Court of
First Instance of Manila presided by then Judge, now Justice Lorenzo
Relova, which upheld the validity of Manila Ordinance No. 7516, as
amended by Ordinance Nos. 7544, 7545 and 7556, and adjudging
petitioner Allied Thread Co., Inc. taxable thereunder considering that its
products are sold in Manila.
On June 12, 1974, the Municipal Board of the City of Manila enacted
Ordinance No. 7516 imposing on manufacturers, importer porters or
producers, doing business in the City of Manila, business taxes based on
gross sales on a graduated basis. The Mayor approved the said
Ordinance on June 15, 1974. In due time, the same ordinance underwent
a series of amendments, to wit: on June 19, 1974, by Ordinance No.
7544 approved by the Mayor on the same date; Ordinance No. 7545
enacted by the Municipal Board on June 20, 1974 and approved by the
Mayor on June 27, 1974; and Ordinance No. 7556, enacted by the
Municipal Board on July 20, 1974 and approved by the Mayor on July
29,1974. Ordinance No. 7516 as amended, reads as follows:
Sec. 1. Business Tax. — There is hereby imposed on the following
business in the City of Manila an annual tax collectible quarterly except
on those for which fixed taxes are already provided for as follows:
A. On manufacturers, importers, or producers of any article of commerce
of whatever kind or nature, including brewers, distilled spirits and/or
wines in accordance with the following schedule: xxx xxx xxx
PROVIDED HOWEVER, that for purposes of collection of this tax,
manufacturers and producers maintaining or operating branch or sales
offices elsewhere shall record the sale in the branch or sales office
making the sale and the tax thereon shall accrue to the City of Manila if
the branch of sales office is in Manila. In cases where there is no such
branch or sales office in the city, the sale shag be duly recorded in the
principal office along with the sales made in the principal office. Sixty
percent of all sales recorded in the principal office shall be taxable by the
City of Manila if the principal office is in Manila, while the remaining forty
percent shall be deemed as sales made in the factory and shall he
taxable by the local government where the factory is located.
In cases where a manufacturer or producer has factories in Manila and in
different localities, the forty per cent sales allocation mentioned in the
preceding paragraph shall be appropriated among the City of Manila and
the localities where the factories are situated in proportion to their
respective volumes of production during the period for which the tax is
due.
The records show that petitioner Allied Id Co., inc. is engaged in the
business of manufacturing sewing thread and yarn under duly registered
marks and labels. It operates its factory and maintains an office in Pasig,
Rizal. In order to sell its products in Manila and in other parts of the
Philippines, petitioner Allied Thread Co., Inc. engaged the services of a
sales broker, Ker & Company, Ltd. (co-petitioner herein), the latter
deriving commissions from every sale made for its principal.
Having been affected by the aforementioned Ordinance, being
manufacturers and sales brokers, on July 22, 1974, Allied Thread Co.,
Inc. and Ker & Co., Ltd. filed with the defunct Court of First Instance of
Manila, a petition for Declaratory Relief, contending that Ordinance No.
7516, as amended, is not valid nor enforceable as the same is contrary to
Section 54 of Presidential Decree No. 426, as clarified by Local Tax
Regulation No. 1-74 dated April 8, 1974 of the Department of Finance,
reading as follows:
J. GENERAL PROVISIONS
1. All existing tax ordinance of provinces, cities, municipalities and
barrios shall be deemed ipso facto nullified on June 30, 1974.
2. The local boards or councils should enact their respective tax
ordinances pursuant to the provisions of the Local Tax Code, as
amended by P.D. 426, to take effect not earlier than July 1, 1974.
3. Pursuant to the provisions of Section 42 of the Code, as amended by
Section 18 of the said Decree, a local tax ordinance shall go into effect on
the 15th day after approved by the local chief executives in accordance
112
with Section 41 of the Code. 4. In view hereof, and considering the
provisions of Section 54 of the Code, regarding the accrual of taxes a
local tax ordinance intended to take effect on July 1, 1974 should be
enacted by the Local Chief Executive not later than June 15, 1974.
(Emphasis supplied)
Otherwise stated, petitioners assert that due to the series of amendments
to Ordinance No. 7516, the same Ordinance fell short of the deadline set
by Sec. 54 of P.D. No. 426 that "for an ordinance intended to take effect
on July 1, 1974, it must be enacted on or before June 15, 1974."
Necessarily, so it is asserted, the said Ordinance No. 7516 as amended,
is not valid nor enforceable.
Petitioners further contend that the questioned Ordinance did not comply
with the necessary publication requirement in a newspaper of general
circulation as mandated by Sec. 43 of the Local Tax Code. Petitioner
Allied Thread Co., Inc. also claims that it should not be subjected to the
said Ordinance No. 7516 as amended, because it does not operate or
maintain a branch office in Manila and that its principal office and factory
are located in Pasig, Rizal.
We agree with the decision of the then Court of First Instance of Manila,
upholding the validity of Ordinance No. 7516 as amended, and finding
petitioner Allied Thread Co., Inc. the proper subject thereto.
There is no dispute that Ordinance No. 7516 was enacted by the
Municipal Board of Manila on June 12, 1974 and approved by the City
Mayor on June 15, 1974. Fifteen (15) days thereafter, or on July 1, 1974,
the said ordinance became effective pursuant to Sec. 42 of the Local Tax
Code. It is clear therefore that Ordinance No. 7516 has fully conformed
with P.D. No. 426 and Local Tax Regulation No. 1-74 which require that
"a local tax ordinance intended to take effect on July 1, 1974 should be
enacted by the Local Chief Executive not later than June 15, 1974 ". The
subsequent amendments to the basic ordinance did not in any way
invalidate it nor move the date of its effectivity. To hold otherwise would
limit the power of the defunct Municipal Board of Manila to amend an
existing ordinance as exigencies require.
Petitioners complain that they were not fully apprised of the enactment of
Ordinance No. 7516 for the same was not duly published in a newspaper
of general circulation. Respondents argue however, that copies of
Ordinance No. 7516 and its amendments were posted in public buildings,
government offices, and public places in lieu of publication in newspaper
of general circulation.
We are persuaded that there was substantial compliance of the law on
publication. Section 43 of the Local Tax Code provides two modes of
apprising the public of a new ordinance, either, (a) by means of
publication in a newspaper of general circulation or, (b) by means of
posting of copies thereof in the local legislative hall or premises and two
other conspicuous places within the territorial jurisdiction of the local
government. Respondents, having complied with the second mode of
notice, We are of the opinion that there is no legal infirmity to the validity
of Ordinance No. 7516 as amended.
Finally, petitioner Allied Thread Co., Inc. claims exclusion from Ordinance
No. 7515 as amended on the ground that it does not maintain an office or
branch office in the City of Manila, where the subject Ordinance only
applies. This contention is devoid of merit. Allied Thread Co., Inc. admits
that it does business in the City of Manila through a broker or agent, Ker
& Company, Ltd. Doing business in the City of Manila is all that is
required to fall within the coverage of the Ordinance.
It should be noted that Ordinance No. 7516 as amended imposes a
business tax on manufacturers, importers or producers doing business in
the City of Manila. The tax imposition here is upon the performance of an
act, enjoyment of a privilege, or the engaging in an occupation, and
hence is in the nature of an excise tax.
The power to levy an excise upon the performance of an act or the
engaging in an occupation does not depend upon the domicile of the
person subject to the excise nor upon the physical location of the
property and in connection with the act or occupation taxed, but depends
upon the place in which the act is performed or occupation engaged in.
Thus, the gauge for taxability under the said Ordinance No. 7516 as
amended does not depend on the location of the office, but attaches
upon the place where the respective sale transaction(s) is perfected and
consummated. (See Koppel (Phil.) vs. Yatco, 77 Phil. 496 [1946]) Since
Allied Thread Co., Inc. sells its products in the City of Manila through its
broker, Ker & Company, Ltd., it cannot escape the tax liability imposed by
Ordinance No. 7516 as amended. WHEREFORE, the petition is hereby
dismissed for lack of merit. Costs against the petitioners. SO ORDERED.
113
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
MOBIL PHILIPPINES, INC., Petitioner, - versus - THE CITY TREASURER
OF MAKATI and the CHIEF OF THE LICENSE DIVISION OF THE CITY OF
MAKATI, Respondents.
G.R. No. 154092 July 14, 2005
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the
Decision[1] dated November 22, 2001 of the Regional Trial Court of
Pasig City, Branch 268, in Civil Case No. 67599, subsequently affirmed
in an Order[2] dated May 15, 2002.
Petitioner is a domestic corporation engaged in the manufacturing,
importing, exporting and wholesaling of petroleum products, while
respondents are the local government officials of the City of Makati
charged with the implementation of the Revenue Code of the City of
Makati, as well as the collection and assessment of business taxes,
license fees and permit fees within said city.[3]
Prior to September 1998, petitioners principal office was at the
National Development Company Building, in 116 Tordesillas St.,
Salcedo Village, Makati City. On August 20, 1998, petitioner filed an
application with the City Treasurer of Makati for the retirement of its
business within the City of Makati as it moved its principal place of
business to Pasig City.[4]
In its application, petitioner declared its gross sales/receipts as follows:
Gross Sales Receipts for Calendar Year 1997
P 453,799,493.29
Gross Sales Receipts for Calendar Year 1998
January to August
267,952,766.67[5]
Upon evaluation of petitioners application, then OIC of the License
Division, Ms. Jesusa E. Cuneta, issued to petitioner, a billing slip[6]
assessing the following taxes against petitioner:
For the 4th Quarter of 1998 (based on 1997 gross sales)
As Manufacturer P 14,439.54
As Wholesaler 550,778.58
Garbage Fee 1,250.00
Sub-Total P 566,468.12
For the Gross Sales made in 1998
As Manufacturer P 40,008.33
As Wholesaler 1,291,630.51
Sub-Total __1,331,638.84
TOTAL ASSESSED BUSINESS TAXES P 1,898,106.96[7]
On September 11, 1998, petitioner paid the assessed amount of
P1,898,106.96 under protest. The City Treasurer issued therefor
Official Receipt No. 9065025C[8] and approved the petitioners
application for retirement of business from Makati to Pasig City.
On July 21, 1999, petitioner filed a claim for P1,331,638.84 refund.[9]
On August 11, 1999, petitioner received a letter[10] denying the claim
for refund on the ground that petitioner was merely transferring and
not retiring its business, and that the gross sales realized while
petitioner still maintained office in Makati from January 1 to August 31,
1998 should be taxed in the City of Makati.[11]
Petitioner subsequently filed a petition with the Regional Trial Court of
Pasig City, Branch 268, seeking the refund of business taxes
erroneously collected by the City of Makati.
In its Decision, the trial court ruled as follows:
In summary, the pertinent law provides that a person or entity doing
business in the Municipality shall be subject to business tax. The tax
114
shall be fixed by the quarter. The initial tax for the quarter in which a
business starts to operate shall be two and one-half percent (2%) of
one percent (1%) of its capital investment. Thereafter, the tax shall be
computed based on the gross sales or receipts of the preceding
quarter. In the succeeding calendar year, regardless of when the
business started to operate, the tax shall be based on the gross sales
or receipts for the preceding calendar year. That tax shall accrue on the
first day of January of each year and payment shall be made within the
first 20 days of January or of each subsequent quarter as the case may
be.
Considering therefore that the business tax accrues only on the first
day of January as provided in Sec. 3A.07 and becomes payable within
the first 20 days thereof or of each subsequent quarter, the payments
made by Mobil in the year 1998 are therefore payments for the
business tax for 1997 which accrued in January of 1998 and became
payable within the first 20 days of January or of each subsequent
quarter. Thus, upon retirement in August 1998, the taxes for said year
which should accrue in January 1999 [become] immediately payable
before the application for retirement can be approved (Ibid, (g), Sec.
3A.08). The assessment of the Chief of the License Division of Makati is
therefore with legal basis and does not constitute double taxation.
WHEREFORE, premises considered, the instant petition for refund is
hereby DENIED and the case is dismissed for lack of merit.
SO ORDERED.[12]
Petitioner filed a Motion for Reconsideration[13] which was denied in
an Order dated May 15, 2002, hence this appeal.
Before us, petitioner alleges now that,
THE TRIAL COURT ERRED IN HOLDING THAT PETITIONERS BUSINESS
TAX PAYMENTS MADE IN 1998 ARE ACTUALLY PAYMENTS FOR
BUSINESS TAXES IN 1997. THIS CONCLUSION IS CONTROVERTED BY
MAKATI CITYS REVENUE CODE, AND, IN FACT, CONSTITUTES DOUBLE
TAXATION.[14]
Simply stated, the issue is: Are the business taxes paid by petitioner in
1998, business taxes for 1997 or 1998?
According to petitioner, the 1997 gross sales/revenue is merely the
basis for the amount of business taxes due for the privilege of carrying
on a business in the year when the tax was paid.
For their part, respondents argue that since local taxes, which include
business taxes, are paid either within the first twenty days of January
of each year or of each subsequent quarter, as the case may be, what
the taxpayer actually pays during the recorded calendar year is actually
its business tax for the preceding year.
Prefatorily, it is necessary to distinguish between a business tax vis--vis
an income tax.
Business taxes imposed in the exercise of police power for regulatory
purposes are paid for the privilege of carrying on a business in the year
the tax was paid. It is paid at the beginning of the year as a fee to allow
the business to operate for the rest of the year. It is deemed a
prerequisite to the conduct of business.
Income tax, on the other hand, is a tax on all yearly profits arising from
property, professions, trades or offices, or as a tax on a persons
income, emoluments, profits and the like. It is tax on income, whether
net or gross realized in one taxable year.[15] It is due on or before the
15th day of the 4th month following the close of the taxpayers taxable
year and is generally regarded as an excise tax, levied upon the right of
a person or entity to receive income or profits.
The trial court erred when it said that the payments made by petitioner
in 1998 are payments for business tax incurred in 1997 which only
accrued in January 1998. Likewise, it erred when it ruled that petitioner
was still liable for business taxes based on its gross income/revenue for
January to August 1998.
Section 3A.04 of the Makati City Revenue Code states:
115
Sec.3A.04. Computation of tax for newly-started business. In the case
of newly-started business under Sec. 3A.02, (a), (b), (c), (d), (e), (f), (g),
(h), (i), (j), (k), (l), and (m) above, the tax shall be fixed by the quarter.
The initial tax of the quarter in which the business starts to operate
shall be two and one half percent (2 %) of one percent (1%) of the
capital investment.
In the succeeding quarter or quarters, in cases where the business
opens before the last quarter of the year, the tax shall be based on the
gross sales or receipt for the preceding quarter at one-half ( ) of the
rates fixed therefor by the pertinent schedule in Section 3A.02, (a), (b),
(c), (d), (e), (f), (g), (h), (i), (j), (k), (l), and (m).
In the succeeding calendar year, regardless of when the business
started to operate, the tax shall be based on the gross sales or receipts
for the preceding calendar year, or any fraction thereof as provided in
the same pertinent schedules.[16]
Under the Makati Revenue Code, it appears that the business tax, like
income tax, is computed based on the previous years figures. This is
the reason for the confusion. A newly-started business is already liable
for business taxes (i.e. license fees) at the start of the quarter when it
commences operations. In computing the amount of tax due for the
first quarter of operations, the business capital investment is used as
the basis. For the subsequent quarters of the first year, the tax is based
on the gross sales/receipts for the previous quarter. In the following
year(s), the business is then taxed based on the gross sales or receipts
of the previous year. The business taxes paid in the year 1998 is for the
privilege of engaging in business for the same year, and not for having
engaged in business for 1997.
Upon its transfer, petitioner was apparently subjected to Sec. 3A.11
par. (g) which states: . . .
(g) Retirement of business. . . . For purposes thereof, termination shall
mean that business operation are stopped completely. . . .
(2) If it is found that the retirement or termination of the business is
legitimate, [a]nd the tax due therefrom be less than the tax due for the
current year based on the gross sales or receipts, the difference in the
amount of the tax shall be paid before the business is considered
officially retired or terminated.[17]
Based on this foregoing provision, on the year an establishment retires
or terminates its business within the municipality, it would be required
to pay the difference in the amount if the tax collected, based on the
previous years gross sales or receipts, is less than the actual tax due
based on the current years gross sales or receipts.
For the year 1998, petitioner paid a total of P2,262,122.48 to the City
Treasurer of Makati[18] as business taxes for the year 1998. The
amount of tax as computed based on petitioners gross sales for 1998
is only P1,331,638.84. Since the amount paid is more than the amount
computed based on petitioners actual gross sales for 1998, petitioner
upon its retirement is not liable for additional taxes to the City of
Makati. Thus, we find that the respondent erroneously treated the
assessment and collection of business tax as if it were income tax, by
rendering an additional assessment of P1,331,638.84 for the revenue
generated for the year 1998.
WHEREFORE, the assailed Decision is hereby REVERSED and
respondents City Treasurer and Chief of the License Division of Makati
City are ordered to REFUND to petitioner business taxes paid in the
amount of P1,331,638.84. Costs against respondents.
SO ORDERED.
116
LOCAL TAXATION-LOCAL GOVERNMENT TAXATION
[G.R. No. 137621. February 6, 2002]
HAGONOY MARKET VENDOR ASSOCIATION, petitioner, vs.
MUNICIPALITY OF HAGONOY, BULACAN, respondent.
DECISION
PUNO, J.:
Laws are of two (2) kinds: substantive and procedural. Substantive
laws, insofar as their provisions are unambiguous, are rigorously
applied to resolve legal issues on the merits. In contrast, courts
generally frown upon an uncompromising application of procedural
laws so as not to subvert substantial justice. Nonetheless, it is not
totally uncommon for courts to decide cases based on a rigid
application of the so-called technical rules of procedure as these rules
exist for the orderly administration of justice. Interestingly, the case at
bar singularly illustrates both instances, i.e., when procedural rules are
unbendingly applied and when their rigid application may be relaxed.
This is a petition for review of the Resolution[1] of the Court of Appeals,
dated February 15, 1999, dismissing the appeal of petitioner Hagonoy
Market Vendor Association from the Resolutions of the Secretary of
Justice for being formally deficient.
The facts: On October 1, 1996, the Sangguniang Bayan of Hagonoy,
Bulacan, enacted an ordinance, Kautusan Blg. 28,[2] which increased
the stall rentals of the market vendors in Hagonoy. Article 3 provided
that it shall take effect upon approval. The subject ordinance was
posted from November 4-25, 1996.[3]
In the last week of November, 1997, the petitioners members were
personally given copies of the approved Ordinance and were informed
that it shall be enforced in January, 1998. On December 8, 1997, the
petitioners President filed an appeal with the Secretary of Justice
assailing the constitutionality of the tax ordinance. Petitioner claimed
it was unaware of the posting of the ordinance.
Respondent opposed the appeal. It contended that the ordinance took
effect on October 6, 1996 and that the ordinance, as approved, was
posted as required by law. Hence, it was pointed out that petitioners
appeal, made over a year later, was already time-barred.
The Secretary of Justice dismissed the appeal on the ground that it was
filed out of time, i.e., beyond thirty (30) days from the effectivity of the
Ordinance on October 1, 1996, as prescribed under Section 187 of the
1991 Local Government Code. Citing the case of Taada vs. Tuvera,[4]
the Secretary of Justice held that the date of effectivity of the subject
ordinance retroacted to the date of its approval in October 1996, after
the required publication or posting has been complied with, pursuant
to Section 3 of said ordinance.[5]
After its motion for reconsideration was denied, petitioner appealed to
the Court of Appeals. Petitioner did not assail the finding of the
Secretary of Justice that their appeal was filed beyond the
reglementary period. Instead, it urged that the Secretary of Justice
should have overlooked this mere technicality and ruled on its petition
on the merits. Unfortunately, its petition for review was dismissed by
the Court of Appeals for being formally deficient as it was not
accompanied by certified true copies of the assailed Resolutions of the
Secretary of Justice.[6]
Undaunted, the petitioner moved for reconsideration but it was
denied.[7]
Hence, this appeal, where petitioner contends that:
I THE HONORABLE COURT OF APPEALS, WITH DUE RESPECT, ERRED IN
ITS STRICT, RIGID AND TECHNICAL ADHERENCE TO SECTION 6, RULE 43
OF THE 1997 RULES OF COURT AND THIS, IN EFFECT, FRUSTRATED THE
VALID LEGAL ISSUES RAISED BY THE PETITIONER THAT ORDINANCE
(KAUTUSAN) NO. 28 WAS NOT VALIDLY ENACTED, IS CONTRARY TO
117
LAW AND IS UNCONSTITUTIONAL, TANTAMOUNT TO AN ILLEGAL
EXACTION IF ENFORCED RETROACTIVELY FROM THE DATE OF ITS
APPROVAL ON OCTOBER 1, 1996.
II THE HONORABLE COURT OF APPEALS, WITH DUE RESPECT, ERRED IN
DENYING THE MOTION FOR RECONSIDERATION NOTWITHSTANDING
PETITIONERS EXPLANATION THAT ITS FAILURE TO SECURE THE
CERTIFIED TRUE COPIES OF THE RESOLUTIONS OF THE DEPARTMENT
OF JUSTICE WAS DUE TO THE INTERVENTION OF AN ACT OF GOD
TYPHOON LOLENG, AND THAT THE ACTUAL COPIES RECEIVED BY THE
PETITIONER MAY BE CONSIDERED AS SUBSTANTIAL COMPLIANCE
WITH THE RULES.
III PETITIONER WILL SUFFER IRREPARABLE DAMAGE IF
ORDINANCE/KAUTUSAN NO. 28 BE NOT DECLARED NULL AND VOID
AND IS ALLOWED TO BE ENFORCED RETROACTIVELY FROM OCTOBER
1, 1996, CONTRARY TO THE GENERAL RULE, ARTICLE 4 OF THE CIVIL
CODE, THAT NO LAW SHALL HAVE RETROACTIVE EFFECT.
The first and second assigned errors impugn the dismissal by the Court
of Appeals of its petition for review for petitioners failure to attach
certified true copies of the assailed Resolutions of the Secretary of
Justice. The petitioner insists that it had good reasons for its failure to
comply with the rule and the Court of Appeals erred in refusing to
accept its explanation.
We agree.
In its Motion for Reconsideration before the Court of Appeals,[8] the
petitioner satisfactorily explained the circumstances relative to its
failure to attach to its appeal certified true copies of the assailed
Resolutions of the Secretary of Justice, thus:
x x x (D)uring the preparation of the petition on October 21, 1998, it
was raining very hard due to (t)yphoon Loleng. When the petition was
completed, copy was served on the Department of Justice at about (sic)
past 4:00 p.m. of October 21, 1998, with (the) instruction to have the
Resolutions of the Department of Justice be stamped as certified true
copies. However, due to bad weather, the person in charge (at the
Department of Justice) was no longer available to certify to (sic) the
Resolutions.
The following day, October 22, 1998, was declared a non-working
holiday because of (t)yphoon Loleng. Thus, petitioner was again unable
to have the Resolutions of the Department of Justice stamped certified
true copies. In the morning of October 23, 1998, due to time
constraint(s), herein counsel served a copy by personal service on
(r)espondents lawyer at (sic) Malolos, Bulacan, despite the flooded
roads and heavy rains. However, as the herein counsel went back to
Manila, (official business in) government offices were suspended in the
afternoon and the personnel of the Department of Justice tasked with
issuing or stamping certified true copies of their Resolutions were no
longer available.
To avoid being time-barred in the filing of the (p)etition, the same was
filed with the Court of Appeals as is.
We find that the Court of Appeals erred in dismissing petitioners
appeal on the ground that it was formally deficient. It is clear from the
records that the petitioner exerted due diligence to get the copies of
its appealed Resolutions certified by the Department of Justice, but
failed to do so on account of typhoon Loleng. Under the circumstances,
respondent appellate court should have tempered its strict application
of procedural rules in view of the fortuitous event considering that
litigation is not a game of technicalities.[9]
Nonetheless, we hold that the petition should be dismissed as the
appeal of the petitioner with the Secretary of Justice is already time-
barred. The applicable law is Section 187 of the 1991 Local Government
Code which provides:
118

SEC. 187. Procedure for Approval and Effectivity of Tax Ordinances and
Revenue Measures; Mandatory Public Hearings. - The procedure for
the approval of local tax ordinances and revenue measures shall be in
accordance with the provisions of this Code: Provided, That public
hearings shall be conducted for the purpose prior to the enactment
thereof: Provided, further, That any question on the constitutionality
or legality of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from the effectivity thereof to the
Secretary of Justice who shall render a decision within sixty (60) days
from the receipt of the appeal: Provided, however, That such appeal
shall not have the effect of suspending the effectivity of the ordinance
and accrual and payment of the tax, fee or charge levied therein:
Provided, finally, That within thirty (30) days after receipt of the
decision or the lapse of the sixty-day period without the Secretary of
Justice acting upon the appeal, the aggrieved party may file
appropriate proceedings.
The aforecited law requires that an appeal of a tax ordinance or
revenue measure should be made to the Secretary of Justice within
thirty (30) days from effectivity of the ordinance and even during its
pendency, the effectivity of the assailed ordinance shall not be
suspended. In the case at bar, Municipal Ordinance No. 28 took effect
in October 1996. Petitioner filed its appeal only in December 1997,
more than a year after the effectivity of the ordinance in 1996. Clearly,
the Secretary of Justice correctly dismissed it for being time-barred. At
this point, it is apropos to state that the timeframe fixed by law for
parties to avail of their legal remedies before competent courts is not
a mere technicality that can be easily brushed aside. The periods stated
in Section 187 of the Local Government Code are mandatory.[10]
Ordinance No. 28 is a revenue measure adopted by the municipality of
Hagonoy to fix and collect public market stall rentals. Being its
lifeblood, collection of revenues by the government is of paramount
importance. The funds for the operation of its agencies and provision
of basic services to its inhabitants are largely derived from its revenues
and collections. Thus, it is essential that the validity of revenue
measures is not left uncertain for a considerable length of time.[11]
Hence, the law provided a time limit for an aggrieved party to assail the
legality of revenue measures and tax ordinances.
In a last ditch effort to justify its failure to file a timely appeal with the
Secretary of Justice, the petitioner contends that its period to appeal
should be counted not from the time the ordinance took effect in 1996
but from the time its members were personally given copies of the
approved ordinance in November 1997. It insists that it was unaware
of the approval and effectivity of the subject ordinance in 1996 on two
(2) grounds: first, no public hearing was conducted prior to the passage
of the ordinance and, second, the approved ordinance was not posted.
We do not agree.
Petitioners bold assertion that there was no public hearing conducted
prior to the passage of Kautusan Blg. 28 is belied by its own evidence.
In petitioners two (2) communications with the Secretary of
Justice,[12] it enumerated the various objections raised by its members
before the passage of the ordinance in several meetings called by the
Sanggunian for the purpose. These show beyond doubt that petitioner
was aware of the proposed increase and in fact participated in the
public hearings therefor. The respondent municipality likewise
submitted the Minutes and Report of the public hearings conducted by
the Sangguniang Bayans Committee on Appropriations and Market on
February 6, July 15 and August 19, all in 1996, for the proposed
increase in the stall rentals.[13]
Petitioner cannot gripe that there was practically no public hearing
conducted as its objections to the proposed measure were not
considered by the Sangguniang Bayan. To be sure, public hearings are
conducted by legislative bodies to allow interested parties to ventilate
their views on a proposed law or ordinance. These views, however, are
not binding on the legislative body and it is not compelled by law to
119
adopt the same. Sanggunian members are elected by the people to
make laws that will promote the general interest of their constituents.
They are mandated to use their discretion and best judgment in serving
the people. Parties who participate in public hearings to give their
opinions on a proposed ordinance should not expect that their views
would be patronized by their lawmakers.
On the issue of publication or posting, Section 188 of the Local
Government Code provides:
Section 188. Publication of Tax Ordinance and Revenue Measures.
Within ten (10) days after their approval, certified true copies of all
provincial, city, and municipal tax ordinances or revenue measures
shall be published in full for three (3) consecutive days in a newspaper
of local circulation; Provided, however, That in provinces, cities and
municipalities where there are no newspapers of local circulation, the
same may be posted in at least two (2) conspicuous and publicly
accessible places. (emphasis supplied)
The records is bereft of any evidence to prove petitioners negative
allegation that the subject ordinance was not posted as required by
law. In contrast, the respondent Sangguniang Bayan of the Municipality
of Hagonoy, Bulacan, presented evidence which clearly shows that the
procedure for the enactment of the assailed ordinance was complied
with. Municipal Ordinance No. 28 was enacted by the Sangguniang
Bayan of Hagonoy on October 1, 1996. Then Acting Municipal Mayor
Maria Garcia Santos approved the Ordinance on October 7, 1996. After
its approval, copies of the Ordinance were given to the Municipal
Treasurer on the same day. On November 9, 1996, the Ordinance was
approved by the Sangguniang Panlalawigan. The Ordinance was posted
during the period from November 4 - 25, 1996 in three (3) public
places, viz: in front of the municipal building, at the bulletin board of
the Sta. Ana Parish Church and on the front door of the Office of the
Market Master in the public market.[14] Posting was validly made in
lieu of publication as there was no newspaper of local circulation in the
municipality of Hagonoy. This fact was known to and admitted by
petitioner. Thus, petitioners ambiguous and unsupported claim that it
was only sometime in November 1997 that the Provincial Board
approved Municipal Ordinance No. 28 and so the posting could not
have been made in November 1996[15] was sufficiently disproved by
the positive evidence of respondent municipality. Given the foregoing
circumstances, petitioner cannot validly claim lack of knowledge of the
approved ordinance. The filing of its appeal a year after the effectivity
of the subject ordinance is fatal to its cause.
Finally, even on the substantive points raised, the petition must fail.
Section 6c.04 of the 1993 Municipal Revenue Code and Section 191 of
the Local Government Code limiting the percentage of increase that
can be imposed apply to tax rates, not rentals. Neither can it be said
that the rates were not uniformly imposed or that the public markets
included in the Ordinance were unreasonably determined or classified.
To be sure, the Ordinance covered the three (3) concrete public
markets: the two-storey Bagong Palengke, the burnt but reconstructed
Lumang Palengke and the more recent Lumang Palengke with wet
market. However, the Palengkeng Bagong Munisipyo or Gabaldon was
excluded from the increase in rentals as it is only a makeshift,
dilapidated place, with no doors or protection for security, intended
for transient peddlers who used to sell their goods along the
sidewalk.[16]
IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. No
pronouncement as to costs.
SO ORDERED.
120