TAX 1

CASES FOR STUDY

 1. CIR v. Dash Engineering Phils., Inc., 712 SCRA 347

 2. Camp John Hay Development Corp. v. CBAA, 706 SCRA 547

 3. First Lepanto Taisho Insurance Corp. v. CIR, 695 SCRA 639

 4. CIR v. San Roque Power Corp., 690 SCRA 336

 5. CIR v. BPI, 521 SCRA 373

 6. CIR v. PINEDA, 21 SCRA 105

 7. MISAEL P. VERA, ET AL. v. HON. JOSE F. FERNANDEZ, ET AL., 89 SCRA 199

 8. CIR v. CTA, 234 SCRA 348

 9. CIR v. ALGUE, INC., 158 SCRA 9

 10. YMCA v. CIR, 298 SCRA

 11. DAVAO GULF LUMBER CORP. v. CIR, 293 SCRA 77

 12. FERDINAND R. MARCOS II v. CA, et al., 273 SCRA 47

 13.JOSE REYES v. PEDRO ALMANZOR, 196 SCRA 322

 14. PHIL. BANK OF COMMUNICATIONS v. CIR, 302 SCRA 250

 15. PHIL. GUARANTY CO., INC. V. CIR, 13 SCRA 775

 16. PHILEX MINING CORP. V. CIR, 294 SCRA 687

 17. NORTH CAMARINES LUMBER CO. V. CIR, 109 PHIL. 511

 18. SPOUSES PACQUIAO V. THE COURT OF TAX APPEALS, ETC. ET AL., GR

NO. 213394, APRIL 6, 2016

1|P age
 19. Walter Lutz vs. J. Antonio Araneta, 98 Phil. 148

 20. Benjamin Gomez v. Enrico Palomar, et al., 25 SCRA 827

 21. Silvestre Punsalan v. The Mun. Board of the City of Manila, 95 Phil. 46

 22. FRANCIA V. INTERMEDIATE APPELLATE COURT, ET AL., 162 SCRA 753

 23. MELECIO R. DOMINGO V. LORENZO C. GARLITOS, 8 SCRA 443

 24. VALENTIN TIO V. VIDEOGRAM REGULATORY BOARD, 151 SCRA 208

 25. CITY OF BAGUIO V. FORTUNATO DE LEON, 25 SCRA 938

 26. HON. RAMON BAGATSING, ET AL. V. HON. PEDRO RAMIREZ, ET AL., 74

SCRA 306

 27. PASCUAL V. SECRETARY OF PUBLIC WORKS, 110 PHIL. 331

 28. Board of Assessment Appeals of Laguna v. CTA, 8 SCRA 224

 29. Pepsi-Cola Bottling Co. of the Phils. Vs. City of Butuan, 24 SCRA 789

 30. Pepsi-Cola Bottling Co. Of the Phils., Inc. Vs. Municipality of Tanauan,
Leyte, 69 SCRA 460

 31. John H. Osmeña v. Oscar Orbos, 220 SCRA 703

 32. Mayor Antonio J. Villegas v. Hiu Chiong Tsai Pao Ho and Judge Arca, 86
SCRA 270

2|P age
G.R. No. 184145 December 11, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
DASH ENGINEERING PHILIPPINES, INC., Respondent.

DECISION

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure, assailing the July 17, 2008 Decision1 and the August 12, 2008 Resolution2 of the
Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243)
entitled "Commissioner of Internal Revenue v. Dash Engineering Philippines, inc."

The Facts

Respondent Dash Engineering Philippines, Inc. (DEPJ) is a corporation duly registered with the
Securities and Exchange Commission, authorized to do business in the Philippines and listed with
the Philippine Economic Zone Authority as an ecozone IT export enterprise.3 It is also a VAT-
registered entity engaged in the export sales of computer-aided engineering and design.4

Respondent filed its monthly and quarterly value-added tax (VAT) returns for the period from
January 1, 2003 to June 30, 2003.5 On August 9, 2004, it filed a claim for tax credit or refund in the
amount of P 2,149,684.88 representing unutilized input VAT attributable to its zero-rated
sales.6 Because petitioner Commissioner of Internal Revenue (CIR) failed to act upon the said claim,
respondent was compelled to file a petition for review with the CTA on May 5, 2005. 7

On October 4, 2007, the Second Division of the CTA rendered its Decision8 partially granting
respondent’s claim for refund or issuance of a tax credit certificate in the reduced amount of P
1,147,683.78. On the matter of the timeliness of the filing of the judicial claim, the Tax Court found
that respondent’s claims for refund for the first and second quarters of 2003 were filed within the
two-year prescriptive period which is counted from the date of filing of the return and payment of the
tax due. Because DEPI filed its amended quarterly VAT returns for the first and second quarters of
2003 on July 24, 2004, it had until July 24, 2006 to file its judicial claim. As such, its filing of a petition
for review with the CTA on April 26, 20059 was within the prescriptive period.10 Petitioner moved for
reconsideration but the same was denied in a Resolution dated January 3, 2008. 11

Aggrieved, petitioner elevated the case to the CTA En Banc, where it argued that respondent failed
to show that (1) its purchases of goods and services were made in the course of its trade and
business, (2) the said purchases were properly supported by VAT invoices and/or official receipts
and other documents, and (3) that the claimed input VAT payments were directly attributable to its
zero-rated sales. Petitioner also averred that the petition for review was filed out of time.12

The CTA En Banc in its Decision,13 dated July 17, 2008, upheld the decision of the CTA Second
Division, ruling that the judicial claim was filed on time because the use of the word "may" in Section
112(D) (now subparagraph C) of the National Internal Revenue Code (NIRC) indicates that judicial
recourse within thirty (30) days after the lapse of the 120-day period is only directory and permissive
and not mandatory and jurisdictional, as long as the petition was filed within the two-year prescriptive
period. The Tax Court further reiterated that the two-year prescriptive period applies to both the
administrative and judicial claims. Petitioner’s motion for reconsideration was denied in the August
12, 2008 Resolution of the CTA.14

3|P age
Hence, this petition.

The Issues

Petitioner raises the following grounds for the allowance of the petition:

The Court of Tax Appeals En Banc erred in holding that respondent’s judicial claim for refund
was filed within the prescriptive period provided under the Tax Code.

II

The Court of Tax Appeals En Banc erred in partially granting respondent’s claim for refund
despite the failure of the latter to substantiate its claim by sufficient documentary proof. 15

The Court’s Ruling

As to the first issue, petitioner argues that the judicial claim was filed out of time because respondent
failed to comply with the 30-day period referred to in Section 112(D) (now subparagraph C) of the
NIRC, citing the case of Commissioner of Internal Revenue v. Aichi16 where the Court categorically
held that compliance with the prescribed periods in Section 112 is mandatory and jurisdictional.
Respondent filed its administrative claim for refund on August 9, 2004. The 120-day period within
which the CIR should act on the claim expired on December 7, 2004 without any action on the part
of petitioner. Thus, respondent only had 30 days from the lapse of the said period, or until January 6,
2005, to file a petition for review with the CTA. The petition, however, was filed only on May 5,
2005.17 Petitioner further posits that the 30-day period within which to file an appeal with the CTA is
jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA of its
jurisdiction to entertain the same.18

Conversely, respondent DEPI asserts that its petition was seasonably filed before the CTA in
keeping with the two-year prescriptive period provided for in Sections 204(c) and 229 of the
NIRC.19 DEPI interprets Section 112, in relation to Section 229, to mean that the 120-day period is
the time given to the CIR to decide the case. The taxpayer, on the other hand, has the option of
either appealing to the CTA the denial by the CIR of the claim for refund within thirty (30) days from
receipt of such denial and within the two-year prescriptive period, or appealing an unacted claim to
the CTA anytime after the expiration of the 120-day period given to the CIR to resolve the
administrative claim for as long as the judicial claim is made within the two-year prescriptive
period.20 Following respondent’s reasoning, its filing of the judicial claim on April 26, 2005 was filed
on time because it was made after the lapse of the 120-day period and within the two-year period
referred to in Section 229.

The petition is meritorious.

Sec. 229 is inapplicable; two-year period in

Sec. 112 refers only to administrative claims

Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes:

4|P age
Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The
Commissioner may –

xxx

(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.

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.

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 xxx. (Emphases supplied)

This Court has previously made a pronouncement as to the inapplicability of Section 229 of the
NIRC to claims for excess input VAT. In the recently decided case of Commissioner of Internal
Revenue v. San Roque Power Corporation,21 the Court made a lengthy disquisition on the nature of
excess input VAT, clarifying that "input VAT is not ‘excessively’ collected as understood under
Section 229 because at the time the input VAT is collected the amount paid is correct and
proper."22 Hence, respondent cannot advance its position by referring to Section 229 because
Section 112 is the more specific and appropriate provision of law for claims for excess input VAT.

Section 112(A) also provides for a two-year period for filing a claim for refund, to wit:

Sec. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. – Any VATregistered person, whose sales are zero-
rated or effectively zerorated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax

xxx

As explained in San Roque, however, the two-year prescriptive period referred to in Section 112(A)
applies only to the filing of administrative claims with the CIR and not to the filing of judicial claims
with the CTA. In other words, for as long as the administrative claim is filed with the CIR within the
two-year prescriptive period, the 30-day period given to the taxpayer to file a judicial claim with the
CTA need not fall in the same two-year period.

5|P age
At any rate, respondent’s compliance with the two-year prescriptive period under Section 112(A) is
not an issue. What is being questioned in this case is DEPI’s failure to observe the requisite 120+30-
day period as mandated by Section 112(C) of the NIRC.

120+30 day period under Sec. 112 is mandatory and jurisdictional

Section 112(D) (now subparagraph C) of the NIRC provides that:

Sec. 112. Refunds or Tax Credits of Input Tax

xxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with
the Court of Tax Appeals. (emphasis supplied)

Petitioner is entirely correct in its assertion that compliance with the periods provided for in the
abovequoted provision is indeed mandatory and jurisdictional, as affirmed in this Court’s ruling
in San Roque, where the Court En Banc settled the controversy surrounding the application of the
120+30-day period provided for in Section 112 of the NIRC and reiterated the Aichi doctrine that the
120+30-day period is mandatory and jurisdictional. Nonetheless, the Court took into account the
issuance by the Bureau of Internal Revenue (BIR) of BIR Ruling No. DA-489-03 which misled
taxpayers by explicity stating that taxpayers may file a petition for review with the CTA even before
the expiration of the 120-day period given to the CIR to decide the administrative claim for refund.
Even though observance of the periods in Section 112 is compulsory and failure to do so will deprive
the CTA of jurisdiction to hear the case, such a strict application will be made from the effectivity of
the Tax Reform Act of 1997 on January 1, 1998 until the present, except for the period from
December 10, 2003 (the issuance of the erroneous BIR ruling) to October 6, 2010 (the promulgation
of Aichi), during which taxpayers need not wait for the lapse of the 120+30- day period before filing
their judicial claim for refund.

The case at bench, however, does not involve the issue of premature filing of the petition for review
with the CTA. Rather, this petition seeks the denial of DEPI’s claim for refund for having been filed
late or after the expiration of the 30-day period from the denial by the CIR or failure of the CIR to
make a decision within 120 days from the submission of the documents in support of respondent’s
administrative claim.

In San Roque, one of the respondents similarly filed its petition for review with the CTA well after the
120+30-day period. In denying the taxpayer’s claim for refund, this Court explained that:

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late
filing. Philex did not file any petition with the CTA within the 120-day period. Philex did not
1âwphi1

also file any petition with the CTA within 30 days after the expiration of the 120-day period.
Philex filed its judicial claim long after the expiration of the 120-day period, in fact 426 days
after the lapse of the 120-day period. In any event, whether governed by jurisprudence before,

6|P age
during or after the Atlas case, Philex’s judicial claim will have to be rejected because of late filing.
Whether the two-year prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to
the input VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was
indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law,
"deemed a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day
period to file its judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a
denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA
from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege,
not a constitutional right. The exercise of such statutory privilege requires strict compliance
with the conditions attached by the statute for its exercise. Philex failed to comply with the
statutory conditions and must thus bear the consequences.23 (Emphases supplied)

Therefore, in accordance with San Roque, respondent's judicial claim for refund must be denied for
having been filed late. Although respondent filed its administrative claim with the BIR on August 9,
2004 before the expiration of the two-year period in Section l 12(A), it undoubtedly failed to comply
with the 120+ 30-day period in Section l l 2(D) (now subparagraph C) which requires that upon the
inaction of the CIR for 120 days after the submission of the documents in support of the claim, the
taxpayer has to file its judicial claim within 30 days after the lapse of the said period. The 120 days
granted to the CIR to decide the case ended on December 7, 2004. Thus, DEPI had 30 days
therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI
only sought judicial relief on May 5, 2005 when it belatedly filed its petition to the CT A, despite
having had ample time to file the same, almost four months after the period allowed by law. As a
consequence of DEPI's late filing, the CTA did not properly acquire jurisdiction over the claim.

The Court has held time and again that taxes are the lifeblood of the government and, consequently,
tax laws must be faithfully and strictly implemented as they are not intended to be liberally
construed.24 Hence, We are left with no other recourse but to deny respondent's judicial claim for
refund for non-compliance with the provisions of Section 112 of the NIRC.

WHEREFORE, the petition is GRANTED. The July 17, 2008 Decision and the August 12, 2008
Resolution of the CTA En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) are
hereby REVERSED and SET ASIDE. Respondent DEPI's judicial claim for refund or tax credit
through its petition for review before the CTA is DENIED.

SO ORDERED.

7|P age
G.R. No. 169234 October 2, 2013

CAMP JOHN HAY DEVELOPMENT CORPORATION, Petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, REPRESENTED BY ITS CHAIRMAN HON.
CESAR S. GUTIERREZ, ADELINA A. TABANGIN, IN HER CAPACITY AS CHAIRMAN OF THE
BOARD OF TAX (ASSESSMENT) APPEALS OF BAGUIO CITY, AND HON. ESTRELLA B.
TANO, IN HER CAPACITY AS THE CITY ASSESSOR OF THE CITY OF BAGUIO, Respondents.

DECISION

PEREZ, J.:

A claim for tax exemption, whether full or partial, does not deal with the authority of local assessor to
assess real property tax. Such claim questions the correctness of the assessment and compliance
with the Q applicable provisions of Republic Act (RA) No. 7160 or the Local Government Code
(LGC) of 1991, particularly as to requirement of payment under protest, is mandatory.

Before the Court is a Petition for Review on Certiorari seeking tore verse and set aside the 27 July
2005 Decision1of the Court of Tax Appeals(CTA) En Banc in C.T.A. E.B. No. 48 which affirmed the
Resolutions dated 23 May 2003 and 8 September 2004 issued by the Central Board of Assessment
Appeals (CBAA) in CBAA Case No. L-37 remanding the case to the Local Board of Assessment
Appeals (LBAA) of Baguio City for further proceedings.

The facts

The factual antecedents of the case as found by the CTA En Banc areas follows:

In a letter dated 21 March 2002, respondent City Assessor of Baguio City notified petitioner Camp
John Hay Development Corporation about the issuance against it of thirty-six (36) Owner’s Copy of
Assessment of Real Property (ARP), with ARP Nos. 01-07040-008887 to 01-07040-008922covering
various buildings of petitioner and two (2) parcels of land owned by the Bases Conversion
Development Authority (BCDA) in the John Hay Special Economic Zone (JHSEZ), Baguio City,
which were leased out to petitioner.

In response, petitioner questioned the assessments in a letter dated 3April 2002 for lack of legal
basis due to the City Assessor’s failure to identify the specific properties and its corresponding
assessed values. The City Assessor replied in a letter dated 11 April 2002 that the subject ARPs
(with an additional ARP on another building bringing the total number of ARPs to thirty-seven [37])
against the buildings of petitioner located within the JHSEZ were issued on the basis of the
approved building permits obtained from the City Engineer’s Office of Baguio City and pursuant to
Sections 201 to 206 of RA No. 7160 or the LGC of 1991.

Consequently, on 23 May 2002, petitioner filed with the Board of Tax Assessment Appeals (BTAA)
of Baguio City an appeal under Section 226 2 of the LGC of 1991 challenging the validity and
propriety of the issuances of the City Assessor. The appeal was docketed as Tax Appeal Case No.
2002-003. Petitioner claimed that there was no legal basis for the issuance of the assessments
because it was allegedly exempted from paying taxes, national and local, including real property
taxes, pursuant to RA No. 7227, otherwise known as the Bases Conversion and Development Act of
1992.3

8|P age
 The Ruling of the BTAA

In a Resolution dated 12 July 2002,4 the BTAA cited Section 7,5 Rule V of the Rules of Procedure
Before the LBAA, and enjoined petitioner to first comply therewith, particularly as to the payment
under protest of the subject real property taxes before the hearing of its appeal. Subsequently, the
BTAA dismissed petitioner’s Motion for Reconsideration in the 20 September 2002 Resolution6 for
lack of merit.

Aggrieved, petitioner elevated the case before the CBAA through a Memorandum on Appeal
docketed as CBAA Case No. L-37.

The Ruling of the CBAA

The CBAA denied petitioner’s appeal in a Resolution dated 23 May 2003, 7 set aside the BTAA’s
order of deferment of hearing, and remanded the case to the LBAA of Baguio City for further
proceedings subject to a full and up-to-date payment of the realty taxes on subject properties as
assessed by the respondent City Assessor of Baguio City, either in cash or in bond.

Citing various cases it previously decided, 8 the CBAA explained that the deferment of hearings by
the LBAA was merely in compliance with the mandate of the law. The governing provision in this
case is Section 231, not Section 226, of RA No. 7160 which provides that "appeal on assessments
of real property made under the provisions of this Code shall, in no case, suspend the collection of
the corresponding realty taxes on the property involved as assessed by the provincial or city
assessor, without prejudice to subsequent adjustment depending upon the final outcome of the
appeal." In addition, as to the issue raised pertaining to the propriety of the subject assessments
issued against petitioner, allegedly claimed to be a tax-exemptentity, the CBAA expressed that it has
yet to acquire jurisdiction over it since the same has not been resolved by the LBAA.

On 8 September 2004, the CBAA denied petitioner’s Motion for Reconsideration for lack of merit. 9

Undaunted by the pronouncements in the abovementioned Resolutions, petitioner appealed to the

CTA En Banc by filing a Petition for Review under Section 11 of RA No. 1125, as amended by
Section 9 of RA No. 9282, on 24 November 2004, docketed as C.T.A. EB No. 48, and raised the
following issues for its consideration: (1) whether or not respondent City Assessor of the City of
Baguio has legal basis to issue against petitioner the subject assessments with serial nos. 01-
07040-008887 to 01-07040-008922for real property taxation of the buildings of the petitioner, a tax-
exemptentity, or land owned by the BCDA under lease to the petitioner; and (2)whether or not the
CBAA, in its Resolutions dated 23 May 2003 and 8September 2004, has legal basis to order the
remand of the case to the LBAA of Baguio City for further proceedings subject to a full and up-to-
date payment, in cash or bond, of the realty taxes on the subject properties as assessed by the City
Assessor of the City of Baguio.10

The Ruling of the CTA En Banc

In the assailed Decision dated 27 July 2005, 11 the CTA En Banc found that petitioner has indeed
failed to comply with Section 252 of RA No. 7160or the LGC of 1991. Hence, it dismissed the
petition and affirmed the subject Resolutions of the CBAA which remanded the case to the LBAA for
further proceedings subject to compliance with said Section, in relation to Section 7, Rule V of the
Rules of Procedure before the LBAA.

9|P age
Moreover, adopting the CBAA’s position, the court a quo ruled that it could not resolve the issue on
whether petitioner is liable to pay real property tax or whether it is indeed a tax-exempt entity
considering that the LBAA has not decided the case on the merits. To do otherwise would not only
be procedurally wrong but legally wrong. It therefore concluded that before a protest may be
entertained, the tax should have been paid first without prejudice to subsequent adjustment
depending upon the final outcome of the appeal and that the tax or portion thereof paid under
protest, shall be held in trust by the treasurer concerned.

Consequently, this Petition for Review wherein petitioner on the ground of lack of legal basis seeks
to set aside the 27 July 2005 Decision, and to nullify the assessments of real property tax issued
against it by respondent City Assessor of Baguio City. 12

The Issue

The Issue before the Court is whether or not respondent CTA En Banc erred in dismissing for lack of
merit the petition in C.T.A. EB No. 48, and accordingly affirmed the order of the CBAA to remand the
case to the LBAA of Baguio City for further proceedings subject to a full and up-to-date payment of
realty taxes, either in cash or in bond, on the subject properties assessed by the City Assessor of
Baguio City.

In support of the present petition, petitioner posits the following grounds: (a) Section 225 (should be
Section 252) of RA No. 7160 or the LGC of 1991 does not apply when the person assessed is a tax-
exemptentity; and (b) Under the doctrine of operative fact, petitioner is not liable for the payment of
the real property taxes subject of this petition. 13

Our Ruling

The Court finds the petition unmeritorious and therefore rules against petitioner.

Section 252 of RA No. 7160, also known as the LGC of 199114, categorically provides:

SEC. 252. Payment Under Protest. – (a) No protest shall be entertained unless the taxpayer first
pays the tax. There shall be annotated on the tax receipts the words "paid under protest." The
protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city
treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who
shall decide the protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paid under protest, shall beheld in trust by the treasurer
concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed
in subparagraph (a), the tax payer may avail of the remedies as provided for in Chapter 3,
Title Two, Book II of this Code. (Emphasis and underlining supplied)

Relevant thereto, the remedies referred to under Chapter 3, Title Two, Book II of RA No. 7160 or the
LGC of 1991 are those provided for under Sections 226 to 231. Significant provisions pertaining to

10 | P a g e
the procedural and substantive aspects of appeal before the LBAA and CBAA, including its effect on
the payment of real property taxes, follow:

SEC. 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice
of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.

SEC. 229. Action by the Local Board of Assessment Appeals. – (a)The Board shall decide the
appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board,
after hearing, shall render its decision based on substantial evidence or such relevant evidence on
record as a reasonable mind might accept as adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the powers to summon
witnesses, administer oaths, conduct ocular inspection, take depositions, and issue
subpoena and subpoena duces tecum. The proceedings of the Board shall be conducted
solely for the purpose of ascertaining the facts without necessarily adhering to technical rules
applicable in judicial proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person having
legal interest therein and the provincial or city assessor with a copy of the decision of the
Board. In case the provincial or city assessor concurs in the revision or the assessment, it
shall be his duty to notify the owner of the property or the person having legal interest therein
of such fact using the form prescribed for the purpose. The owner of the property or the
person having legal interest therein or the assessor who is not satisfied with the decision of
the Board may, within thirty (30) days after receipt of the decision of said Board, appeal to
the Central Board of Assessment Appeals, as here in provided. The decision of the Central
Board shall be final and executory.

SEC. 231. Effect of Appeal on the Payment of Real Property Tax. – Appeal on assessments of real
property made under the provisions of this Code shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal.
(Emphasis supplied)

The above-quoted provisions of RA No. 7160 or the LGC of 1991,clearly sets forth the administrative
remedies available to a taxpayer or real property owner who does not agree with the assessment of
the real property tax sought to be collected.

The language of the law is clear. No interpretation is needed. The elementary rule in statutory
construction is that if a statute is clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation. Verba legis non est recedendum. From the
words of a statute there should be no departure. 15

To begin with, Section 252 emphatically directs that the taxpayer/real property owner questioning the
assessment should first pay the tax due before his protest can be entertained. As a matter of fact,
the words "paid under protest" shall be annotated on the tax receipts. Consequently, only after such
payment has been made by the taxpayer may he file a protest in writing (within thirty (30) days from
said payment of tax) to the provincial, city, or municipal treasurer, who shall decide the protest within

11 | P a g e
sixty (60)days from its receipt. In no case is the local treasurer obliged to entertain the protest unless
the tax due has been paid.

Secondly, within the period prescribed by law, any owner or person having legal interest in the
property not satisfied with the action of the provincial, city, or municipal assessor in the assessment
of his property may file an appeal with the LBAA of the province or city concerned, as provided in
Section 226 of RA No. 7160 or the LGC of 1991. Thereafter, within thirty (30) days from receipt, he
may elevate, by filing a notice of appeal, the adverse decision of the LBAA with the CBAA, which
exercises exclusive jurisdiction to hear and decide all appeals from the decisions, orders, and
resolutions of the Local Boards involving contested assessments of real properties, claims for tax
refund and/or tax credits, or overpayments of taxes. 16

Significantly, in Dr. Olivares v. Mayor Marquez, 17 this Court had the occasion to extensively discuss
the subject provisions of RA No. 7160 or the LGC of 1991, in relation to the impropriety of the direct
recourse before the courts on issue of the correctness of assessment of real estate taxes. The
pertinent articulations follow:

x x x A perusal of the petition before the RTC plainly shows that what is actually being assailed is the
correctness of the assessments made by the local assessor of Parañaque on petitioners’ properties.
The allegations in the said petition purportedly questioning the assessor’s authority to assess and
collect the taxes were obviously made in order to justify the filing of the petition with the RTC. In fact,
there is nothing in the said petition that supports their claim regarding the assessor’s alleged lack of
authority. What petitioners raise are the following:

(1) some of the taxes being collected have already prescribed and may no longer be
collected as provided in Section 194 of the Local Government Code of 1991; (2) some
properties have been doubly taxed/assessed; (3) some properties being taxed are no longer
existent;

(4)some properties are exempt from taxation as they are being used exclusively for
educational purposes; and (5) some errors are made in the assessment and collection of
taxes due on petitioners’ properties, and that respondents committed grave abuse of
discretion in making the "improper, excessive and unlawful the collection of taxes against the
petitioners."

Moreover, these arguments essentially involve questions of fact. Hence, the petition should have
been brought, at the very first instance, to the LBAA.

Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack
of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to
a later adjustment pending the outcome of the appeal.

Even assuming that the assessor’s authority is indeed an issue, it must be pointed out that in order
for the court a quo to resolve the petition, the issues of the correctness of the tax assessment and
collection must also necessarily be dealt with.

xxxx

In the present case, the authority of the assessor is not being questioned. Despite petitioners’
protestations, the petition filed before the court a quo primarily involves the correctness of the

12 | P a g e
assessments, which are questions of fact, that are not allowed in a petition for certiorari, prohibition
and mandamus. The court a quo is therefore precluded from entertaining the petition, and it
appropriately dismissed the petition.18 (Emphasis and underlining supplied)

By analogy, the rationale of the mandatory compliance with the requirement of "payment under
protest" similarly provided under Section 64of the Real Property Tax Code (RPTC) 19 was earlier
emphasized in Meralcov. Barlis,20wherein the Court held:

We find the petitioner’s arguments to be without merit. The trial court has no jurisdiction to entertain
a Petition for Prohibition absent petitioner’s payment under protest, of the tax assessed as required
by Sec.64 of the RPTC. Payment of the tax assessed under protest, is a condition sine qua non
before the trial court could assume jurisdiction over the petition and failure to do so, the RTC has no
jurisdiction to entertain it.

The restriction upon the power of courts to impeach tax assessment without a prior payment, under
protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation
and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state
or, in this case, the local government unit, shall be crippled in dispensing the needed services to the
people, and its machinery gravely disabled.

xxxx

There is no merit in petitioner’s argument that the trial court could take cognizance of the petition as
it only questions the validity of the issuance of the warrants of garnishment on its bank deposits and
not the tax assessment. Petitioner MERALCO in filing the Petition for Prohibition before the RTC
was in truth assailing the validity of the tax assessment and collection. To resolve the petition, it
would not only be the question of validity of the warrants of garnishments that would have to be
tackled, but in addition the issues of tax assessment and collection would necessarily have to be
dealt with too. As the warrants of garnishment were issued to collect back taxes from petitioner, the
petition for prohibition would be for no other reason than to forestall the collection of back taxes on
the basis of tax assessment arguments. This, petitioner cannot do without first resorting to the
proper administrative remedies, or as previously discussed, by paying under protest the tax
assessed, to allow the court to assume jurisdiction over the petition.

xxxx

It cannot be gainsaid that petitioner should have addressed its arguments to respondent at the first
opportunity - upon receipt of the3 September 1986 notices of assessment signed by Municipal
Treasurer Norberto A. San Mateo. Thereafter, it should have availed of the proper administrative
remedies in protesting an erroneous tax assessment, i.e., to question the correctness of the
assessments before the Local Board of Assessment Appeals (LBAA), and later, invoke the appellate
jurisdiction of the Central Board of Assessment Appeals(CBAA).

Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack
of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to
a later adjustment pending the outcome of the appeal. The failure to appeal within the statutory
period shall render the assessment final and unappealable.

Petitioner having failed to exhaust the administrative remedies available to it, the assessment
attained finality and collection would be in order. (Emphasis and underscoring supplied)

13 | P a g e
From the foregoing jurisprudential pronouncements, it is clear that the requirement of "payment
under protest" is a condition sine qua non before a protest or an appeal questioning the correctness
of an assessment of real property tax may be entertained.

Moreover, a claim for exemption from payment of real property taxes does not actually question the
assessor’s authority to assess and collect such taxes, but pertains to the reasonableness or
correctness of the assessment by the local assessor, a question of fact which should be resolved, at
the very first instance, by the LBAA. This may be inferred from Section 206 of RA No. 7160 or the
LGC of 1991which states that:

SEC. 206. Proof of Exemption of Real Property from Taxation. – Every person by or for whom real
property is declared, who shall claim tax exemption for such property under this Title shall file with
the provincial, city or municipal assessor within thirty (30) days from the date of the declaration of
real property sufficient documentary evidence in support of such claim including corporate charters,
title of ownership, articles of incorporation, bylaws, contracts, affidavits, certifications and mortgage
deeds, and similar documents.

If the required evidence is not submitted within the period herein prescribed, the property shall be
listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt,
the same shall be dropped from the assessment roll. (Emphasis supplied)

In other words, by providing that real property not declared and proved as tax-exempt shall be
included in the assessment roll, the above-quoted provision implies that the local assessor has the
authority to assess the property for realty taxes, and any subsequent claim for exemption shall be
allowed only when sufficient proof has been adduced supporting the claim. 21

Therefore, if the property being taxed has not been dropped from the assessment roll, taxes must be
paid under protest if the exemption from taxation is insisted upon.

In the case at bench, records reveal that when petitioner received the letter dated 21 March 2002
issued by respondent City Assessor, including copies of ARPs (with ARP Nos. 01-07040-008887 to
01-07040-008922) attached thereto, it filed its protest through a letter dated 3 April 2002seeking
clarification as to the legal basis of said assessments, without payment of the assessed real property
taxes. Afterwards, respondent City Assessor replied thereto in a letter dated 11 April 2002 which
explained the legal basis of the subject assessments and even included an additional ARP against
another real property of petitioner. Subsequently, petitioner then filed before the BTAA its appeal
questioning the validity and propriety of the subject ARPs.

Clearly from the foregoing factual backdrop, petitioner considered the11 April 2002 letter as the
"action" referred to in Section 226 which speaks of the local assessor’s act of denying the protest
filed pursuant to Section252. However, applying the above-cited jurisprudence in the present case, it
is evident that petitioner’s failure to comply with the mandatory requirement of payment under
protest in accordance with Section 252 of the LGC of 1991 was fatal to its appeal. Notwithstanding
such failure to comply therewith, the BTAA elected not to immediately dismiss the case but instead
took cognizance of petitioner’s appeal subject to the condition that payment of the real property tax
should first be made before proceeding with the hearing of its appeal, as provided for under Section
7, Rule V of the Rules of Procedure Before the LBAA. Hence, the BTAA simply recognized the
importance of the requirement of "payment under protest" before an appeal may be entertained,
pursuant to Section 252, and in relation with Section231 of the same Code as to non-suspension of
collection of the realty tax pending appeal.

14 | P a g e
Notably, in its feeble attempt to justify non-compliance with the provision of Section 252, petitioner
contends that the requirement of paying the tax under protest is not applicable when the person
being assessed is a tax-exempt entity, and thus could not be deemed a "taxpayer" within the
meaning of the law. In support thereto, petitioner alleges that it is exempted from paying taxes,
including real property taxes, since it is entitled to the tax incentives and exemptions under the
provisions of RA No. 7227 and Presidential Proclamation No. 420, Series of 1994, 22 as stated in and
confirmed by the lease agreement it entered into with the BCDA. 23

This Court is not persuaded.

First, Section 206 of RA No. 7160 or the LGC of 1991, as quoted earlier, categorically provides that
every person by or for whom real property is declared, who shall claim exemption from payment of
real property taxes imposed against said property, shall file with the provincial, city or municipal
assessor sufficient documentary evidence in support of such claim. Clearly, the burden of proving
exemption from local taxation is upon whom the subject real property is declared; thus, said person
shall be considered by law as the taxpayer thereof. Failure to do so, said property shall be listed as
taxable in the assessment roll.

In the present case, records show that respondent City Assessor of Baguio City notified petitioner, in
the letters dated 21 March 200224 and 11April 2002,25 about the subject ARPs covering various
buildings owned by petitioner and parcels of land (leased out to petitioner) all located within the
JHSEZ, Baguio City. The subject letters expressed that the assessments were based on the
approved building permits obtained from the City Engineer’s Office of Baguio City and pursuant to
Sections 201 to 206 of RA No. 7160 or the LGC of 1991 which pertains to whom the subject real
properties were declared.

Noticeably, these factual allegations were neither contested nor denied by petitioner. As a matter of
fact, it expressly admitted ownership of the various buildings subject of the assessment and
thereafter focused on the argument of its exemption under RA No. 7227. But petitioner did not
present any documentary evidence to establish that the subject properties being tax exempt have
already been dropped from the assessment roll, in accordance with Section 206. Consequently, the
City Assessor acted in accordance with her mandate and in the regular performance of her official
function when the subject ARPs were issued against petitioner herein, being the owner of the
buildings, and therefore considered as the person with the obligation to shoulder tax liability thereof,
if any, as contemplated by law.

It is an accepted principle in taxation that taxes are paid by the person obliged to declare the same
for taxation purposes. As discussed above, the duty to declare the true value of real property for
taxation purposes is imposed upon the owner, or administrator, or their duly authorized
representatives. They are thus considered the taxpayers. Hence, when these persons fail or refuse
to make a declaration of the true value of their real property within the prescribed period, the
provincial or city assessor shall declare the property in the name of the defaulting owner and assess
the property for taxation. In this wise, the taxpayer assumes the character of a defaulting owner, or
defaulting administrator, or defaulting authorized representative, liable to pay back taxes. For that
reason, since petitioner herein is the declared owner of the subject buildings being assessed for real
property tax, it is therefore presumed to be the person with the obligation to shoulder the burden of
paying the subject tax in the present case; and accordingly, in questioning the reasonableness or
correctness of the assessment of real property tax, petitioner is mandated by law to comply with the
requirement of payment under protest of the tax assessed, particularly Section 252 of RA No. 7160
or the LGC of 1991.

15 | P a g e
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception. The law does not look with favor on tax exemptions and the entity that would seek to be
thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.26 Thus applying the rule of strict construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of provincial corporations, this Court holds that
petitioner is considered a taxable entity in this case.

Second, considering that petitioner is deemed a taxpayer within the meaning of law, the issue on
whether or not it is entitled to exemption from paying taxes, national and local, including real
property taxes, is a matter which would be better resolved, at the very instance, before the LBAA, for
the following grounds: (a) petitioner’s reliance on its entitlement for exemption under the provisions
of RA No. 7227 and Presidential Proclamation No. 420, was allegedly confirmed by Section
18,27 Article XVI of the Lease Agreement dated 19 October 1996 it entered with the BCDA.
However, it appears from the records that said Lease Agreement has yet to be presented nor
formally offered before any administrative or judicial body for scrutiny; (b) the subject provision of the
Lease Agreement declared a condition that in order to be allegedly exempted from the payment of
taxes, petitioner should have first paid and remitted 5% of the gross income earned by it within
ninety (90) days from the close of the calendar year through the JPDC. Unfortunately, petitioner has
neither established nor presented any evidence to show that it has indeed paid and remitted 5% of
said gross income tax; (c) the right to appeal is a privilege of statutory origin, meaning a right
granted only by the law, and not a constitutional right, natural or inherent. Therefore, it follows that
petitioner may avail of such opportunity only upon strict compliance with the procedures and rules
prescribed by the law itself, i.e. RA No. 7160 or the LGC of 1991; and (d) at any rate, petitioner’s
position of exemption is weakened by its own admission and recognition of this Court’s previous
ruling that the tax incentives granted in RA No. 7227 are exclusive only to the Subic Special
Economic and Free Port Zone; and thus, the extension of the same to the JHSEZ (as provided in the
second sentence of Section 3 of Presidential Proclamation No. 420)28 finds no support therein and
therefore declared null and void and of no legal force and effect. 29 Hence, petitioner needs more
than mere arguments and/or allegations contained in its pleadings to establish and prove its
exemption, making prior proceedings before the LBAA a necessity.

With the above-enumerated reasons, it is obvious that in order for a complete determination of
petitioner’s alleged exemption from payment of real property tax under RA No. 7160 or the LGC of
1991, there are factual issues needed to be confirmed. Hence, being a question of fact, petitioner
cannot do without first resorting to the proper administrative remedies, or as previously discussed,
by paying under protest the tax assessed in compliance with Section 252 thereof.

Accordingly, the CBAA and the CTA En Banc correctly ruled that real property taxes should first be
paid before any protest thereon may be considered. It is without a doubt that such requirement of
"payment under protest" is a condition sine qua non before an appeal may be entertained. Thus,
remanding the case to the LBAA for further proceedings subject to a full and up-to-date payment,
either in cash or surety, of realty tax on the subject properties was proper.

To reiterate, the restriction upon the power of courts to impeach tax assessment without a prior
payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the
lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like action;
otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing the
needed services to the people, and its machinery gravely disabled. 30 The right of local government
units to collect taxes due must always be upheld to avoid severe erosion. This consideration is
consistent with the State policy to guarantee the autonomy of local governments and the objective of
RA No. 7160 or the LGC of 1991 that they enjoy genuine and meaningful local autonomy to

16 | P a g e
empower them to achieve their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals. 31

All told, We go back to what was at the outset stated, that is, that a claim for tax exemption, whether
full or partial, does not question the authority of local assessor to assess real property tax, but
merely raises a question of the reasonableness or correctness of such assessment, which requires
compliance with Section 252 of the LGC of 1991. Such argument which may involve a question of
fact should be resolved at the first instance by the LBAA.

The CTA En Bane was correct in dismissing the petition in C.T.A. EB No. 48, and affirming the
CBAA's position that it cannot delve on the issue of petitioner's alleged non-taxability on the ground
of exemption since the LBAA has not decided the case on the merits. This is in compliance with the
procedural steps prescribed in the law.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Tax Appeals En
Bane in C.T.A. EB No. 48 is AFFIRMED. The case is remanded to the Local Board of Assessment
Appeals of Baguio City for further proceedings. No costs.

SO ORDERED.

17 | P a g e
G.R. No. 197117 April 10, 2013

FIRST LEPANTO TAISHO INSURANCE CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

MENDOZA, J.:

Before the Court is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure filed by First Lepanto Taisho Corporation, now FLT Prime Insurance Corporation
(petitioner), assailing the March l, 2011 Decision2 and the May 27, 2011 Resolution3 of the Court of
Tax Appeals (CTA) En Bane, in CTA E.B. No. 563, which affirmed the May 21, 2009 Decision of the
CTA-Second Division.

The Facts:

Petitioner is a non-lire insurance corporation and considered as a "Large Taxpayer under Revenue
Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 effective 1994."4 After
submitting its corporate income tax return for taxable year ending December 31, 1997, petitioner
received a Letter of Authority, dated October 30, 1998, from respondent Commissioner of Internal
Revenue (CIR) to allow it to examine their books of account and other accounting records for 1997
and other unverified prior years.

On December 29, 1999, CIR issued internal revenue tax assessments for deficiency income,
withholding, expanded withholding, final withholding, value-added, and documentary stamp taxes for
taxable year 1997.

On February 24, 2000, petitioner protested the said tax assessments.

During the pendency of the case, particularly on February 15, 2008, petitioner filed its Motion for
Partial Withdrawal of Petition for Review of Assessment Notice Nos. ST-INC-97-0220-99; ST-VAT-
97-0222-99 and ST-DST-97-0217-00, in view of the tax amnesty program it had availed. The CTA
Second Division granted the said motion in a Resolution, 5 dated March 31, 2008.

Consequently, on May 21, 2009, the CTA Second Division partially granted the petition. 6 It directed
petitioner to pay CIR a reduced tax liability of ₱1,994,390.86. The dispositive portion reads:

WHEREFORE, in view of the foregoing considerations, the instant Petition for Review is hereby
PARTIALLY GRANTED. Accordingly, petitioner is hereby ORDERED TO PAY deficiency withholding
tax on compensation, expanded withholding tax and final tax in the reduced amount of
₱1,994,390.86, computed as follows:

Basic Surcharges Interest Total

Tax

18 | P a g e
 Deficiency ₱774,200.55 ₱193,550.14 ₱312.227.34 ₱1,279,978.03

Withholding

Tax on

Compensation

ST-WC-97-0221-99

Deficiency 132,724.02 33,181.01 53,526.27 219,431.30

Expanded

Withholding

Tax ST-EWT-97-
0218-99

Deficiency 299,391.84 74,847.96 120,741.73 494,981.53

Final

Withholding

Tax ST-FT-97-
0219-99

TOTALS ₱1,206,316.41 ₱301,579.11 ₱486,495.34 ₱1,994,390.86

Petitioner’s Motion for Partial Reconsideration7 was likewise denied by the CTA Second Division in
its October 29, 2009 Resolution.8

Unsatisfied, petitioner filed a Petition for Review before the CTA En Banc. 9

On March 1, 2011, the CTA En Banc affirmed the decision of the CTA Second Division. 10

Petitioner contended that it was not liable to pay Withholding Tax on Compensation on the
₱500,000.00 Director’s Bonus to their directors, specifically, Rodolfo Bausa, Voltaire Gonzales,
Felipe Yap, and Catalino Macaraig, Jr., because they were not employees and the amount was
already subjected to Expanded Withholding Tax. The CTA En Banc, however, ruled that Section 5 of
Revenue Regulation No. 12-86 expressly identified a director to be an employee.

19 | P a g e
As to transportation, subsistence and lodging, and representation expenses, the expenses would not
be subject to withholding tax only if the same were reimbursement for actual expenses of the
company. In the present case, the CTA En Banc declared that petitioner failed to prove that they
were so.

As to deficiency expanded withholding taxes on compensation, petitioner failed to substantiate that

the commissions earned totaling ₱905,428.36, came from reinsurance activities and should not be
subject to withholding tax. Petitioner likewise failed to prove its direct loss expense, occupancy cost
and service/contractors and purchases.

As to deficiency final withholding taxes, "petitioner failed to present proof of remittance to establish
that it had remitted the final tax on dividends paid as well as the payments for services rendered by
the Malaysian entity."11

As to the imposition of delinquency interest under Section 249 (c) (3) of the 1997 National Internal
Revenue Code (NIRC), records reveal that petitioner failed to pay the deficiency taxes within thirty
(30) days from receipt of the demand letter, thus, delinquency interest accrued from such non-
payment.

Petitioner moved for partial reconsideration, but the CTA En Banc denied the same in its May 27,
2011 Resolution.12

Hence, this petition.13

The principal issue in this case is whether the CTA En Banc erred in holding petitioner liable for:

a. deficiency withholding taxes on compensation on directors’ bonuses under Assessment No. ST-
WC-97-0021-99;

b. deficiency expanded withholding taxes on transportation, subsistence and lodging, and

representation expense; commission expense; direct loss expense; occupancy cost; and
service/contractor and purchases under Assessment No. ST-EWT-97-0218-99;

c. deficiency final withholding taxes on payment of dividends and computerization expenses to

foreign entities under Assessment No. ST-FT-97-0219-99; and

d. delinquency interest under Section 249 (c) (3) of the NIRC.

The Court finds no merit in the petition.

For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulation
No. 12-86,14 to wit:

An individual, performing services for a corporation, whether as an officer and director or merely as a
director whose duties are confined to attendance at and participation in the meetings of the Board of
Directors, is an employee.

The non-inclusion of the names of some of petitioner’s directors in the company’s Alpha List does
not ipso facto create a presumption that they are not employees of the corporation, because the
imposition of withholding tax on compensation hinges upon the nature of work performed by such
individuals in the company. Moreover, contrary to petitioner’s attestations, Revenue Regulation No.

20 | P a g e
2-98,15 specifically, Section 2.57.2. A (9) thereof, 16 cannot be applied to this case as the latter is a
later regulation while the accounting books examined were for taxable year 1997.

As to the deficiency withholding tax assessment on transportation, subsistence and lodging, and
representation expense, commission expense, direct loss expense, occupancy cost,
service/contractor and purchases, the Court finds no cogent reason to deviate from the findings of
the CTA En Banc. As correctly observed by the CTA Second Division and the CTA En Banc,
petitioner was not able to sufficiently establish that the transportation expenses reflected in their
books were reimbursement from actual transportation expenses incurred by its employees in
connection with their duties as the only document presented was a Schedule of Transportation

Expenses without pertinent supporting documents. Without said documents, such as but not limited
to, receipts, transportation-related vouchers and/or invoices, there is no way of ascertaining whether
the amounts reflected in the schedule of expenses were disbursed for transportation.

With regard to commission expense, no additional documentary evidence, like the reinsurance
agreements contracts, was presented to support petitioner’s allegation that the expenditure
originated from reinsurance activities that gave rise to reinsurance commissions, not subject to
withholding tax. As to occupancy costs, records reveal that petitioner failed to compute the correct
total occupancy cost that should be subjected to withholding tax, hence, petitioner is liable for the
deficiency.

As to service/contractors and purchases, petitioner contends that both parties already stipulated that
it correctly withheld the taxes due. Thus, petitioner is of the belief that it is no longer required to
present evidence to prove the correct payment of taxes withheld. As correctly ruled by the CTA
Second Division and En Bane, however, stipulations cannot defeat the right of the State to collect
the correct taxes due on an individual or juridical person because taxes are the lifeblood of our
nation so its collection should be actively pursued without unnecessary impediment.

As to the deficiency final withholding tax assessments for payments of dividends and
computerization expenses incurred by petitioner to foreign entities, particularly Matsui Marine & Fire
Insurance Co. Ltd. (Matsui),17 the Court agrees with CIR that petitioner failed to present evidence to
show the supposed remittance to Matsui.

The Court likewise holds the imposition of delinquency interest under Section 249 (c) (3) of the 1997
NIRC to be proper, because failure to pay the deficiency tax assessed within the time prescribed for
its payment justifies the imposition of interest at the rate of twenty percent (20%) per annum, which
interest shall be assessed and collected from the date prescribed for its payment until full payment is
made.

It is worthy to note that tax revenue statutes are not generally intended to be liberally
construed.18 Moreover, the CTA being a highly specialized court particularly created for the purpose
of reviewing tax and customs cases, it is settled that its findings and conclusions are accorded great
respect and are generally upheld by this Court, unless there is a clear showing of a reversible error
or an improvident exercise of authority.19 Absent such errors, the challenged decision should be
maintained.

WHEREFORE, the petition is DENIED. The March 1, 2011 Decision and the May 27, 2011
Resolution of the Court of Tax Appeals En Bane, in CTA E.B. No. 563, are AFFIRMED.

SO ORDERED.

21 | P a g e
G.R. No. 187485 February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SAN ROQUE POWER CORPORATION, Respondent.

X----------------------------X

G.R. No. 196113

TAGANITO MINING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

x----------------------------x

G.R. No. 197156

PHILEX MINING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

CARPIO, J.:

The Cases

G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as
well as the Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA
EB) in CTA EB No. 408. The CTA EB affirmed the 29 November 2007 Amended Decision4 as well as
the 11 July 2008 Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second
Division) in CTA Case No. 6647. The CTA Second Division ordered the Commissioner of Internal
Revenue (Commissioner) to refund or issue a tax credit for P483,797,599.65 to San Roque Power
Corporation (San Roque) for unutilized input value-added tax (VAT) on purchases of capital goods
and services for the taxable year 2001.

G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010
as well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its
Decision, the CTA EB reversed the 8 January 2010 Decision9 as well as the 7 April 2010
Resolution10of the CTA Second Division and granted the CIR’s petition for review in CTA Case No.
7574. The CTA EB dismissed, for having been prematurely filed, Taganito Mining Corporation’s
(Taganito) judicial claim for P8,365,664.38 tax refund or credit.

G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010
as well as the Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The
CTA EB affirmed the 20 July 2009 Decision as well as the 10 November 2009 Resolution of the CTA

22 | P a g e
Second Division in CTA Case No. 7687. The CTA Second Division denied, due to prescription,
Philex Mining Corporation’s (Philex) judicial claim for P23,956,732.44 tax refund or credit.

On 3 August 2011, the Second Division of this Court resolved 14 to consolidate G.R. No. 197156 with
G.R. No. 196113, which were pending in the same Division, and with G.R. No. 187485, which was
assigned to the Court En Banc. The Second Division also resolved to refer G.R. Nos. 197156 and
196113 to the Court En Banc, where G.R. No. 187485, the lower-numbered case, was assigned.

G.R. No. 187485

CIR v. San Roque Power Corporation

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act
upon and approve claims for refund or tax credit, with office at the Bureau of Internal Revenue
("BIR") National Office Building, Diliman, Quezon City.

[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of
the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was
incorporated in October 1997 to design, construct, erect, assemble, own, commission and operate
power-generating plants and related facilities pursuant to and under contract with the Government of
the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any
governmentowned or controlled corporation, or other entity engaged in the development, supply, or
distribution of energy.

As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It
is likewise registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage
in the design, construction, erection, assembly, as well as to own, commission, and operate electric
power-generating plants and related activities, for which it was issued Certificate of Registration No.
97-356 on February 11, 1998.

On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the
National Power Corporation ("NPC") to develop hydro-potential of the Lower Agno River and
generate additional power and energy for the Luzon Power Grid, by building the San Roque Multi-
Purpose Project located in San Manuel, Pangasinan. The PPA provides, among others, that [San
Roque] shall be responsible for the design, construction, installation, completion, testing and
commissioning of the Power Station and shall operate and maintain the same, subject to NPC
instructions. During the cooperation period of twenty-five (25) years commencing from the
completion date of the Power Station, NPC will take and pay for all electricity available from the
Power Station.

On the construction and development of the San Roque Multi- Purpose Project which comprises of
the dam, spillway and power plant, [San Roque] allegedly incurred, excess input VAT in the amount
of ₱559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the
same year. [San Roque] duly filed with the BIR separate claims for refund, in the total amount of
₱559,709,337.54, representing unutilized input taxes as declared in its VAT returns for taxable year
2001.

However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001
since it increased its unutilized input VAT to the amount of ₱560,200,283.14. Consequently, [San

23 | P a g e
Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate
amount of ₱560,200,283.14.

[CIR’s] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with
the Court [of Tax Appeals] in Division on April 10, 2003.

Trial of the case ensued and on July 20, 2005, the case was submitted for decision. 15

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division initially denied San Roque’s claim. In its Decision16 dated 8 March 2006, it
cited the following as bases for the denial of San Roque’s claim: lack of recorded zero-rated or
effectively zero-rated sales; failure to submit documents specifically identifying the purchased
goods/services related to the claimed input VAT which were included in its Property, Plant and
Equipment account; and failure to prove that the related construction costs were capitalized in its
books of account and subjected to depreciation.

The CTA Second Division required San Roque to show that it complied with the following
requirements of Section 112(B) of Republic Act No. 8424 (RA 8424) 17 to be entitled to a tax refund or
credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a VAT-
registered entity; (2) its input taxes claimed were paid on capital goods duly supported by VAT
invoices and/or official receipts; (3) it did not offset or apply the claimed input VAT payments on
capital goods against any output VAT liability; and (4) its claim for refund was filed within the two-
year prescriptive period both in the administrative and judicial levels.

The CTA Second Division found that San Roque complied with the first, third, and fourth
requirements, thus:

The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint
Stipulation of Facts, Records, p. 157). It was also established that the instant claim of
₱560,200,823.14 is already net of the ₱11,509.09 output tax declared by [San Roque] in its
amended VAT return for the first quarter of 2001. Moreover, the entire amount of ₱560,200,823.14
was deducted by [San Roque] from the total available input tax reflected in its amended VAT returns
for the last two quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1).
This means that the claimed input taxes of ₱560,200,823.14 did not form part of the excess input
taxes of ₱83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the
succeeding quarters. Further, [San Roque’s] claim for refund/tax credit certificate of excess input
VAT was filed within the two-year prescriptive period reckoned from the dates of filing of the
corresponding quarterly VAT returns.

For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25,
2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and
N"). These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O").
On the other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001,
October 10, 2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth
quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended
claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for
Review was filed on April 10, 2003. Counting from the respective dates when [San Roque] originally
filed its VAT returns for the first, second, third and fourth quarters of 2001, the administrative claims
for refund (original and amended) and the Petition for Review fall within the two-year prescriptive
period.18

24 | P a g e
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November
2007 Amended Decision,19 the CTA Second Division found legal basis to partially grant San Roque’s
claim. The CTA Second Division ordered the Commissioner to refund or issue a tax credit in favor of
San Roque in the amount of ₱483,797,599.65, which represents San Roque’s unutilized input VAT
on its purchases of capital goods and services for the taxable year 2001. The CTA based the
adjustment in the amount on the findings of the independent certified public accountant. The
following reasons were cited for the disallowed claims: erroneous computation; failure to ascertain
whether the related purchases are in the nature of capital goods; and the purchases pertain to
capital goods. Moreover, the reduction of claims was based on the following: the difference between
San Roque’s claim and that appearing on its books; the official receipts covering the claimed input
VAT on purchases of local services are not within the period of the claim; and the amount of VAT
cannot be determined from the submitted official receipts and invoices. The CTA Second Division
denied San Roque’s claim for refund or tax credit of its unutilized input VAT attributable to its zero-
rated or effectively zero-rated sales because San Roque had no record of such sales for the four
quarters of 2001.

The dispositive portion of the CTA Second Division’s 29 November 2007 Amended Decision reads:

WHEREFORE, [San Roque’s] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY
GRANTED and this Court’s Decision promulgated on March 8, 2006 in the instant case is hereby
MODIFIED.

Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX
CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty
Three Million Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty
Five Centavos (₱483,797,599.65) representing unutilized input VAT on purchases of capital goods
and services for the taxable year 2001.

SO ORDERED.20

The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA
Second Division issued a Resolution dated 11 July 2008 which denied the CIR’s motion for lack of
merit.

The Court of Tax Appeals’ Ruling: En Banc

The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San
Roque’s claim for refund or tax credit in its entirety as well as for the setting aside of the 29
November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.

The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision and
resolution.

The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue
Memorandum Circular No. 49-03,22 as its bases for ruling that San Roque’s judicial claim was not
prematurely filed. The pertinent portions of the Decision state:

More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:

It is true that Section 112(D) of the abovementioned provision applies to the present case.
However, what the petitioner failed to consider is Section 112(A) of the same provision. The

25 | P a g e
respondent is also covered by the two (2) year prescriptive period. We have repeatedly held that the
claim for refund with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed
within the two-year period.

Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue that the two-year prescriptive period for filing a
claim for input tax is reckoned from the date of the filing of the quarterly VAT return and payment of
the tax due. If the said period is about to expire but the BIR has not yet acted on the
application for refund, the taxpayer may interpose a petition for review with this Court within
the two year period.

In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now
Commissioner) takes time in deciding the claim, and the period of two years is about to end, the suit
or proceeding must be started in the Court of Tax Appeals before the end of the two-year period
without awaiting the decision of the Collector.

Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs.
The Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the
taxpayer need not wait indefinitely for a decision or ruling which may or may not be
forthcoming and which he has no legal right to expect. It is disheartening enough to a taxpayer
to keep him waiting for an indefinite period of time for a ruling or decision of the Collector (now
Commissioner) of Internal Revenue on his claim for refund. It would make matters more
exasperating for the taxpayer if we were to close the doors of the courts of justice for such a relief
until after the Collector (now Commissioner) of Internal Revenue, would have, at his personal
convenience, given his go signal.

This Court ruled in several cases that once the petition is filed, the Court has already acquired
jurisdiction over the claims and the Court is not bound to wait indefinitely for no reason for whatever
action respondent (herein petitioner) may take. At stake are claims for refund and unlike
disputed assessments, no decision of respondent (herein petitioner) is required before one
can go to this Court. (Emphasis supplied and citations omitted)

Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03
dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the
Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR and that
taxpayers need not wait for the lapse of the subject 120-day period, to wit:

In response to [the] request of selected taxpayers for adoption of procedures in handling refund
cases that are aligned to the statutory requirements that refund cases should be elevated to the
Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC
No. 42-2003 are hereby amended and new provisions are added thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to
wit:

I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:

In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals
involving a claim for refund/TCC that is pending at the administrative agency (Bureau of
Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the
case separately. While the case is pending in the tax court and at the same time is still under
process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons

26 | P a g e
from the tax court, shall request from the head of the investigating/processing office for the docket
containing certified true copies of all the documents pertinent to the claim. The docket shall be
presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by
the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall
continue processing the refund/TCC case until such time that a final decision has been reached by
either the CTA or the administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency,
the latter shall cease from processing the claim. On the other hand, if the administrative agency
is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the
findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the
CTA.23 (Emphasis supplied)

G.R. No. 196113

Taganito Mining Corporation v. CIR

The Facts

The CTA Second Division’s narration of the pertinent facts is as follows:

Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by
virtue of the laws of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa
St., Lega[s]pi Village, Makati City. It is duly registered with the Securities and Exchange Commission
with Certificate of Registration No. 138682 issued on March 4, 1987 with the following primary
purpose:

To carry on the business, for itself and for others, of mining lode and/or placer mining, developing,
exploiting, extracting, milling, concentrating, converting, smelting, treating, refining, preparing for
market, manufacturing, buying, selling, exchanging, shipping, transporting, and otherwise producing
and dealing in nickel, chromite, cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone,
and all kinds of ores, metals and their by-products and which by-products thereof of every kind and
description and by whatsoever process the same can be or may hereafter be produced, and
generally and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in
lands, mines, and mineral rights and claims and to conduct all business appertaining thereto, to
purchase, locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights,
concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other
properties whatsoever which this corporation may from time to time find to be to its advantage to
mine lands, and to explore, work, exercise, develop or turn to account the same, and to acquire,
develop and utilize water rights in such manner as may be authorized or permitted by law; to
purchase, hire, make, construct or otherwise, acquire, provide, maintain, equip, alter, erect, improve,
repair, manage, work and operate private roads, barges, vessels, aircraft and vehicles, private
telegraph and telephone lines, and other communication media, as may be needed by the
corporation for its own purpose, and to purchase, import, construct, machine, fabricate, or otherwise
acquire, and maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses,
waterworks, aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric
lights and power plants and compressed air plants, chemical works of all kinds, concentrators,
smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories, dwelling
houses, stores, hotels or other buildings, engines, machinery, spare parts, tools, implements and
other works, conveniences and properties of any description in connection with or which may be
directly or indirectly conducive to any of the objects of the corporation, and to contribute to, subsidize
or otherwise aid or take part in any operations;

27 | P a g e
and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN
8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as an
exporter of beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration No. EP-
88-306.

Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with
authority to exercise the functions of the said office, including inter alia, the power to decide refunds
of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code (NIRC) or other laws administered by
Bureau of Internal Revenue (BIR) under Section 4 of the NIRC. He holds office at the BIR National
Office Building, Diliman, Quezon City.

[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1,
2005 to December 31, 2005. For easy reference, a summary of the filing dates of the original and
amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is as follows:

Exhibit(s) Quarter Nature of Mode of filing Filing Date

the Return
L to L-4 1st Original Electronic April 15, 2005
M to M-3 Amended Electronic July 20, 2005
N to N-4 Amended Electronic October 18, 2006
Q to Q-3 2nd Original Electronic July 20, 2005
R to R-4 Amended Electronic October 18, 2006
U to U-4 3rd Original Electronic October 19, 2005
V to V-4 Amended Electronic October 18, 2006
Y to Y-4 4th Original Electronic January 20, 2006
Z to Z-4 Amended Electronic October 18, 2006

As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated sales
amounting to P1,446,854,034.68; input VAT on its domestic purchases and importations of goods
(other than capital goods) and services amounting to P2,314,730.43; and input VAT on its domestic
purchases and importations of capital goods amounting to P6,050,933.95, the details of which are
summarized as follows:

Period Zero-Rated Sales Input VAT on Input VAT on Total Input VAT
Covered Domestic Domestic
Purchases and Purchases and
Importations Importations
of Goods and of Capital
Services Goods
01/01/05 - P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
03/31/05
04/01/05 - 64,677,530.78 204,364.17 5,811,130.73 6,015,494.90
06/30/05

28 | P a g e
 07/01/05 - 480,784,287.30 144,887.67 - 144,887.67
09/30/05
10/01/05 - 350,212,345.02 473,598.03 - 473,598.03
12/31/05
TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38

On November 14, 2006, [Taganito] filed with [the CIR], through BIR’s Large Taxpayers Audit and
Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of
its supposed input VAT amounting to ₱8,365,664.38 for the period covering January 1, 2004 to
December 31, 2004. On the same date, [Taganito] likewise filed an Application for Tax
Credits/Refunds for the period covering January 1, 2005 to December 31, 2005 for the same
amount.

On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR],
to correct the period of the above claim for tax credit/refund in the said amount of ₱8,365,664.38 as
actually referring to the period covering January 1, 2005 to December 31, 2005.

As the statutory period within which to file a claim for refund for said input VAT is about to lapse
without action on the part of the [CIR], [Taganito] filed the instant Petition for Review on February 17,
2007.

In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:

4. [Taganito’s] alleged claim for refund is subject to administrative investigation/examination

by the Bureau of Internal Revenue (BIR);

5. The amount of ₱8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT
on domestic purchases of goods and services and on importation of capital goods for the
period January 1, 2005 to December 31, 2005 is not properly documented;

6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D)
and 229 of the National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive
period for claiming tax refund/credit;

7. Proof of compliance with the prescribed checklist of requirements to be submitted

involving claim for VAT refund pursuant to Revenue Memorandum Order No. 53-
98, otherwise there would be no sufficient compliance with the filing of administrative
claim for refund, the administrative claim thereof being mere proforma, which is a
condition sine qua non prior to the filing of judicial claim in accordance with the
provision of Section 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as
amended, requires the submission of complete documents in support of the application
filed with the BIR before the 120-day audit period shall apply, and before the taxpayer
could avail of judicial remedies as provided for in the law. Hence, [Taganito’s] failure to
submit proof of compliance with the above-stated requirements warrants immediate
dismissal of the petition for review.

8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in
Sections 110 and 113 of the 1997 Tax Code, as amended, in relation to provisions of
Revenue Regulations No. 7-95.

29 | P a g e
 9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to
refund, and failure to sustain the burden is fatal to the claim for refund/credit (Asiatic
Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila
Jockey Club, Inc., 98 Phil. 670);

10. Claims for refund are construed strictly against the claimant for the same partake the
nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31
SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs.
Commissioner of Internal Revenue, 124 SCRA 1211).

SPECIAL AND AFFIRMATIVE DEFENSES

11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure
on the part of [Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which
provides, thus:

Section 112. Refunds or Tax Credits of Input Tax. –

xxx xxx xxx

(D) Period within which refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In cases of full or partial denial for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty dayperiod, appeal the decision or the unacted claim
with the Court of Tax Appeals. (Emphasis supplied.)

12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue
on November 14, 2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously
the 120 days given to the Commissioner to decide on the claim has not yet lapsed when the petition
was filed. The petition was prematurely filed, hence it must be dismissed for lack of jurisdiction.

During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving
its supposed entitlement to the refund in the amount of ₱8,365,664.38, representing input taxes for
the period covering January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not
to present evidence. Thus, in the Resolution promulgated on January 22, 2009, this case was
submitted for decision as of such date, considering [Taganito’s] "Memorandum" filed on January 19,
2009 and [the CIR’s] "Memorandum" filed on December 19, 2008. 24

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division partially granted Taganito’s claim. In its Decision25 dated 8 January 2010,
the CTA Second Division found that Taganito complied with the requirements of Section 112(A) of
RA 8424, as amended, to be entitled to a tax refund or credit of input VAT attributable to zero-rated
or effectively zero-rated sales.26

The pertinent portions of the CTA Second Division’s Decision read:

30 | P a g e
Finally, records show that [Taganito’s] administrative claim filed on November 14, 2006, which was
amended on November 29, 2006, and the Petition for Review filed with this Court on February 14,
2007 are well within the two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005,
September 30, 2005, and December 31, 2005, respectively, the close of each taxable quarter
covering the period January 1, 2005 to December 31, 2005.

In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of
₱8,249,883.33 representing unutilized input VAT for the four taxable quarters of 2005.

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, [the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of
EIGHT MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY THREE
PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33) representing its unutilized input taxes
attributable to zero-rated sales from January 1, 2005 to December 31, 2005.

SO ORDERED.27

The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn,
filed a Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.

In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIR’s motion. The CTA
Second Division ruled that the legislature did not intend that Section 112 (Refunds or Tax Credits of
Input Tax) should be read in isolation from Section 229 (Recovery of Tax Erroneously or Illegally
Collected) or vice versa. The CTA Second Division applied the mandatory statute of limitations in
seeking judicial recourse prescribed under Section 229 to claims for refund or tax credit under
Section 112.

The Court of Tax Appeals’ Ruling: En Banc

On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8
January 2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that
Taganito’s entire claim for refund be denied.

In its 8 December 2010 Decision,29 the CTA EB granted the CIR’s petition for review and reversed
and set aside the challenged decision and resolution.

The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning
of the two-year prescriptive period for filing a claim for tax refund or credit over input VAT to be the
close of the taxable quarter when the sales were made. The CTA EB also relied on this Court’s
rulings in the cases of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi)30 and Commisioner of Internal Revenue v. Mirant Pagbilao Corporation
(Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input
VAT arising from zero-rated sales should be reckoned from the close of the taxable quarter when the
sales were made. Aichi further emphasized that the failure to await the decision of the Commissioner
or the lapse of 120-day period prescribed in Section 112(D) amounts to a premature filing.

The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well
within the period prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA
EB found that Taganito’s judicial claim was prematurely filed. Taganito filed its Petition for Review
before the CTA Second Division on 14 February 2007. The judicial claim was filed after the lapse of
only 92 days from the filing of its administrative claim before the CIR, in violation of the 120-day
period prescribed in Section 112(D) of the 1997 Tax Code.

31 | P a g e
The dispositive portion of the Decision states:

WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated
January 8, 2010 and Resolution dated April 7, 2010 of the Special Second Division of this Court are
hereby REVERSED and SET ASIDE. Another one is hereby entered DISMISSING the Petition for
Review filed in CTA Case No. 7574 for having been prematurely filed.

SO ORDERED.32

In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim
before the CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within which
Refund or Tax Credit of Input Taxes shall be Made) in conjunction with Section 229 (Recovery of
Tax Erroneously or Illegally Collected). Justice Bautista also relied on this Court’s ruling in Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue
(Atlas),34 which stated that refundable or creditable input VAT and illegally or erroneously collected
national internal revenue tax are the same, insofar as both are monetary amounts which are
currently in the hands of the government but must rightfully be returned to the taxpayer. Justice
Bautista concluded:

Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or
tax credit of excess or unutilized input tax with this Court, either within 30 days from receipt of the
denial of its claim, or after the lapse of the 120-day period in the event of inaction by the
Commissioner, provided that both administrative and judicial remedies must be undertaken within
the 2-year period.35

Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an
Opposition on 26 January 2011. The CTA EB denied for lack of merit Taganito’s motion in a
Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable reason to depart from this
Court’s rulings in Aichi and Mirant.

G.R. No. 197156

Philex Mining Corporation v. CIR

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[Philex] is a corporation duly organized and existing under the laws of the Republic of the
Philippines, which is principally engaged in the mining business, which includes the exploration and
operation of mine properties and commercial production and marketing of mine products, with office
address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.

[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government
entity tasked with the duties/functions of assessing and collecting all national internal revenue taxes,
fees, and charges, and enforcement of all forfeitures, penalties and fines connected therewith,
including the execution of judgments in all cases decided in its favor by [the Court of Tax Appeals]
and the ordinary courts, where she can be served with court processes at the BIR Head Office, BIR
Road, Quezon City.

On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005
and Amended VAT Return for the same quarter on December 1, 2005.

32 | P a g e
On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of ₱23,956,732.44 with
the One Stop Shop Center of the Department of Finance. However, due to [the CIR’s] failure to act
on such claim, on October 17, 2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as
amended, [Philex] filed a Petition for Review, docketed as C.T.A. Case No. 7687.

In [her] Answer, respondent CIR alleged the following special and affirmative defenses:

4. Claims for refund are strictly construed against the taxpayer as the same partake the
nature of an exemption;

5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid.
Failure on the part of [Philex] to prove the same is fatal to its cause of action;

6. [Philex] should prove its legal basis for claiming for the amount being refunded.37

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division, in its Decision dated 20 July 2009, denied Philex’s claim due to
prescription. The CTA Second Division ruled that the two-year prescriptive period specified in
Section 112(A) of RA 8424, as amended, applies not only to the filing of the administrative claim with
the BIR, but also to the filing of the judicial claim with the CTA. Since Philex’s claim covered the 3rd
quarter of 2005, its administrative claim filed on 20 March 2006 was timely filed, while its judicial
claim filed on 17 October 2007 was filed late and therefore barred by prescription.

On 10 November 2009, the CTA Second Division denied Philex’s Motion for Reconsideration.

The Court of Tax Appeals’ Ruling: En Banc

Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009
Decision and the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.

The CTA EB, in its Decision38 dated 3 December 2010, denied Philex’s petition and affirmed the CTA
Second Division’s Decision and Resolution.

The pertinent portions of the Decision read:

In this case, while there is no dispute that [Philex’s] administrative claim for refund was filed within
the two-year prescriptive period; however, as to its judicial claim for refund/credit, records show that
on March 20, 2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the
amount of ₱23,956,732.44 with the One Stop Shop Center of the Department of Finance, per
Application No. 52490. From March 20, 2006, which is also presumably the date [Philex] submitted
supporting documents, together with the aforesaid application for refund, the CIR has 120 days, or
until July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-day
period, or from July 19, 2006 until August 17, 2006, [Philex] should have elevated its claim for refund
to the CTA. However, [Philex] filed its Petition for Review only on October 17, 2007, which is 426
days way beyond the 30- day period prescribed by law.

Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition
for Review in CTA Case No. 7687 should have been dismissed on the ground that the Petition for
Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the
CTA in Division; and not due to prescription.

33 | P a g e
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE
COURSE, and accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the
Petition for Review in CTA Case No. 7687 due to prescription, and Resolution dated November 10,
2009 denying [Philex’s] Motion for Reconsideration are hereby AFFIRMED, with modification that the
dismissal is based on the ground that the Petition for Review in CTA Case No. 7687 was filed way
beyond the 30-day prescribed period to appeal.

SO ORDERED.39

G.R. No. 187485

CIR v. San Roque Power Corporation

The Commissioner raised the following grounds in the Petition for Review:

I. The Court of Tax Appeals En Banc erred in holding that [San Roque’s] claim for refund
was not prematurely filed.

II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of
Tax Appeals (Second Division) granting [San Roque’s] claim for refund of alleged unutilized
input VAT on its purchases of capital goods and services for the taxable year 2001 in the
amount of P483,797,599.65. 40

G.R. No. 196113

Taganito Mining Corporation v. CIR

Taganito raised the following grounds in its Petition for Review:

I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in erroneously applying
the Aichi doctrine in violation of [Taganito’s] right to due process.

II. The Court of Tax Appeals committed serious error and acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in erroneously interpreting the
provisions of Section 112 (D).41

G.R. No. 197156

Philex Mining Corporation v. CIR

Philex raised the following grounds in its Petition for Review:

I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that
the petition was filed with the CTA within the period set by prevailing court rulings at the time
it was filed.

II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in
this instant case.42

The Court’s Ruling

For ready reference, the following are the provisions of the Tax Code applicable to the present
cases:

34 | P a g e
Section 105:

Persons Liable. — Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.

xxxx

Section 110(B):

Sec. 110. Tax Credits. —

(B) Excess Output or Input Tax. — If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters: [Provided,
That the input tax inclusive of input VAT carried over from the previous quarter that may be credited
in every quarter shall not exceed seventy percent (70%) of the output VAT:] 43 Provided, however,
That any input tax attributable to zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue taxes, subject to the provisions
of Section 112.

Section 112:44

Sec. 112. Refunds or Tax Credits of Input Tax. —

(A) Zero-Rated or Effectively Zero-Rated Sales.— Any VAT-registered person, whose

sales are zero-rated or effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)
(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of
goods or properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.

(B) Capital Goods.- A VAT — registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to the
extent that such input taxes have not been applied against output taxes. The application may
be made only within two (2) years after the close of the taxable quarter when the importation
or purchase was made.

35 | P a g e
 (C) Cancellation of VAT Registration. — A person whose registration has been cancelled
due to retirement from or cessation of business, or due to changes in or cessation of status
under Section 106(C) of this Code may, within two (2) years from the date of cancellation,
apply for the issuance of a tax credit certificate for any unused input tax which may be used
in payment of his other internal revenue taxes

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection (A)
and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.

(E) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on Audit, the provisions of the Administrative
Code of 1987 to the contrary notwithstanding: Provided, that refunds under this paragraph
shall be subject to post audit by the Commission on Audit.

Section 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.

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.

(All emphases supplied)

I. Application of the 120+30 Day Periods

a. G.R. No. 187485 - CIR v. San Roque Power Corporation

On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the
Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA docketed as
CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did not wait for the 120-
day period to lapse before filing its judicial claim; second, San Roque filed its judicial claim more
than four (4) years before the Atlas45 doctrine, which was promulgated by the Court on 8 June 2007.

36 | P a g e
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law
to the Commissioner to decide whether to grant or deny San Roque’s application for tax refund or
credit. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of the
first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting period was
extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of
1997. Thus, the waiting period has been in our statute books for more than fifteen (15)
years before San Roque filed its judicial claim.

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates
the doctrine of exhaustion of administrative remedies and renders the petition premature and thus
without a cause of action, with the effect that the CTA does not acquire jurisdiction over the
taxpayer’s petition. Philippine jurisprudence is replete with cases upholding and reiterating these
doctrinal principles.46

The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of
the Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue
taxes."47 When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA
without waiting for the decision of the Commissioner, there is no "decision" of the Commissioner to
review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The
charter of the CTA also expressly provides that if the Commissioner fails to decide within "a specific
period" required by law, such "inaction shall be deemed a denial"48 of the application for tax
refund or credit. It is the Commissioner’s decision, or inaction "deemed a denial," that the taxpayer
can take to the CTA for review. Without a decision or an "inaction x x x deemed a denial" of the
Commissioner, the CTA has no jurisdiction over a petition for review.49

San Roque’s failure to comply with the 120-day mandatory period renders its petition for review with
the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity." San Roque’s void
petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized "except when the law itself authorizes [its]
validity." There is no law authorizing the petition’s validity.

It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law
cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his
own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No
vested or acquired right can arise from acts or omissions which are against the law or which infringe
upon the rights of others."50 For violating a mandatory provision of law in filing its petition with the
CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque’s petition
with the CTA is a mere scrap of paper.

This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-
day period just because the Commissioner merely asserts that the case was prematurely filed with
the CTA and does not question the entitlement of San Roque to the refund. The mere fact that a
taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or
excessively collected from him, does not entitle him as a matter of right to a tax refund or credit.
Strict compliance with the mandatory and jurisdictional conditions prescribed by law to claim such
tax refund or credit is essential and necessary for such claim to prosper. Well-settled is the rule
that tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer.51 The burden is on the taxpayer to show that he has strictly complied with the conditions
for the grant of the tax refund or credit.

37 | P a g e
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply
because the Commissioner chose not to contest the numerical correctness of the claim for tax
refund or credit of the taxpayer. Non-compliance with mandatory periods, non-observance of
prescriptive periods, and non-adherence to exhaustion of administrative remedies bar a taxpayer’s
claim for tax refund or credit, whether or not the Commissioner questions the numerical correctness
of the claim of the taxpayer. This Court should not establish the precedent that non-compliance with
mandatory and jurisdictional conditions can be excused if the claim is otherwise meritorious,
particularly in claims for tax refunds or credit. Such precedent will render meaningless compliance
with mandatory and jurisdictional requirements, for then every tax refund case will have to be
decided on the numerical correctness of the amounts claimed, regardless of non-compliance with
mandatory and jurisdictional conditions.

San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine
because San Roque filed its petition for review with the CTA more than four years
before Atlas was promulgated. The Atlas doctrine did not exist at the time San Roque failed to
comply with the 120- day period. Thus, San Roque cannot invoke the Atlas doctrine as an excuse for
its failure to wait for the 120-day period to lapse. In any event, the Atlas doctrine merely stated that
the two-year prescriptive period should be counted from the date of payment of the output VAT, not
from the close of the taxable quarter when the sales involving the input VAT were
made. The Atlas doctrine does not interpret, expressly or impliedly, the 120+3052 day periods.

In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the
Court in Atlas as the applicable provision of the law did not yet provide for the 30-day period for the
taxpayer to appeal to the CTA from the decision or inaction of the Commissioner. 53 Thus,
the Atlas doctrine cannot be invoked by anyone to disregard compliance with the 30-day
mandatory and jurisdictional period. Also, the difference between the Atlas doctrine on one hand,
and the Mirant54 doctrine on the other hand, is a mere 20 days. The Atlas doctrine counts the two-
year prescriptive period from the date of payment of the output VAT, which means within 20 days
after the close of the taxable quarter. The output VAT at that time must be paid at the time of filing of
the quarterly tax returns, which were to be filed "within 20 days following the end of each quarter."

Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the
administrative claims filed with the Commissioner, and the petitions for review filed with the CTA,
were all filed within two years from the date of payment of the output VAT, following Section 229:

Date of Filing Return Date of Filing Date of Filing

Period Covered
& Payment of Tax Administrative Claim Petition With CTA
2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992
Close of Quarter
30 June 1990
3rd Quarter, 1990 18 October 1990 21 November 1990 9 October 1992
Close of Quarter
30 September 1990
4th Quarter, 1990 20 January 1991 19 February 1991 14 January 1993
Close of Quarter
31 December 1990

Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th
day after the close of the taxable quarter. Had the twoyear prescriptive period been counted from
the "close of the taxable quarter" as expressly stated in the law, the tax refund claims of Atlas would

38 | P a g e
have already prescribed. In contrast, the Mirant doctrine counts the two-year prescriptive period from
the "close of the taxable quarter when the sales were made" as expressly stated in the law, which
means the last day of the taxable quarter. The 20-day difference55 between the Atlas doctrine
and the later Mirant doctrine is not material to San Roque’s claim for tax refund.

Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because
what is at issue in the present case is San Roque’s non-compliance with the 120-day mandatory and
jurisdictional period, which is counted from the date it filed its administrative claim with the
Commissioner. The 120-day period may extend beyond the two-year prescriptive period, as long as
the administrative claim is filed within the two-year prescriptive period. However, San Roque’s fatal
mistake is that it did not wait for the Commissioner to decide within the 120-day period, a mandatory
period whether the Atlas or the Mirant doctrine is applied.

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods
were already in the law. Section 112(C)56 expressly grants the Commissioner 120 days within which
to decide the taxpayer’s claim. The law is clear, plain, and unequivocal: "x x x the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred
twenty (120) days from the date of submission of complete documents." Following the verba
legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal.
The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s
decision within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction
because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA
to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its
administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the
mandatory 120-day period, and it cannot blame anyone but itself.

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision
or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals. (Emphasis supplied)

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner’s decision, or if the Commissioner does not act on the taxpayer’s claim
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period.

b. G.R. No. 196113 - Taganito Mining Corporation v. CIR

Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-
day period to lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of
the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is
almost four months before the adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly
situated as San Roque - both cannot claim being misled, misguided, or confused by
the Atlas doctrine.

However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which
expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed its

39 | P a g e
judicial claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of
the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have filed its judicial claim
with the CTA on time.

c. G.R. No. 197156 – Philex Mining Corporation v. CIR

Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005;
(2) filed on 20 March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007
its Petition for Review with the CTA. The close of the third taxable quarter in 2005 is 30 September
2005, which is the reckoning date in computing the two-year prescriptive period under Section
112(A).

Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period.
Even if the two-year prescriptive period is computed from the date of payment of the output VAT
under Section 229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is
immaterial in this case. The Commissioner had until 17 July 2006, the last day of the 120-day
period, to decide Philex’s claim. Since the Commissioner did not act on Philex’s claim on or before
17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial
claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its
judicial claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007,
or four hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one
year and 61 days in filing its judicial claim. As the CTA EB correctly found:

Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the
Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was
acquired by the CTA Division; x x x58 (Emphasis supplied)

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex
did not file any petition with the CTA within the 120-day period. Philex did not also file any petition
with the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial
claim long after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day
period. In any event, whether governed by jurisprudence before, during, or after
the Atlas case, Philex’s judicial claim will have to be rejected because of late filing. Whether
the two-year prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed
late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law, "deemed
a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its
judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance with the conditions attached by the
statute for its exercise.59 Philex failed to comply with the statutory conditions and must thus bear the
consequences.

II. Prescriptive Periods under Section 112(A) and (C)

40 | P a g e
There are three compelling reasons why the 30-day period need not necessarily fall within the two-
year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive
period.

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer
"may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of the creditable input
tax due or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime
within two years. Thus, the application for refund or credit may be filed by the taxpayer with
the Commissioner on the last day of the two-year prescriptive period and it will still strictly
comply with the law. The twoyear prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before his right to apply for a tax refund or credit
is barred by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for
refund or credit "within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection (A)."
The reference in Section 112(C) of the submission of documents "in support of the
application filed in accordance with Subsection A" means that the application in Section
112(A) is the administrative claim that the Commissioner must decide within the 120-day
period. In short, the two-year prescriptive period in Section 112(A) refers to the period within
which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise,
the two-year prescriptive period does not refer to the filing of the judicial claim with
the CTA but to the filing of the administrative claim with the Commissioner. As held
in Aichi, the "phrase ‘within two years x x x apply for the issuance of a tax credit or
refund’ refers to applications for refund/credit with the CIR and not to appeals made to
the CTA."

Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive
period (equivalent to 730 days60), then the taxpayer must file his administrative claim for
refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the
filing of the administrative claim beyond the first 610 days will result in the appeal to
the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files
his administrative claim on the 611th day, the Commissioner, with his 120-day period, will
have until the 731st day to decide the claim. If the Commissioner decides only on the 731st
day, or does not decide at all, the taxpayer can no longer file his judicial claim with the CTA
because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day
period granted by law to the taxpayer to file an appeal before the CTA becomes utterly
useless, even if the taxpayer complied with the law by filing his administrative claim within
the two-year prescriptive period.

The theory that the 30-day period must fall within the two-year prescriptive period adds a condition
that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the
taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a law
to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and
unequivocal language.

Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language.
The taxpayer can file his administrative claim for refund or credit at anytime within the two-year
prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is
still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the

41 | P a g e
Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer
still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the
only logical interpretation of Section 112(A) and (C).

III. "Excess" Input VAT and "Excessively" Collected Tax

The input VAT is not "excessively" collected as understood under Section 229 because at the time
the input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability
of, and legally paid by, a VAT-registered seller61 of goods, properties or services used as input by
another VAT-registered person in the sale of his own goods, properties, or services. This tax liability
is true even if the seller passes on the input VAT to the buyer as part of the purchase price. The
second VAT-registered person, who is not legally liable for the input VAT, is the one who applies the
input VAT as credit for his own output VAT.62 If the input VAT is in fact "excessively" collected as
understood under Section 229, then it is the first VAT-registered person - the taxpayer who is legally
liable and who is deemed to have legally paid for the input VAT - who can ask for a tax refund or
credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such event,
the second VAT-registered taxpayer will have no input VAT to offset against his own output VAT.

In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the
input VAT is not "excessively" collected as understood under Section 229. At the time of payment of
the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no
claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more
than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the
input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply
means that the input VAT available as credit exceeds the output VAT, not that the input VAT is
excessively collected because it is more than what is legally due. Thus, the taxpayer who legally
paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under
Section 229.

Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the
date of payment of the tax "erroneously, x x x illegally, x x x excessively or in any manner wrongfully
collected." The prescriptive period is reckoned from the date the person liable for the tax pays the
tax. Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax
actually pays more than what is legally due, the taxpayer must file a judicial claim for refund within
two years from his date of payment. Only the person legally liable to pay the tax can file the
judicial claim for refund. The person to whom the tax is passed on as part of the purchase
price has no personality to file the judicial claim under Section 229.63

Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for
"excess" input VAT is two years from the close of the taxable quarter when the sale was made by
the person legally liable to pay the output VAT. This prescriptive period has no relation to the date
of payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than
two years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112(A),
which has a different reckoning period from Section 229. Moreover, the person claiming the refund
or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the
VAT refund or credit does not claim that the input VAT was "excessively" collected from him, or that
he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid
the input VAT.

As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the
chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on
the value added by the taxpayer, but on the entire selling price of his goods, properties or services.

42 | P a g e
However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold
him the inputs for his goods, properties, or services. The net effect is that the taxpayer pays the VAT
only on the value that he adds to the goods, properties, or services that he actually sells.

Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only
exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like
companies generating power through renewable sources of energy.64 Thus, a non zero-rated VAT-
registered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or
credit of his unused input VAT under the VAT System. Even if the taxpayer has sales but his input
VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under
the VAT System. He can only carry-over and apply his "excess" input VAT against his future
output VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be
able to seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The
VAT System does not allow such refund or credit. Such "excess" input VAT is not an "excessively"
collected tax under Section 229. The "excess" input VAT is a correctly and properly collected tax.
However, such "excess" input VAT can be applied against the output VAT because the VAT is a tax
imposed only on the value added by the taxpayer. If the input VAT is in fact "excessively" collected
under Section 229, then it is the person legally liable to pay the input VAT, not the person to whom
the tax was passed on as part of the purchase price and claiming credit for the input VAT under the
VAT System, who can file the judicial claim under Section 229.

Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax
under Section 229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT
under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section
229, mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is
no requirement under Section 229 for an output VAT or subsequent sale of goods, properties, or
services using materials subject to input VAT.

From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is
"erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." In short,
there must be a wrongful payment because what is paid, or part of it, is not legally due. As the
Court held in Mirant, Section 229 should "apply only to instances of erroneous payment or
illegal collection of internal revenue taxes." Erroneous or wrongful payment includes excessive
payment because they all refer to payment of taxes not legally due. Under the VAT System,
there is no claim or issue that the "excess" input VAT is "excessively or in any manner wrongfully
collected." In fact, if the "excess" input VAT is an "excessively" collected tax under Section 229, then
the taxpayer claiming to apply such "excessively" collected input VAT to offset his output VAT may
have no legal basis to make such offsetting. The person legally liable to pay the input VAT can claim
a refund or credit for such "excessively" collected tax, and thus there will no longer be any "excess"
input VAT. This will upend the present VAT System as we know it.

IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-
year prescriptive period under Section 229, should be effective only from its promulgation on 8
June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was
limited to the reckoning of the two-year prescriptive period from the date of payment of the output
VAT. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input
VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which
abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in
computing the two-year prescriptive period in claiming refund or credit of input VAT.

43 | P a g e
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the
application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day
periods was first raised in Aichi, which adopted the verba legis rule in holding that the 120+30 day
periods are mandatory and jurisdictional. The language of Section 112(C) is plain, clear, and
unambiguous. When Section 112(C) states that "the Commissioner shall grant a refund or issue the
tax credit within one hundred twenty (120) days from the date of submission of complete
documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayer’s
claim. Resort to the courts prior to the expiration of the 120-day period is a patent violation of the
doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due to
prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of
exhaustion of administrative remedies. 65 Such doctrine is basic and elementary.

When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of
the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal
the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30
day periods optional just because the law uses the word "may." The word "may" simply means that
the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt
of the decision, or within 30 days from the expiration of the 120-day period. Certainly, by no stretch
of the imagination can the word "may" be construed as making the 120+30 day periods optional,
allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the
Commissioner.

The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioner’s
decision if the two-year prescriptive period is about to expire, cannot apply because that rule was
adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to
do away with the old rule, so that under the VAT System the taxpayer will always have 30
days to file the judicial claim even if the Commissioner acts only on the 120th day, or does
not act at all during the 120-day period. With the 30-day period always available to the taxpayer,
the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the
Commissioner to decide until the expiration of the 120-day period.

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against
the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is
compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with
the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the
effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03
on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and jurisdictional.

V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003

There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for
the 120-day period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes
the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial
claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day
period. RMC 49-03 states: "In cases where the taxpayer has filed a ‘Petition for Review’ with the
Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency
(either the Bureau of Internal Revenue or the One- Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center of the Department of Finance), the administrative agency and the court may act on
the case separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day
period, the BIR will nevertheless continue to act on the administrative claim because such premature

44 | P a g e
filing cannot divest the Commissioner of his statutory power and jurisdiction to decide the
administrative claim within the 120-day period.

On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner
can still continue to evaluate the administrative claim. There is nothing new in this because even
after the expiration of the 120-day period, the Commissioner should still evaluate internally the
administrative claim for purposes of opposing the taxpayer’s judicial claim, or even for purposes of
determining if the BIR should actually concede to the taxpayer’s judicial claim. The internal
administrative evaluation of the taxpayer’s claim must necessarily continue to enable the BIR to
oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to
concede to the judicial claim, resulting in the termination of the judicial proceedings.

What is important, as far as the present cases are concerned, is that the mere filing by a
taxpayer of a judicial claim with the CTA before the expiration of the 120-day period cannot
operate to divest the Commissioner of his jurisdiction to decide an administrative claim
within the 120-day mandatory period, unless the Commissioner has clearly given cause for
equitable estoppel to apply as expressly recognized in Section 246 of the Tax Code.67

VI. BIR Ruling No. DA-489-03 dated 10 December 2003

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the
Tax Code. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait
for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of
Petition for Review." Prior to this ruling, the BIR held, as shown by its position in the Court of
Appeals,68 that the expiration of the 120-day period is mandatory and jurisdictional before a judicial
claim can be filed.

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does
not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period.
There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a
specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such
specific ruling is applicable only to such particular taxpayer. The second exception is where the
Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code,
misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the
Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax
Code.

Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the
Commissioner the power to interpret tax laws, thus:

Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. — The power
to interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws
or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers
acting in good faith should not be made to suffer for adhering to general interpretative rules of the

45 | P a g e
Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be
reversed by the Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly
provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in
good faith relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows:

Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any of

the rules and regulations promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be given retroactive application if
the revocation, modification or reversal will be prejudicial to the taxpayers, except in the
following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith. (Emphasis supplied)

Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers
from the time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is
not limited to a reversal only by the Commissioner because this Section expressly states,
"Any revocation, modification or reversal" without specifying who made the revocation, modification
or reversal. Hence, a reversal by this Court is covered under Section 246.

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly

on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof
that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question
of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly
situated, being made to return the tax refund or credit they received or could have received
under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent
fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued
by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively. As held by this Court in CIR v. Philippine Health Care Providers, Inc.:70

In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of
the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a
position contrary to one previously taken where injustice would result to the taxpayer. Hence,
where an assessment for deficiency withholding income taxes was made, three years after a new
BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment
was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets
of good faith, equity, and fair play.

This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases
1âwphi1

of Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega

Gen. Mdsg. Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc.,
and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have
no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer,
as in this case.

More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer
was entitled to tax refunds or credits based on the BIR’s own issuances but later was suddenly

46 | P a g e
saddled with deficiency taxes due to its subsequent ruling changing the category of the taxpayer’s
transactions for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively
would be prejudicial to the taxpayer. (Emphasis supplied)

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable
to all taxpayers or a specific ruling applicable only to a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds
and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the
Department of Finance. This government agency is also the addressee, or the entity responded to,
in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the
Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in
fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on
BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by
this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional

However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is
admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the
120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third,
prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim
prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly
construed against the taxpayer.

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial
claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10
December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its
judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed
its judicial claim. At the time San Roque filed its judicial claim, the law as applied and administered
by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact
the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque
never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court,
the CTA, or before the Commissioner.

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial
claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No.
DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the
filing of its judicial claim from the vice of prematurity.

Philex’s situation is not a case of premature filing of its judicial claim but of late filing,
indeed very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which
means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim.
Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial
claim prematurely but filed it long after the lapse of the 30-day period following the expiration of
the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day
period.

47 | P a g e
VII. Existing Jurisprudence

There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that
the filing dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period. The effect of the claim of the dissenting opinions is that San
Roque’s failure to wait for the 120-day mandatory period to lapse is inconsequential, thus allowing
San Roque to claim the tax refund or credit. However, the five cases cited by the dissenting opinions
do not support even remotely the claim that this Court had already made such a ruling. None of
these five cases mention, cite, discuss, rule or even hint that compliance with the 120-day
mandatory period is inconsequential as long as the administrative and judicial claims are
filed within the two-year prescriptive period.

In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was
actually passed on to Toshiba that it could claim as input VAT subject to tax credit or refund. The
Commissioner argued that "although Toshiba may be a VAT-registered taxpayer, it is not engaged in
a VAT-taxable business." The Commissioner cited Section 4.106-1 of Revenue Regulations No. 75
that "refund of input taxes on capital goods shall be allowed only to the extent that such capital
goods are used in VAT-taxable business." In the words of the Court, "Ultimately, however, the issue
still to be resolved herein shall be whether respondent Toshiba is entitled to the tax credit/refund of
its input VAT on its purchases of capital goods and services, to which this Court answers in the
affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the
instant case are (1) whether the absence of the BIR authority to print or the absence of the TIN-V in
petitioner’s export sales invoices operates to forfeit its entitlement to a tax refund/credit of its
unutilized input VAT attributable to its zero-rated sales; and (2) whether petitioner’s failure to indicate
"TIN-V" in its sales invoices automatically invalidates its claim for a tax credit certification." Again,
nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative
and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.

In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First
Division, conceding that petitioner’s transactions fall under the classification of zero-rated sales,
nevertheless denied petitioner’s claim ‘for lack of substantiation,’ x x x." The Court quoted the
ruling of the First Division that "valid VAT official receipts, and not mere sale invoices, should
have been submitted" by petitioner to substantiate its claim. The Court further stated: "x x x the
CTA En Banc, x x x affirmed x x x the CTA First Division," and "petitioner’s motion for
reconsideration having been denied x x x, the present petition for review was filed." Clearly, the sole
issue in this case is whether petitioner complied with the substantiation requirements in claiming for
tax refund or credit. Again, nowhere in this case did the Court discuss, state, or rule that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the
two-year prescriptive period.

In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner:
"Simply put, the sole issue the petition raises is whether or not the CTA erred in granting respondent
Ironcon’s application for refund of its excess creditable VAT withheld." The Commissioner argued
that "since the NIRC does not specifically grant taxpayers the option to refund excess creditable
VAT withheld, it follows that such refund cannot be allowed." Thus, this case is solely about whether
the taxpayer has the right under the NIRC to ask for a cash refund of excess creditable VAT
withheld. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the

48 | P a g e
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to
VAT. Compliance with the 120-day period was never an issue in Cebu Toyo. As the Court explained:

Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that
respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and
local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC.
Thus, they contend that respondent Cebu Toyo Corporation is not entitled to any refund or credit on
input taxes it previously paid as provided under Section 4.103-1 of Revenue Regulations No. 7-95,
notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim recognition of the input tax
credit.

The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years
from August 7, 1995 making it exempt from income tax but not from other taxes such as
VAT. Hence, according to respondent, its export sales are not exempt from VAT, contrary to
petitioner’s claim, but its export sales is subject to 0% VAT. Moreover, it argues that it was able
to establish through a report certified by an independent Certified Public Accountant that the input
taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its export
sales. Since it did not have any output tax against which said input taxes may be offset, it had the
option to file a claim for refund/tax credit of its unutilized input taxes.

Considering the submission of the parties and the evidence on record, we find the petition bereft of
merit.

Petitioner’s contention that respondent is not entitled to refund for being exempt from VAT is
untenable. This argument turns a blind eye to the fiscal incentives granted to PEZA-registered
enterprises under Section 23 of Rep. Act No. 7916. Note that under said statute, the respondent had
two options with respect to its tax burden. It could avail of an income tax holiday pursuant to
provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not from
other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes,
including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No.
7916. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the
income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and
1997 Annual Corporate Income Tax Returns, where respondent specified that it was availing of the
tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly
registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt
transactions. (Emphasis supplied)

Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to
VAT at 0% tax rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input
VAT. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait
for the Resolution of its (administrative) claim by the CIR" before filing its judicial claim with the CTA,
this issue was not raised before the Court. Certainly, this statement of the Court is not a binding
precedent that the taxpayer need not wait for the 120-day period to lapse.

49 | P a g e
Any issue, whether raised or not by the parties, but not passed upon by the Court, does not
have any value as precedent. As this Court has explained as early as 1926:

It is contended, however, that the question before us was answered and resolved against the
contention of the appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no question
was raised nor was it even suggested that said section 216 did not apply to a public officer. That
question was not discussed nor referred to by any of the parties interested in that case. It has been
frequently decided that the fact that a statute has been accepted as valid, and invoked and applied
for many years in cases where its validity was not raised or passed on, does not prevent a court
from later passing on its validity, where that question is squarely and properly raised and
presented. Where a question passes the Court sub silentio, the case in which the question
was so passed is not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor
should it be considered as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs.
Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310,
319; Cross vs. Burke, 146 U.S. 82.) For the reasons given in the case of McGirr vs. Hamilton and
Abreu, supra, the decision in the case of Bautista vs. Fajardo, supra, can have no binding force in
the interpretation of the question presented here. 76 (Emphasis supplied)

In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even
raised as an issue by any of the parties. The Court never passed upon this issue. Thus, Cebu
Toyo does not constitute binding precedent on the nature of the 120-day period.

There is also the claim that there are numerous CTA decisions allegedly supporting the argument
that the filing dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period. Suffice it to state that CTA decisions do not constitute
precedents, and do not bind this Court or the public. That is why CTA decisions are appealable to
this Court, which may affirm, reverse or modify the CTA decisions as the facts and the law may
warrant. Only decisions of this Court constitute binding precedents, forming part of the Philippine
legal system.77 As held by this Court in The Philippine Veterans Affairs Office v. Segundo:78

x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or
the Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws" by their
own right because they interpret what the laws say or mean. Unlike rulings of the lower courts,
which bind the parties to specific cases alone, our judgments are universal in their scope and
application, and equally mandatory in character. Let it be warned that to defy our decisions is to
court contempt. (Emphasis supplied)

The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils.,
Inc.:79

The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:

ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the
legal system of the Philippines.

It enjoins adherence to judicial precedents. It requires our courts to follow a rule already
established in a final decision of the Supreme Court. That decision becomes a judicial precedent
to be followed in subsequent cases by all courts in the land. The doctrine of stare decisis is based on
the principle that once a question of law has been examined and decided, it should be deemed
settled and closed to further argument. (Emphasis supplied)

VIII. Revenue Regulations No. 7-95 Effective 1 January 1996

50 | P a g e
Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the
taxpayer files the judicial claim "after" the lapse of the 60-day period, a period with which San Roque
failed to comply. Under Section 4.106-2(c), the 60-day period is still mandatory and
jurisdictional.

Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a
later contrary law, more so in this case where the later law was enacted precisely to amend the prior
administrative regulation and the law it implements.

The laws and regulation involved are as follows:

1977 Tax Code, as amended by Republic Act No. 7716 (1994)

Sec. 106. Refunds or tax credits of creditable input tax. —

(a) x x x x

(d) Period within which refund or tax credit of input tax shall be made - In proper cases, the
Commissioner shall grant a refund or issue the tax credit for creditable input taxes within
sixty (60) days from the date of submission of complete documents in support of the
application filed in accordance with subparagraphs (a) and (b) hereof. In case of full or
partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from receipt of the decision denying the
claim or after the expiration of the sixty-day period, appeal the decision or the unacted
claim with the Court of Tax Appeals.

Revenue Regulations No. 7-95 (1996)

Section 4.106-2. Procedures for claiming refunds or tax credits of input tax — (a) x x x

xxxx

(c) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the
Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the
date of submission of complete documents in support of the application filed in accordance with
subparagraphs (a) and (b) above.

In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of
Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from
the receipt of said denial, otherwise the decision will become final. However, if no action on the
claim for tax credit/refund has been taken by the Commissioner of Internal Revenue after the
sixty (60) day period from the date of submission of the application but before the lapse of
the two (2) year period from the date of filing of the VAT return for the taxable quarter, the
taxpayer may appeal to the Court of Tax Appeals.

xxxx

1997 Tax Code

Section 112. Refunds or Tax Credits of Input Tax —

51 | P a g e
(A) x x x

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be made. — In proper cases, the
Commissioner shall grant the refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete documents
in support of the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.

There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716,
the Commissioner has a 60-day period to act on the administrative claim. This 60-day period is
mandatory and jurisdictional.

Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no
longer mandatory and jurisdictional? The obvious answer is no.

Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner
fails to act on the administrative claim, the taxpayer may file the judicial claim even "before the lapse
of the two (2) year period." Thus, under Section 4.106-2(c) the 60-day period is still mandatory
and jurisdictional.

Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented
it, for two reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day
period. This cannot be disputed. 1âwphi1

Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner
during the 60-day period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that "if no
action on the claim for tax refund/credit has been taken by the Commissioner after the sixty (60)
day period," the taxpayer "may" already file the judicial claim even long before the lapse of the two-
year prescriptive period. Prior to the amendment by RA 7716, the taxpayer had to wait until the two-
year prescriptive period was about to expire if the Commissioner did not act on the claim.80 With the
amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is about to
expire before filing the judicial claim because mere inaction by the Commissioner during the 60-day
period is deemed a denial of the claim. This is the meaning of the phrase "but before the lapse
of the two (2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial
claim can be filed only "after the sixty (60) day period," this period remains mandatory and
jurisdictional. Clearly, Section 4.106-2(c) did not amend Section 106(d) but merely faithfully
implemented it.

Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95,
an administrative issuance, amended Section 106(d) of the Tax Code to make the period given to
the Commissioner non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original
intent and provision of Section 106(d) by extending the 60-day period to 120 days and re-adopting
the original wordings of Section 106(d). Thus, Section 4.106-2(c), a mere administrative issuance,
becomes inconsistent with Section 112(D), a later law. Obviously, the later law prevails over a prior
inconsistent administrative issuance.

52 | P a g e
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner
has 120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only
within thirty days after the Commissioner partially or fully denies the claim within the 120- day
period, or (2) only within thirty days from the expiration of the 120- day period if the
Commissioner does not act within the 120-day period.

There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more
than five years before San Roque filed its administrative claim on 28 March 2003, the law has
been clear: the 120- day period is mandatory and jurisdictional. San Roque’s claim, having been
filed administratively on 28 March 2003, is governed by the 1997 Tax Code, not the 1977 Tax Code.
Since San Roque filed its judicial claim before the expiration of the 120-day mandatory and
jurisdictional period, San Roque’s claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can
only file the judicial claim "after" the lapse of the 60-day period from the filing of the administrative
claim. San Roque filed its judicial claim just 13 days after filing its administrative claim. To
recall, San Roque filed its judicial claim on 10 April 2003, a mere 13 days after it filed its
administrative claim.

Even if, contrary to all principles of statutory construction as well as plain common sense, we
gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot
recover any refund or credit because San Roque did not wait for the 60-day period to lapse,
contrary to the express requirement in Section 4.106-2(c). In short, San Roque does not even
comply with Section 4.106-2(c). A claim for tax refund or credit is strictly construed against the
taxpayer, who must prove that his claim clearly complies with all the conditions for granting the tax
refund or credit. San Roque did not comply with the express condition for such statutory grant.

A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its
tax efficiency collection for the longest time with minimal success. Consequently, the Philippines has
suffered the economic adversities arising from poor tax collections, forcing the government to
continue borrowing to fund the budget deficits. This Court cannot turn a blind eye to this economic
malaise by being unduly liberal to taxpayers who do not comply with statutory requirements for tax
refunds or credits. The tax refund claims in the present cases are not a pittance. Many other
companies stand to gain if this Court were to rule otherwise. The dissenting opinions will turn on its
head the well-settled doctrine that tax refunds are strictly construed against the taxpayer.

WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue
in G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power
Corporation; (2) GRANTS the petition of Taganito Mining Corporation in G.R. No. 196113 for a tax
refund or credit of P8,365,664.38; and (3) DENIES the petition of Philex Mining Corporation in G.R.
No. 197156 for a tax refund or credit of P23,956,732.44.

SO ORDERED.

53 | P a g e
G.R. No. 181836 July 9, 2014

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the Decision2 promulgated on 29 May 2007 as well as the
Resolution3 promulgated on 12 February 2008 by the Court of Appeals (CA) in CA-G.R. SP No.
63640. The CA reversed the Decision4 of the Court of Tax Appeals (CTA), dated 12 February 2001,
and reinstated Assessment No. FAS-5-85-89-000988 requiring petitioner Bank of the Philippine
Islands (BPI) to pay the amount of Pl,259,884.50 as deficiency documentary stamp tax (DST) for the
taxable year 1985, inclusive of the compromise penalty.

The Facts

BPI, successor-in-interest of Citytrust Banking Corporation, is a commercial banking corporation

organized and existing under the laws of the Philippines.

On 19 May 1989, the Bureau ofInternal Revenue (BIR) issued Assessment No. FAS-5-85-89-
0009885 finding BPI liable for deficiency DST on its sales of foreign bills of exchange to the Central
Bank, computed as follows:

1985 Deficiency Documentary Stamp Tax

Foreign Bills of Exchange.................................. P 839,723,000.00
Tax Due Thereon:
P 839,723,000.00x P0.30 (Sec. 182 NIRC).. P 1,259,584.50
₱200.00
Add: Suggested compromise penalty…………. 300.00
TOTAL AMOUNT DUE.................................... P 1,259,884.50

On 16 June 1989, BPI received the assessment notice and demand letter from the BIR.

On 23 June 1989, BPI, through itscounsel, filed a protest letter 6 requesting for the reinvestigation
and/or reconsideration of the assessment for lack of legal and factual bases. The BPI alleged that it
should not be liable for the assessed DST because: (1) based on recognized business practice
incorporated in the Bankers Association of the Philippines (BAP) Foreign Exchange Trading Center
Rule 2(e), DST was for the account of the buyer; (2) BIR Ruling No. 135-87stated that neither the
tax-exempt entity nor the other party shall be liable for the payment of DST before the effectivity of
Presidential Decree No. (PD) 1994 on 1 January 1986; (3) since the then law left the tax to be paid
indifferently by either party and the party liable was exempt, the document was exempt from DST;
and (4) the assessed DST was the same assessment made by the BIR for DST swap transaction
covering taxable years 1982-1986.

54 | P a g e
In a letter dated 4 August 1998,7 then Commissioner of Internal Revenue (CIR) Beethoven L. Rualo
denied the "request for reconsideration." The CIR held that BPI’s arguments were legally untenable.
The CIR cited BIR Unnumbered Ruling dated 30 May 1977 and BIR Ruling No. 144-84 dated 3
September 1984, where the liability to pay DST was shifted to the other party, who was notexempt
from the tax. As for being taxed twice, the CIR found that such allegation was unsubstantiated by
BPI.

On 4 January 1999, BPI filed a petition for review before the CTA. On 23 February 1999, the CIR
filed his answer with a demand for BPI to pay the assessed DST.

The CTA Ruling

In a Decision dated 12 February 2001,8 the CTA ordered the cancellation of the assessed DST on
BPI. The CTA ruled that neither BPI nor Central Bank, which was tax-exempt, could be liable for the
payment of the assessed DST. The CTA reasoned out that before PD 1994 took effect in 1986,
there was no law that shifted the liability to the other party, in case the party liable to pay the DST
was tax exempt.

The dispositive portion of the CTA decision reads: WHEREFORE, in view of the foregoing, the Court
finds the instant Petition for Review MERITORIOUS. Respondent is hereby ORDERED to CANCEL
the 1985 deficiency documentary stamp tax assessment issued to Bank of the Philippine Islands (as
successor-ininterest of Citytrust [B]anking Corporation) in the amount of ₱1,259,884.50 covered by
Assessment No. FAS-5-85-89-000988.

SO ORDERED.9

Hence, the CIR appealed to the CA.

The CA Ruling

In a Decision dated 29 May 2007,10 the CA reversed the CTA decision, and adopted the arguments
of the CIR and CTA Associate Justice Ramon O. De Veyra, in his dissent.The CA held that BIR
Unnumbered Ruling dated 30 May 1977 was more in accord with the general principles of law and
the intent for the enactment of the provisions on DST. According to the CA, BPI further failed to
justify its claim for exemption from tax.

Thus, the dispositive portion ofthe CA decision states:

WHEREFORE, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court
of Tax Appeals in C. T. A. Case No. 5711, dated February 12, 2001, which [cancelled] the 1985
deficiency documentary stamp tax issued to the Bank of the Philippine Islands (as successor-in-
interest of Citytrust Banking Corporation) in the amount of ₱1,259,884.50 covered by Assessment
No. FAS-5-85-89-000988 is REVERSED and SET ASIDE. Assessment No. FAS-5-85-89-000988 is
hereby ordered reinstated. Bank of the Philippine Islands is ordered to pay the amount of
₱1,259,884.50 plus 20% annual interest from the date prescribed for its payment until fully paid
pursuant to Section 249 (cc) (3) of the Tax Code.

SO ORDERED.11

On 12 February 2008, the CA denied the motion for reconsideration filed by BPI. Hence, BPI filed a
petition for review before the Court.

55 | P a g e
In a Resolution dated 5 August 2013, 12 the Court, through the Third Division, found that the assailed
tax assessment may be invalidated because the statute of limitations on the collection of the alleged
deficiency DST had already expired, conformably with Section 1, Rule 9 of the Rules of Court and
the Bank of the Philippine Islands v. Commissioner of Internal Revenue13 decision. However, to
afford due process, the Court required both BPI and CIR to submit their respective comments on the
issue of prescription.

Only the CIR filed his comment on 9 December 2013. In his Comment, 14 the CIR argues that the
issue of prescription can not be raised for the first time on appeal. The CIR further alleges that even
assuming that the issue of prescription can be raised, the protest letter interrupted the prescriptive
period to collect the assessed DST, unlike in the Bank of the Philippine Islands case.15

The Issue

The issue boils down to whether or not BIR has a right to collect the assessed DST from BPI.

The Ruling of the Court

We deny the right of the BIR tocollect the assessed DST on the ground of prescription.

Section 1, Rule 9 of the Rules ofCourt expressly provides that:

Section 1. Defenses and objections not pleaded. - Defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived. However, when it appears from the
pleadings or the evidence on record that the court has nojurisdiction over the subject matter, that
there is another action pending between the same parties for the same cause, or that the action is
barred by prior judgment or by the statute of limitations, the court shall dismiss the claim. (Emphasis
and underscoring supplied)

If the pleadings or the evidence on record show that the claim is barred by prescription, the court is
mandated to dismiss the claim even if prescription is not raised as a defense. In Heirs of Valientes v.
Ramas,16 we ruled that the CA may motu proprio dismiss the case on the ground of prescription
despite failure to raise this ground on appeal. The court is imbued with sufficient discretion to review
matters, not otherwise assigned as errors on appeal, if it finds that their consideration is necessary in
arriving at a complete and just resolution of the case.17 More so, when the provisions on prescription
were enacted to benefit and protect taxpayers from investigation after a reasonable period of time.18

Thus, we proceed to determine whether the period to collect the assessed DST for the year 1985
has prescribed. 1âwphi1

To determine prescription, what is essential only is that the facts demonstrating the lapse of the
prescriptive period were sufficiently and satisfactorily apparent on the record either in the allegations
of the plaintiff’s complaint, or otherwise established by the evidence.19 Under the then applicable
Section 319(c) [now, 222(c)]20 of the National Internal Revenue Code (NIRC) of 1977, as amended,
any internal revenue tax which has been assessed within the period of limitation may be collected by
distraint or levy, and/or court proceeding within three years 21 following the assessment of the tax. The
assessment of the tax is deemed made and the three-year period for collection of the assessed tax
begins torun on the date the assessment notice had been released, mailed or sent by the BIR to the
taxpayer.22

56 | P a g e
In the present case, although there was no allegation as to when the assessment notice had been
released, mailed or sent to BPI, still, the latest date that the BIR could have released, mailed or sent
the assessment notice was on the date BPI received the same on 16 June 1989. Counting the
threeyear prescriptive period from 16 June1989, the BIR had until 15 June 1992 to collect the
assessed DST. But despite the lapse of 15 June 1992, the evidence established that there was no
warrant of distraint or levy served on BPI’s properties, or any judicial proceedings initiated by the
BIR.

The earliest attempt of the BIR to collect the tax was when it filed its answer in the CTA on 23
February 1999, which was several years beyond the three-year prescriptive period. However, the
BIR’s answer in the CTA was not the collection casecontemplated by the law. Before 2004 or the
year Republic Act No. 9282 took effect, the judicial action to collect internal revenue taxes fell under
the jurisdiction of the regular trial courts, and not the CTA. Evidently, prescription has set in to bar
the collection of the assessed DST.

The BIR nevertheless insists thatthe running of the prescriptive period to collect the tax was
suspended by BPI’s filing of a request for the reinvestigation and/or reconsideration on 23 June
1989. In the similar case of Bank of the Philippine Islands,23 we already ruled on the matter as
follows:

Of particular importance to the present case is one of the circumstances enumerated in Section [320
(now, 223)] of the Tax Code of 1977, as amended, wherein the runningof the statute of limitations on
assessment and collection of taxes is considered suspended "when the taxpayer requests for a
reinvestigation which is granted by the Commissioner."

This Court gives credence to the argument of petitioner BPI that there is a distinction between a
request for reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85,
issued on 27 November 1985 by the Secretary of Finance, upon the recommendation of the BIR
Commissioner, governs the procedure for protesting an assessment and distinguishes between the
two types of protest, as follows–

xxxx

(a) Request for reconsideration.– refers to a plea for a re-evaluation of an assessment on the
basis of existing recordswithout need of additional evidence. It may involve both a question
of fact or of law or both.

(b) Request for reinvestigation.– refers to a plea for re-evaluation of an assessment on the
basis of newly-discovered or additional evidencethat a taxpayer intends to present in the
reinvestigation. It may also involve a question of fact or law or both.

x x x 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 collectionof the assessed tax, while the latter can not.

x x x A close review of the contents thereof would reveal, however, that it protested Assessment No.
FAS-5-85-89-002054 based on a question of law, in particular, whether or not petitioner BPI was
liable for DST on its sales of foreign currency to the Central Bank in taxable year 1985. The same
protest letter did not raise any question of fact; neither did it offer to present any new evidence. In its
own letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of
petitioner BPI as a request for reconsideration. These considerations would lead this Court to

57 | P a g e
deduce that the protest letter of petitioner BPI was in the nature of a request for reconsideration,
rather than a request for reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as
amended, on the suspension of the running of the statute of limitations should not apply.

Even if, for the sake of argument, this Court glosses over the distinction between a request for
reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a
request for reinvestigation, the filing thereof could not have suspended at once the running of the
statute oflimitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the
request for reinvestigation had been granted by the BIR Commissioner to suspend the running of the
prescriptive periods for assessment and collection. (Emphasis supplied)

In the present case, the protest letter of BPI essentially raises the same question of law, that is
whether BPI was liable for DST on its sales of foreign bills of exchange to the Central Bank in the
taxable year 1985. Although it raised the issue of being taxed twice, the BIR admitted that BPI did
not present any new or additional evidence to substantiate its allegations.24 In its letter dated 4
August 1998,25 the BIR itself referred to the protest of BPI as a request for reconsideration, found the
arguments in it legally untenable, and denied the request. Hence, we find that the protest letter of
BPI was a request for reconsideration, which did not suspend the running of the prescriptive period
to collect.

Even considering that BPI’s protest was a request for reinvestigation, there was nothing in the
records which showed that the BIR granted such request. On the other hand, the BIR only
responded to BPI on 4 August 1998 or after nine years from the protest letter of BPI. In the Bank of
the Philippine Islands case,26 we clarified and qualified our ruling in Commissioner of Internal
Revenue v. Wyeth Suaco Laboratories, Inc., 27 such that the request for reinvestigation in that case
was granted by the BIR. Thus, unlike in the present case, there was a proper ground for suspension
of the prescriptive period in Wyeth Suaco.28

Considering that the dismissal of the present case due to prescription is imperative, there is no more
need to determine the validity of the assessment.

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CA-G.R. SP No.
63640, dated 29 May 2007, which reinstated Assessment No. FAS-5-85-89-000988 requiring
petitioner BPI to pay the amount of ₱1,259,884.50 as deficiency documentary stamp tax for the
taxable year 1985, inclusive of the compromise penalty, is REVERSED and SET ASIDE.
Assessment No. F AS-5-85-89-000988 is hereby ordered CANCELLED.

SO ORDERED.

58 | P a g e
G.R. No. L-22734 September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.

Office of the Solicitor General for petitioner.

Manuel B. Pineda for and in his own behalf as respondent.

BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First
Instance of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The
estate was divided among and awarded to the heirs and the proceedings terminated on June 8,
1948. Manuel B. Pineda's share amounted to about P2,500.00.

After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income
tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding
income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue
filed said returns for the estate on the basis of information and data obtained from the aforesaid
estate proceedings and issued an assessment for the following:

1. Deficiency income tax

1945 P135.83
1946 436.95
1947 1,206.91 P1,779.69
Add: 5% surcharge 88.98
1% monthly interest
from November 30,
1953 to April 15, 1957 720.77
Compromise for late
filing 80.00
Compromise for late
payment 40.00

Total amount due P2,707.44

===========
Additional residence tax for P14.50
2.
1945 ===========
3. Real Estate dealer's tax for
the fourth quarter of 1946 P207.50
and the whole year of 1947 ===========

59 | P a g e
Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed
to the Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion
pertaining to him as one of the heirs."

After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and collect the tax has prescribed. The
Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the
assessment for income tax for the year 1947 but held that the right to assess and collect the taxes
for 1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August 24, 1953;
assessments for both taxable years were made within five years therefrom or on October 19, 1953;
and the action to collect the tax was filed within five years from the latter date, on August 7, 1957.
For taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made
on October 19, 1953, more than five years from the date the return was filed; hence, the right to
assess income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court
for further appropriate proceedings.1

In the Tax Court, the parties submitted the case for decision without additional evidence.

On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda
liable for the payment corresponding to his share of the following taxes:

Deficiency income tax

P135.8
1945
3
1946 436.95
Real estate dealer's
fixed tax 4th quarter
of 1946 and whole
year of 1947 P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B.
Pineda liable for the payment of all the taxes found by the Tax Court to be due from the estate in the
total amount of P760.28 instead of only for the amount of taxes corresponding to his share in the
estate.1awphîl.nèt

Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid
income tax due the estate only up to the extent of and in proportion to any share he received. He
relies on Government of the Philippine Islands v. Pamintuan2 where We held that "after the partition
of an estate, heirs and distributees are liable individually for the payment of all lawful outstanding
claims against the estate in proportion to the amount or value of the property they have respectively
received from the estate."

We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes
assessed.

Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to
the estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to
the share he received from the inheritance. 3 His liability, however, cannot exceed the amount of his
share.4

60 | P a g e
As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the
property in his possession. The reason is that the Government has a lien on the P2,500.00 received
by him from the estate as his share in the inheritance, for unpaid income taxes 4a for which said
estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote
hereunder:

If any person, corporation, partnership, joint-account (cuenta en participacion), association,

or insurance company liable to pay the income tax, neglects or refuses to pay the same after
demand, the amount shall be a lien in favor of the Government of the Philippines from the
time when the assessment was made by the Commissioner of Internal Revenue until paid
with interest, penalties, and costs that may accrue in addition thereto upon all property and
rights to property belonging to the taxpayer: . . .

By virtue of such lien, the Government has the right to subject the property in Pineda's possession,
i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment,
Pineda will have a right of contribution from his co-heirs,5 to achieve an adjustment of the proper
share of each heir in the distributable estate.

All told, the Government has two ways of collecting the tax in question. One, by going after all the
heirs and collecting from each one of them the amount of the tax proportionate to the inheritance
received. This remedy was adopted in Government of the Philippine Islands v. Pamintuan, supra. In
said case, the Government filed an action against all the heirs for the collection of the tax. This
action rests on the concept that hereditary property consists only of that part which remains after the
settlement of all lawful claims against the estate, for the settlement of which the entire estate is first
liable.6 The reason why in case suit is filed against all the heirs the tax due from the estate is levied
proportionately against them is to achieve thereby two results: first, payment of the tax; and second,
adjustment of the shares of each heir in the distributed estate as lessened by the tax.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and
rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of
the estate which is in the hands of an heir or transferee to the payment of the tax due, the estate.
This second remedy is the very avenue the Government took in this case to collect the tax. The
Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary
discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the
particular provision of the Tax Code above quoted, because taxes are the lifeblood of government
and their prompt and certain availability is an imperious need. 7 And as afore-stated in this case the
suit seeks to achieve only one objective: payment of the tax. The adjustment of the respective
shares due to the heirs from the inheritance, as lessened by the tax, is left to await the suit for
contribution by the heir from whom the Government recovered said tax.

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay
to the Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and
1946, and real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947,
without prejudice to his right of contribution for his co-heirs. No costs. So ordered.

61 | P a g e
G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as Regional

Director, Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental,
Branch V, and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D.
TONGOY respondents.

DE CASTRO, J.:

Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in Special
Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated July 29, 1969
dismissing the Motion for Allowance of Claim and for an Order of Payment of Taxes by the
Government of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent in the total amount of
P3,254.80, inclusive 5% surcharge, 1% monthly interest and compromise penalties, and the second,
dated October 7, 1969, denying the Motion for reconsideration of the Order of dismissal.

The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed on June 3,
1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp. 1920, Rollo). The
claim represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency
income taxes in the total sum of P3,254.80 as above stated, covered by Assessment Notices Nos.
11-50-29-1-11061-21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of Claim
(Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed the motion solely on the ground
that the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to
Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the opposition well-founded, the
respondent Judge, Jose F. Fernandez, dismissed the motion for allowance of claim filed by herein
petitioner, Regional Director of the Bureau of Internal Revenue, in an order dated July 29, 1969
(Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration was filed, of
the order of July 29, 1969, but was denied in an Order dated October 7, 1969.

Hence, this appeal on certiorari, petitioner assigning the following errors:

1. The lower court erred in holding that the claim for taxes by the government against
the estate of Luis D. Tongoy was filed beyond the period provided in Section 2, Rule
86 of the Rules of Court.

2. The lower court erred in holding that the claim for taxes of the government was
already barred under Section 5, Rule 86 of the Rules of Court.

which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of the New
Rule of Court, bars claim of the government for unpaid taxes, still within the period of limitation
prescribed in Section 331 and 332 of the National Internal Revenue Code.

Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:

62 | P a g e
 All claims for money against the decedent, arising from contracts, express or implied,
whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in they notice; otherwise they are
barred forever, except that they may be set forth as counter claims in any action that
the executor or administrator may bring against the claimants. Where the executor or
administrator commence an action, or prosecutes an action already commenced by
the deceased in his lifetime, the debtor may set forth may answer the claims he has
against the decedents, instead of presenting them independently to the court has
herein provided, and mutual claims may be set off against each other in such action;
and in final judgment is rendered in favored of the decedent, the amount to
determined shall be considered the true balance against the estate, as though the
claim has been presented directly before the court in the administration proceedings.
Claims not yet due, or contingent may be approved at their present value.

A perusal of the aforequoted provisions shows that it makes no mention of claims for monetary
obligation of the decedent created by law, such as taxes which is entirely of different character from
the claims expressly enumerated therein, such as: "all claims for money against the decedent arising
from contract, express or implied, whether the same be due, not due or contingent, all claim for
funeral expenses and expenses for the last sickness of the decedent and judgment for money
against the decedent." Under the familiar rule of statutory construction of expressio unius est
exclusio alterius, the mention of one thing implies the exclusion of another thing not mentioned.
Thus, if a statute enumerates the things upon which it is to operate, everything else must
necessarily, and by implication be excluded from its operation and effect (Crawford, Statutory
Construction, pp. 334-335).

In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al., G.R. No. L-
23081, December 30, 1969, it was held that the assessment, collection and recovery of taxes, as
well as the matter of prescription thereof are governed by the provisions of the National Internal
revenue Code, particularly Sections 331 and 332 thereof, and not by other provisions of law. (See
also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax Appeals & Collector of Internal Revenue, G.R.
No. L-10681, March 29, 1958). Even without being specifically mentioned, the provisions of Section
2 of Rule 86 of the Rules of Court may reasonably be presumed to have been also in the mind of the
Court as not affecting the aforecited Section of the National Internal Revenue Code.

In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that "taxes
assessed against the estate of a deceased person ... need not be submitted to the committee on
claims in the ordinary course of administration. In the exercise of its control over the administrator,
the court may direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate." The abolition of the Committee on Claims does not alter the basic
ruling laid down giving exception to the claim for taxes from being filed as the other claims
mentioned in the Rule should be filed before the Court. Claims for taxes may be collected even after
the distribution of the decedent's estate among his heirs who shall be liable therefor in proportion of
their share in the inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13).

The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form
of exception from the application of the statute of non-claims, is not hard to find. Taxes are the
lifeblood of the Government and their prompt and certain availability are imperious need.
(Commissioner of Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21 SCRA
105). Upon taxation depends the Government ability to serve the people for whose benefit taxes are
collected. To safeguard such interest, neglect or omission of government officials entrusted with the
collection of taxes should not be allowed to bring harm or detriment to the people, in the same
manner as private persons may be made to suffer individually on account of his own negligence, the

63 | P a g e
presumption being that they take good care of their personal affairs. This should not hold true to
government officials with respect to matters not of their own personal concern. This is the philosophy
behind the government's exception, as a general rule, from the operation of the principle of estoppel.
(Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761,
Benevolent and Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September 30,
1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April 30,1976, 70 SCRA 571;
Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59
SCRA 110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine
Long Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of
Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal
Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be collected even
after the distribution of the estate of the decedent among his heirs (Government of the Philippines
vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara Diluangco Palanca vs. Commissioner
of Internal Revenue, G. R. No. L-16661, January 31, 1962).

Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last
paragraph of Section 315 of the Tax Code payment of income tax shall be a lien in favor of the
Government of the Philippines from the time the assessment was made by the Commissioner of
Internal Revenue until paid with interests, penalties, etc. By virtue of such lien, this court held that
the property of the estate already in the hands of an heir or transferee may be subject to the
payment of the tax due the estate. A fortiori before the inheritance has passed to the heirs, the
unpaid taxes due the decedent may be collected, even without its having been presented under
Section 2 of Rule 86 of the Rules of Court. It may truly be said that until the property of the estate of
the decedent has vested in the heirs, the decedent, represented by his estate, continues as if he
were still alive, subject to the payment of such taxes as would be collectible from the estate even
after his death. Thus in the case above cited, the income taxes sought to be collected were due from
the estate, for the three years 1946, 1947 and 1948 following his death in May, 1945.

Even assuming arguendo that claims for taxes have to be filed within the time prescribed in Section
2, Rule 86 of the Rules of Court, the claim in question may be filed even after the expiration of the
time originally fixed therein, as may be gleaned from the italicized portion of the Rule herein cited
which reads:

Section 2. Time within which claims shall be filed. - In the notice provided in the
preceding section, the court shall state the time for the filing of claims against the
estate, which shall not be more than twelve (12) nor less than six (6) months after the
date of the first publication of the notice. However, at any time before an order of
distribution is entered, on application of a creditor who has failed to file his claim
within the time previously limited the court may, for cause shown and on such terms
as are equitable, allow such claim to be flied within a time not exceeding one (1)
month. (Emphasis supplied)

In the instant case, petitioners filed an application (Motion for Allowance of Claim and for an Order of
Payment of Taxes) which, though filed after the expiration of the time previously limited but before
an order of the distribution is entered, should have been granted by the respondent court, in the
absence of any valid ground, as none was shown, justifying denial of the motion, specially
considering that it was for allowance Of claim for taxes due from the estate, which in effect
represents a claim of the people at large, the only reason given for the denial that the claim was filed
out of the previously limited period, sustaining thereby private respondents' contention, erroneously
as has been demonstrated.

64 | P a g e
WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's assessment in
the total amount of P3,254.80 with 5 % surcharge and 1 % monthly interest as provided in the Tax
Code is a final one and the respondent estate's sole defense of prescription has been herein
overruled, the Motion for Allowance of Claim is herein granted and respondent estate is ordered to
pay and discharge the same, subject only to the limitation of the interest collectible thereon as
provided by the Tax Code. No pronouncement as to costs.

SO ORDERED.

65 | P a g e
G.R. No. 106611 July 21, 1994

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX
APPEALS, respondents.

The Solicitor General for petitioner.

Palaez, Adriano & Gregorio for private respondent.

REGALADO, J.:

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

It appears that in a letter dated August 26, 1986, herein private respondent corporation filed a claim
for refund with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing
the alleged aggregate of the excess of its carried-over total quarterly payments over the actual
income tax due, plus carried-over withholding tax payments on government securities and rental
income, as computed in its final income tax return for the calendar year ending December 31, 1985. 3

Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive period,
Citytrust filed a petition with the Court of Tax Appeals, docketed therein as CTA Case No. 4099,
claiming the refund of its income tax overpayments for the years 1983, 1984 and 1985 in the total
amount of P19,971,745.00.4

In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent
commissioner, it was asserted that the mere averment that Citytrust incurred a net loss in 1985 does
not ipso facto merit a refund; that the amounts of P6,611,223.00, P1,959,514.00 and P28,238.00
claimed by Citytrust as 1983 income tax overpayment, taxes withheld on proceeds of government
securities investments, as well as on rental income, respectively, are not properly documented; that
assuming arguendo that petitioner is entitled to refund, the right to claim the same has prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of
the National Internal Revenue Code of 1977, as amended, since the petition was filed only on
August 28, 1986.5

On February 20, 1991, the case was submitted for decision based solely on the pleadings and
evidence submitted by herein private respondent Citytrust. Herein petitioner could not present any
evidence by reason of the repeated failure of the Tax Credit/Refund Division of the BIR to transmit
the records of the case, as well as the investigation report thereon, to the Solicitor General. 6

66 | P a g e
However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and motion
praying for the suspension of the proceedings in the said case on the ground that the claim of
Citytrust for tax refund in the amount of P19,971,745.00 was already being processed by the Tax
Credit/Refund Division of the BIR, and that said bureau was only awaiting the submission by
Citytrust of the required confirmation receipts which would show whether or not the aforestated
amount was actually paid and remitted to the BIR.7

Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals already acquired
jurisdiction over the case, it could no longer be divested of the same; and, further, that the
proceedings therein could not be suspended by the mere fact that the claim for refund was being
administratively processed, especially where the case had already been submitted for decision.
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1, Y-2 and
Y-3 adduced in the case, which clearly showed that there was an overpayment of income taxes and
for which a tax credit or refund was due to Citytrust. The Foregoing exhibits are allegedly conclusive
proof of and an admission by herein petitioner that there had been an overpayment of income taxes. 8

The tax court denied the motion to suspend proceedings on the ground that the case had already
been submitted for decision since February 20, 1991. 9

Thereafter, said court rendered its decision in the case, the decretal portion of which declares:

WHEREFORE, in view of the foregoing, petitioner is entitled to a refund but only for
the overpaid taxes incurred in 1984 and 1985. The refundable amount as shown in
its 1983 income tax return is hereby denied on the ground of prescription.
Respondent is hereby ordered to grant a refund to petitioner Citytrust Banking Corp.
in the amount of P13,314,506.14 representing the overpaid income taxes for 1984
and 1985, recomputed as follows:

1984 Income tax due P 4,715,533.00

Less: 1984 Quarterly payments P 16,214,599.00*
1984 Tax Credits —
W/T on int. on gov't. sec. 1,921,245.37*
W/T on rental inc. 26,604.30* 18,162,448.67
——————— ———————
Tax Overpayment (13,446,915.67)
Less: FCDU payable 150,252.00
———————
Amount refundable for 1984 P (13,296,663.67)

1985 Income tax due (loss) P — 0 —

Less: W/T on rentals 36,716.47*
———————
Tax Overpayment (36,716.47)*
Less: FCDU payable 18,874.00
———————
Amount Refundable for 1985 P (17,842.47)

* Note:

These credits are smaller than the claimed amount because only the
above figures are well supported by the various exhibits presented
during the hearing.

No pronouncement as to costs.

SO ORDERED.10

67 | P a g e
The order for refund was based on the following findings of the Court of Tax Appeals: (1) the fact of
withholding has been established by the statements and certificates of withholding taxes
accomplished by herein private respondent's withholding agents, the authenticity of which were
neither disputed nor controverted by herein petitioner; (2) no evidence was presented which could
effectively dispute the correctness of the income tax return filed by herein respondent corporation
and other material facts stated therein; (3) no deficiency assessment was issued by herein
petitioner; and (4) there was an audit report submitted by the BIR Assessment Branch,
recommending the refund of overpaid taxes for the years concerned (Exhibits Y to Y-3), which
enjoys the presumption of regularity in the performance of official duty.11

A motion for the reconsideration of said decision was initially filed by the Solicitor General on the
sole ground that the statements and certificates of taxes allegedly withheld are not conclusive
evidence of actual payment and remittance of the taxes withheld to the BIR. 12 A supplemental motion
for reconsideration was thereafter filed, wherein it was contended for the first time that herein private
respondent had outstanding unpaid deficiency income taxes. Petitioner alleged that through an inter-
office memorandum of the Tax Credit/Refund Division, dated August 8, 1991, he came to know only
lately that Citytrust had outstanding tax liabilities for 1984 in the amount of P56,588,740.91
representing deficiency income and business taxes covered by Demand/Assessment Notice No.
FAS-1-84-003291-003296.13

Oppositions to both the basic and supplemental motions for reconsideration were filed by private
respondent Citytrust.14 Thereafter, the Court of Tax Appeals issued a resolution denying both
motions for the reason that Section 52 (b) of the Tax Code, as implemented by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must show that the income received was
declared as part of the gross income, and that the fact of withholding was duly established.
Moreover, with regard to the argument raised in the supplemental motion for reconsideration anent
the deficiency tax assessment against herein petitioner, the tax court ruled that since that matter was
not raised in the pleadings, the same cannot be considered, invoking therefor the salutary purpose
of the omnibus motion rule which is to obviate multiplicity of motions and to discourage dilatory
pleadings.15

As indicated at the outset, a petition for review was filed by herein petitioner with respondent Court
of Appeals which in due course promulgated its decision affirming the judgment of the Court of Tax
Appeals. Petitioner eventually elevated the case to this Court, maintaining that said respondent court
erred in affirming the grant of the claim for refund of Citytrust, considering that, firstly, said private
respondent failed to prove and substantiate its claim for such refund; and, secondly, the bureau's
findings of deficiency income and business tax liabilities against private respondent for the year 1984
bars such payment.16

After a careful review of the records, we find that under the peculiar circumstances of this case, the
ends of substantial justice and public interest would be better subserved by the remand of this case
to the Court of Tax Appeals for further proceedings.

It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of Internal
Revenue, was denied its day in court by reason of the mistakes and/or negligence of its officials and
employees. It can readily be gleaned from the records that when it was herein petitioner's turn to
present evidence, several postponements were sought by its counsel, the Solicitor General, due to
the unavailability of the necessary records which were not transmitted by the Refund Audit Division
of the BIR to said counsel, as well as the investigation report made by the Banks/Financing and
Insurance Division of the said bureau/ despite repeated requests.17 It was under such a predicament
and in deference to the tax court that ultimately, said records being still unavailable, herein

68 | P a g e
petitioner's counsel was constrained to submit the case for decision on February 20, 1991 without
presenting any evidence.

For that matter, the BIR officials and/or employees concerned also failed to heed the order of the
Court of Tax Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of the
Court of Tax Appeals which provides that the Commissioner of Internal Revenue and the
Commissioner of Customs shall certify and forward to the Court of Tax Appeals, within ten days after
filing his answer, all the records of the case in his possession, with the pages duly numbered, and if
the records are in separate folders, then the folders shall also be numbered.

The aforestated impassé came about due to the fact that, despite the filing of the aforementioned
initiatory petition in CTA Case No. 4099 with the Court of Tax Appeals, the Tax Refund Division of
the BIR still continued to act administratively on the claim for refund previously filed therein, instead
of forwarding the records of the case to the Court of Tax Appeals as ordered.18

It is a long and firmly settled rule of law that the Government is not bound by the errors committed by
its agents.19 In the performance of its governmental functions, the State cannot be estopped by the
neglect of its agent and officers. Although the Government may generally be estopped through the
affirmative acts of public officers acting within their authority, their neglect or omission of public
duties as exemplified in this case will not and should not produce that effect.

Nowhere is the aforestated rule more true than in the field of taxation.20 It is axiomatic that the
Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the
lifeblood of the nation through which the government agencies continue to operate and with which
the State effects its functions for the welfare of its constituents. 21 The errors of certain administrative
officers should never be allowed to jeopardize the Government's financial position, 22 especially in the
case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to
be prejudiced just because of bureaucratic lethargy.

Further, it is also worth nothing that the Court of Tax Appeals erred in denying petitioner's
supplemental motion for reconsideration alleging bringing to said court's attention the existence of
the deficiency income and business tax assessment against Citytrust. The fact of such deficiency
assessment is intimately related to and inextricably intertwined with the right of respondent bank to
claim for a tax refund for the same year. To award such refund despite the existence of that
deficiency assessment is an absurdity and a polarity in conceptual effects. Herein private respondent
cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the
same year.

The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts
stated therein are true and correct. The deficiency assessment, although not yet final, created a
doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said
return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the
refund.

Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law
when the claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any
list, statement, or return, which in the opinion of the Commissioner of Internal Revenue was false or
fraudulent or contained any understatement or undervaluation, no tax collected under such
assessment shall be recovered by any suits unless it is proved that the said list, statement, or return
was not false nor fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith regarding annual
depreciation of oil or gas wells and mines."

69 | P a g e
Moreover, to grant the refund without determination of the proper assessment and the tax due would
inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should
subsequently be upheld, the Government will be forced to institute anew a proceeding for the
recovery of erroneously refunded taxes which recourse must be filed within the prescriptive period of
ten years after discovery of the falsity, fraud or omission in the false or fraudulent return
involved.23 This would necessarily require and entail additional efforts and expenses on the part of
the Government, impose a burden on and a drain of government funds, and impede or delay the
collection of much-needed revenue for governmental operations.

Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically
necessary and legally appropriate that the issue of the deficiency tax assessment against Citytrust
be resolved jointly with its claim for tax refund, to determine once and for all in a single proceeding
the true and correct amount of tax due or refundable.

In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only just and fair
that the taxpayer and the Government alike be given equal opportunities to avail of remedies under
the law to defeat each other's claim and to determine all matters of dispute between them in one
single case. It is important to note that in determining whether or not petitioner is entitled to the
refund of the amount paid, it would necessary to determine how much the Government is entitled to
collect as taxes. This would necessarily include the determination of the correct liability of the
taxpayer and, certainly, a determination of this case would constitute res judicata on both parties as
to all the matters subject thereof or necessarily involved therein.

The Court cannot end this adjudication without observing that what caused the Government to lose
its case in the tax court may hopefully be ascribed merely to the ennui or ineptitude of officialdom,
and not to syndicated intent or corruption. The evidential cul-de-sac in which the Solicitor General
found himself once again gives substance to the public perception and suspicion that it is another
proverbial tip in the iceberg of venality in a government bureau which is pejoratively rated over the
years. What is so distressing, aside from the financial losses to the Government, is the erosion of
trust in a vital institution wherein the reputations of so many honest and dedicated workers are
besmirched by the acts or omissions of a few. Hence, the liberal view we have here taken pro hac
vice, which may give some degree of assurance that this Court will unhesitatingly react to any bane
in the government service, with a replication of such response being likewise expected by the people
from the executive authorities.

WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby
SET ASIDE and the case at bar is REMANDED to the Court of Tax Appeals for further proceedings
and appropriate action, more particularly, the reception of evidence for petitioner and the
corresponding disposition of CTA Case No. 4099 not otherwise inconsistent with our adjudgment
herein.

SO ORDERED.

70 | P a g e
G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

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

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with
law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and
1959.1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter
was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of
distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto
Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest
in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a
photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty.
Guevara was finally informed that the BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy earlier sought to be served.5 Sixteen days
later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of
Internal Revenue with the Court of Tax Appeals.6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged.7 It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and
renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof
and makes the said request deemed rejected." 10 But there is a special circumstance in the case at
bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the

71 | P a g e
private respondent was definitely informed of the implied rejection of the said protest and the warrant
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
to be personal holding company income 12 but later conformed to the decision of the respondent
court rejecting this assertion.13 In fact, as the said court found, the amount was earned through the
joint efforts of the persons among whom it was distributed It has been established that the Philippine
Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell
its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in it. 14 Ultimately, after its
incorporation largely through the promotion of the said persons, this new corporation purchased the
PSEDC properties.15 For this sale, Algue received as agent a commission of P126,000.00, and it was
from this commission that the P75,000.00 promotional fees were paid to the aforenamed
individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved.18

The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be
remembered that this was a family corporation where strict business procedures were not applied
and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close relationship among the persons in
the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the

72 | P a g e
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the
Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions —

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. .
. . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.

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

73 | P a g e
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.

We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.

SO ORDERED.

74 | P a g e
G.R. No. 124043 October 14, 1998

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN
ASSOCIATION OF THE PHILIPPINES, INC., respondents.

PANGANIBAN, J.:

Is the income derived from rentals of real property owned by the Young Men's Christian Association
of the Philippines, Inc. (YMCA) — established as "a welfare, educational and charitable non-profit
corporation" — subject to income tax under the National Internal Revenue Code (NIRC) and the
Constitution?

The Case

This is the main question raised before us in this petition for review on certiorari challenging two
Resolutions issued by the Court of Appeals 1 on September 28, 19952 and February 29, 19963 in
CA-GR SP No. 32007. Both Resolutions affirmed the Decision of the Court of Tax Appeals
(CTA) allowing the YMCA to claim tax exemption on the latter's income from the lease of its
real property.

The Facts

The facts are undisputed.4 Private Respondent YMCA is a non-stock, non-profit institution,
which conducts various programs and activities that are beneficial to the public, especially
the young people, pursuant to its religious, educational and charitable objectives.

In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out
a portion of its premises to small shop owners, like restaurants and canteen operators, and
P44,259.00 from parking fees collected from non-members. On July 2, 1984, the
commissioner of internal revenue (CIR) issued an assessment to private respondent, in the
total amount of P415,615.01 including surcharge and interest, for deficiency income tax,
deficiency expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages. Private respondent formally protested the assessment and, as a
supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied
the claims of YMCA.

Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax
Appeals (CTA) on March 14, 1989. In due course, the CTA issued this ruling in favor of the
YMCA:

. . . [T]he leasing of [private respondent's] facilities to small shop owners, to

restaurant and canteen operators and the operation of the parking lot are
reasonably incidental to and reasonably necessary for the accomplishment of
the objectives of the [private respondents]. It appears from the testimonies of
the witnesses for the [private respondent] particularly Mr. James C. Delote,
former accountant of YMCA, that these facilities were leased to members and
that they have to service the needs of its members and their guests. The

75 | P a g e
 rentals were minimal as for example, the barbershop was only charged P300
per month. He also testified that there was actually no lot devoted for parking
space but the parking was done at the sides of the building. The parking was
primarily for members with stickers on the windshields of their cars and they
charged P.50 for non-members. The rentals and parking fees were just enough
to cover the costs of operation and maintenance only. The earning[s] from
these rentals and parking charges including those from lodging and other
charges for the use of the recreational facilities constitute [the] bulk of its
income which [is] channeled to support its many activities and attainment of
its objectives. As pointed out earlier, the membership dues are very
insufficient to support its program. We find it reasonably necessary therefore
for [private respondent] to make [the] most out [of] its existing facilities to earn
some income. It would have been different if under the circumstances, [private
respondent] will purchase a lot and convert it to a parking lot to cater to the
needs of the general public for a fee, or construct a building and lease it out to
the highest bidder or at the market rate for commercial purposes, or should it
invest its funds in the buy and sell of properties, real or personal. Under these
circumstances, we could conclude that the activities are already profit
oriented, not incidental and reasonably necessary to the pursuit of the
objectives of the association and therefore, will fall under the last paragraph of
Section 27 of the Tax Code and any income derived therefrom shall be taxable.

Considering our findings that [private respondent] was not engaged in the
business of operating or contracting [a] parking lot, we find no legal basis also
for the imposition of [a] deficiency fixed tax and [a] contractor's tax in the
amount[s] of P353.15 and P3,129.73, respectively.

xxx xxx xxx

WHEREFORE, in view of all the foregoing, the following assessments are

hereby dismissed for lack of merit:

1980 Deficiency Fixed Tax — P353,15;

1980 Deficiency Contractor's Tax — P3,129.23;

1980 Deficiency Income Tax — P372,578.20.

While the following assessments are hereby sustained:

1980 Deficiency Expanded Withholding Tax — P1,798.93;

1980 Deficiency Withholding Tax on Wages — P33,058.82

plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully
paid but not to exceed three (3) years pursuant to Section 51(e)(2) & (3) of the
National Internal Revenue Code effective as of 1984. 5

Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its
Decision of February 16, 1994, the CA6 initially decided in favor of the CIR and disposed of the
appeal in the following manner:

76 | P a g e
 Following the ruling in the afore-cited cases of Province of Abra vs.
Hernando and Abra Valley College Inc. vs. Aquino, the ruling of the respondent
Court of Tax Appeals that "the leasing of petitioner's (herein respondent's)
facilities to small shop owners, to restaurant and canteen operators and the
operation of the parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the petitioners, and the
income derived therefrom are tax exempt, must be reversed.

WHEREFORE, the appealed decision is hereby REVERSED in so far as it

dismissed the assessment for:

1980 Deficiency Income Tax P 353.15

1980 Deficiency Contractor's Tax P 3,129.23, &

1980 Deficiency Income Tax P 372,578.20

but the same is AFFIRMED in all other respect. 7

Aggrieved, the YMCA asked for reconsideration based on the following grounds:

The findings of facts of the Public Respondent Court of Tax Appeals being
supported by substantial evidence [are] final and conclusive.

II

The conclusions of law of [p]ublic [r]espondent exempting [p]rivate

[r]espondent from the income on rentals of small shops and parking fees [are]
in accord with the applicable law and jurisprudence. 8

Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed itself and
promulgated on September 28, 1995 its first assailed Resolution which, in part, reads:

The Court cannot depart from the CTA's findings of fact, as they are supported
by evidence beyond what is considered as substantial.

xxx xxx xxx

The second ground raised is that the respondent CTA did not err in saying that
the rental from small shops and parking fees do not result in the loss of the
exemption. Not even the petitioner would hazard the suggestion that YMCA is
designed for profit. Consequently, the little income from small shops and
parking fees help[s] to keep its head above the water, so to speak, and allow it
to continue with its laudable work.

The Court, therefore, finds the second ground of the motion to be meritorious
and in accord with law and jurisprudence.

77 | P a g e
 WHEREFORE, the motion for reconsideration is GRANTED; the respondent
CTA's decision is AFFIRMED in toto.9

The internal revenue commissioner's own Motion for Reconsideration was denied by
Respondent Court in its second assailed Resolution of February 29, 1996. Hence, this petition
for review under Rule 45 of the Rules of Court. 10

The Issues

Before us, petitioner imputes to the Court of Appeals the following errors:

In holding that it had departed from the findings of fact of Respondent Court of
Tax Appeals when it rendered its Decision dated February 16, 1994; and

II

In affirming the conclusion of Respondent Court of Tax Appeals that the

income of private respondent from rentals of small shops and parking fees [is]
exempt from taxation. 11

This Court's Ruling

The petition is meritorious.

First Issue:
Factual Findings of the CTA

Private respondent contends that the February 16, 1994 CA Decision reversed the factual
findings of the CTA. On the other hand, petitioner argues that the CA merely reversed the
"ruling of the CTA that the leasing of private respondent's facilities to small shop owners, to
restaurant and canteen operators and the operation of parking lots are reasonably incidental
to and reasonably necessary for the accomplishment of the objectives of the private
respondent and that the income derived therefrom are tax exempt." 12 Petitioner insists that
what the appellate court reversed was the legal conclusion, not the factual finding, of the
CTA. 13The commissioner has a point.

Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by
substantial evidence, will be disturbed on appeal unless it is shown that the said court
committed gross error in the appreciation of facts. 14 In the present case, this Court finds that
the February 16, 1994 Decision of the CA did not deviate from this rule. The latter merely
applied the law to the facts as found by the CTA and ruled on the issue raised by the CIR:
"Whether or not the collection or earnings of rental income from the lease of certain premises
and income earned from parking fees shall fall under the last paragraph of Section 27 of the
National Internal Revenue Code of 1977, as amended." 15

Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned
issue, as indeed it was expected to. That it did so in a manner different from that of the CTA
did not necessarily imply a reversal of factual findings.

78 | P a g e
The distinction between a question of law and a question of fact is clear-cut. It has been held
that "[t]here is a question of law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or falsehood of alleged facts." 16 In the present case, the CA
did not doubt, much less change, the facts narrated by the CTA. It merely applied the law to
the facts. That its interpretation or conclusion is different from that of the CTA is not irregular
or abnormal.

Second Issue:
Is the Rental Income of the YMCA Taxable?

We now come to the crucial issue: Is the rental income of the YMCA from its real estate
subject to tax? At the outset, we set forth the relevant provision of the NIRC:

Sec. 27. Exemptions from tax on corporations. — The following organizations

shall not be taxed under this Title in respect to income received by them as
such —

xxx xxx xxx

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

(h) Club organized and operated exclusively for pleasure, recreation, and other
non-profitable purposes, no part of the net income of which inures to the
benefit of any private stockholder or member;

xxx xxx xxx

Notwithstanding the provisions in the preceding paragraphs, the income of

whatever kind and character of the foregoing organizations from any of their
properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be subject to the tax
imposed under this Code. (as amended by Pres. Decree No. 1457)

Petitioner argues that while the income received by the organizations enumerated in Section
27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to
income received by them as such," the exemption does not apply to income derived ". . . from
any of their properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income . . . ."

Petitioner adds that "rental income derived by a tax-exempt organization from the lease of its
properties, real or personal, [is] not, therefore, exempt from income taxation, even if such
income [is] exclusively used for the accomplishment of its objectives." 17 We agree with the
commissioner.

Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of
strict in interpretation in construing tax exemptions. 18 Furthermore, a claim of statutory
exemption from taxation should be manifest. and unmistakable from the language of the law
on which it is based. Thus, the claimed exemption "must expressly be granted in a statute
stated in a language too clear to be mistaken." 19

79 | P a g e
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very
wording of the last paragraph of then Section 27 of the NIRC which mandates that the income
of exempt organizations (such as the YMCA) from any of their properties, real or personal, be
subject to the tax imposed by the same Code. Because the last paragraph of said section
unequivocally subjects to tax the rent income of the YMCA from its real property, 20 the Court
is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any
convoluted attempt at construction.

It is axiomatic that where the language of the law is clear and unambiguous, its express
terms must be applied. 21 Parenthetically, a consideration of the question of construction
must not even begin, particularly when such question is on whether to apply a strict
construction or a liberal one on statutes that grant tax exemptions to "religious, charitable
and educational propert[ies] or institutions." 22

The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification
that the income from the properties must arise from activities 'conducted for profit' before it
may be considered taxable." 23This argument is erroneous. As previously stated, a reading of
said paragraph ineludibly shows that the income from any property of exempt organizations,
as well as that arising from any activity it conducts for profit, is taxable. The phrase "any of
their activities conducted for profit" does not qualify the word "properties." This makes from
the property of the organization taxable, regardless of how that income is used — whether for
profit or for lofty non-profit purposes.

Verba legis non est recedendum. Hence, Respondent Court of Appeals committed reversible
error when it allowed, on reconsideration, the tax exemption claimed by YMCA on income it
derived from renting out its real property, on the solitary but unconvincing ground that the
said income is not collected for profit but is merely incidental to its operation. The law does
not make a distinction. The rental income is taxable regardless of whence such income is
derived and how it is used or disposed of. Where the law does not distinguish, neither should
we.

Constitutional Provisions

On Taxation

Invoking not only the NIRC but also the fundamental law, private respondent submits that
Article VI, Section 28 of par. 3 of the 1987 Constitution, 24 exempts "charitable institutions"
from the payment not only of property taxes but also of income tax from any source. 25 In
support of its novel theory, it compares the use of the words "charitable institutions,"
"actually" and "directly" in the 1973 and the 1987 Constitutions, on the one hand; and in
Article VI, Section 22, par. 3 of the 1935 Constitution, on the other hand. 26

Private respondent enunciates three points. First, the present provision is divisible into two
categories: (1) "[c]haritable institutions, churches and parsonages or convents appurtenant
thereto, mosques and non-profit cemeteries," the incomes of which are, from whatever
source, all tax-exempt; 27 and (2) "[a]ll lands, buildings and improvements actually and
directly used for religious, charitable or educational purposes," which are exempt only from
property taxes. 28 Second, Lladoc v. Commissioner of Internal Revenue, 29which limited the
exemption only to the payment of property taxes, referred to the provision of the 1935
Constitution and not to its counterparts in the 1973 and the 1987 Constitutions. 30 Third, the
phrase "actually, directly and exclusively used for religious, charitable or educational

80 | P a g e
purposes" refers not only to "all lands, buildings and improvements," but also to the above-
quoted first category which includes charitable institutions like the private respondent. 31

The Court is not persuaded. The debates, interpellations and expressions of opinion of the
framers of the Constitution reveal their intent which, in turn, may have guided the people in
ratifying the Charter. 32 Such intent must be effectuated.

Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now
a member of this Court, stressed during the Concom debates that ". . . what is exempted is
not the institution itself . . .; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or educational
purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and also a
member of the Concom, adhered to the same view that the exemption created by said
provision pertained only to property taxes. 34

In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax exemption
coversproperty taxes only." 35 Indeed, the income tax exemption claimed by private
respondent finds no basis in Article VI, Section 26, par. 3 of the Constitution.

Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, 36 claiming that
the YMCA "is a non-stock, non-profit educational institution whose revenues and assets are
used actually, directly and exclusively for educational purposes so it is exempt from taxes on
its properties and income." 37 We reiterate that private respondent is exempt from the
payment of property tax, but not income tax on the rentals from its property. The bare
allegation alone that it is a non-stock, non-profit educational institution is insufficient to
justify its exemption from the payment of income tax.

As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence,
for the YMCA to be granted the exemption it claims under the aforecited provision, it must
prove with substantial evidence that (1) it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted from taxation is
used actually, directly, and exclusively for educational purposes. However, the Court notes
that not a scintilla of evidence was submitted by private respondent to prove that it met the
said requisites.

Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of
the Constitution? We rule that it is not. The term "educational institution" or "institution of
learning" has acquired a well-known technical meaning, of which the members of the
Constitutional Commission are deemed cognizant. 38 Under the Education Act of 1982, such
term refers to schools. 39 The school system is synonymous with formal education, 40 which
"refers to the hierarchically structured and chronologically graded learnings organized and
provided by the formal school system and for which certification is required in order for the
learner to progress through the grades or move to the higher levels." 41 The Court has
examined the "Amended Articles of Incorporation" and "By-Laws"43 of the YMCA, but found
nothing in them that even hints that it is a school or an educational institution. 44

Furthermore, under the Education Act of 1982, even non-formal education is understood to
be school-based and "private auspices such as foundations and civic-spirited organizations"
are ruled out. 45 It is settled that the term "educational institution," when used in laws granting
tax exemptions, refers to a ". . . school seminary, college or educational establishment . . .
." 46 Therefore, the private respondent cannot be deemed one of the educational institutions
covered by the constitutional provision under consideration.

81 | P a g e
 . . . Words used in the Constitution are to be taken in their ordinary
acceptation. While in its broadest and best sense education embraces all
forms and phases of instruction, improvement and development of mind and
body, and as well of religious and moral sentiments, yet in the common
understanding and application it means a place where systematic instruction
in any or all of the useful branches of learning is given by methods common to
schools and institutions of learning. That we conceive to be the true intent and
scope of the term [educational institutions,] as used in the
Constitution. 47

Moreover, without conceding that Private Respondent YMCA is an educational institution, the
Court also notes that the former did not submit proof of the proportionate amount of the
subject income that was actually, directly and exclusively used for educational purposes.
Article XIII, Section 5 of the YMCA by-laws, which formed part of the evidence submitted, is
patently insufficient, since the same merely signified that "[t]he net income derived from the
rentals of the commercial buildings shall be apportioned to the Federation and Member
Associations as the National Board may decide." 48 In sum, we find no basis for granting the
YMCA exemption from income tax under the constitutional provision invoked.

Cases Cited by Private

Respondent Inapplicable

The cases 49 relied on by private respondent do not support its cause. YMCA of Manila v.
Collector of Internal Revenue 50 and Abra Valley College, Inc. v. Aquino 51 are not applicable,
because the controversy in both cases involved exemption from the payment of property tax,
not income tax. Hospital de San Juan de Dios, Inc. v. Pasay City 52 is not in point either,
because it involves a claim for exemption from the payment of regulatory fees, specifically
electrical inspection fees, imposed by an ordinance of Pasay City — an issue not at all related
to that involved in a claimed exemption from the payment of income taxes imposed on
property leases. In Jesus Sacred Heart College v. Com. of Internal Revenue, 53 the party
therein, which claimed an exemption from the payment of income tax, was an educational
institution which submitted substantial evidence that the income subject of the controversy
had been devoted or used solely for educational purposes. On the other hand, the private
respondent in the present case has not given any proof that it is an educational institution, or
that part of its rent income is actually, directly and exclusively used for educational
purposes.

Epilogue

In deliberating on this petition, the Court expresses its sympathy with private respondent. It
appreciates the nobility of its cause. However, the Court's power and function are limited
merely to applying the law fairly and objectively. It cannot change the law or bend it to suit its
sympathies and appreciations. Otherwise, it would be overspilling its role and invading the
realm of legislation.

We concede that private respondent deserves the help and the encouragement of the
government. It needs laws that can facilitate, and not frustrate, its humanitarian tasks. But the
Court regrets that, given its limited constitutional authority, it cannot rule on the wisdom or
propriety of legislation. That prerogative belongs to the political departments of government.
Indeed, some of the members of the Court may even believe in the wisdom and prudence of

82 | P a g e
granting more tax exemptions to private respondent. But such belief, however well-meaning
and sincere, cannot bestow upon the Court the power to change or amend the law.

WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated
September 28, 1995 and February 29, 1996 are hereby REVERSED and SET ASIDE. The
Decision of the Court of Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled
that the income derived by petitioner from rentals of its real property is subject to income tax.
No pronouncement as to costs.

SO ORDERED.

83 | P a g e
 G.R. No. 117359 July 23, 1998

DAVAO GULF LUMBER CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE

and COURT OF APPEALS, Respondents.

PANGANIBAN, J.:

Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly
against the grantee and liberally in favor of the government. Otherwise stated, any exemption from
the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied
therefrom.

Statement of the Case

This principium is applied by the Court in resolving this petition for review under Rule 45 of the Rules
of Court, assailing the Decision 1 of Respondent Court of Appeals 2 in CA-GR SP No. 34581 dated
September 26, 1994, which affirmed the June 21, 1994 Decision 3 of the Court of Tax Appeals 4 in
CTA Case No. 3574. The dispositive portion of the CTA Decision affirmed by Respondent Court reads:

WHEREFORE, judgment is hereby rendered ordering the respondent to refund to the petitioner the
amount of P2,923.15 representing the partial refund of specific taxes paid on manufactured oils and
fuels. 5

The Antecedent Facts

The facts are undisputed. 6 Petitioner is a licensed forest concessionaire possessing a Timber License
Agreement granted by the Ministry of Natural Resources (now Department of Environment and Natural
Resources). From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies,
refined and manufactured mineral oils as well as motor and diesel fuels, which it used exclusively for
the exploitation and operation of its forest concession. Said oil companies paid the specific taxes
imposed, under Sections 153 and 156 7 of the 1977 National Internal Revenue Code (NIRC), on the
sale of said products. Being included in the purchase price of the oil products, the specific taxes paid
by the oil companies were eventually passed on to the user, the petitioner in this case.

On December 13, 1982, petitioner filed before Respondent Commissioner of Internal Revenue (CIR) a
claim for refund in the amount of P120,825.11, representing 25% of the specific taxes actually paid on
the above-mentioned fuels and oils that were used by petitioner in its operations as forest
concessionaire. The claim was based on Insular Lumber Co. vs. Court of Tax Appeals 8 and Section 5
of RA 1435 which reads:

Sec. 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and bridge
funds of the political subdivision for whose benefit the tax is collected: Provided, however, That
whenever any oils mentioned above are used by miners or forest concessionaires in their operations,
twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of Internal
Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in
subparagraphs one and two of section one hereof, amending section one hundred forty-two of the
Internal Revenue Code: Provided, further, That no new road shall be constructed unless the routes or
location thereof shall have been approved by the Commissioner of Public Highways after a
determination that such road can be made part of an integral and articulated route in the Philippine
Highway System, as required in section twenty-six of the Philippine Highway Act of 1953.

It is an unquestioned fact that petitioner complied with the procedure for refund, including the
submission of proof of the actual use of the aforementioned oils in its forest concession as required by

84 | P a g e
the above-quoted law. Petitioner, in support of its claim for refund, submitted to the CIR the affidavits
of its general manager, the president of the Philippine Wood Products Association, and three
disinterested persons, all attesting that the said manufactured diesel and fuel oils were actually used
in the exploitation and operation of its forest concession.

On January 20, 1983, petitioner filed at the CTA a petition for review docketed as CTA Case No. 3574.
On June 21, 1994, the CTA rendered its decision finding petitioner entitled to a partial refund of
specific taxes the latter had paid in the reduced amount of P2,923.15. The CTA ruled that the claim on
purchases of lubricating oil (from July 1, 1980 to January 19, 1981) and on manufactured oils other
than lubricating oils (from July 1, 1980 to January 4, 1981) had prescribed. Disallowed on the ground
that they were not included in the original claim filed before the CIR were the claims for refund on
purchases of manufactured oils from January 1, 1980 to June 30, 1980 and from February 1, 1982 to
June 30, 1982. In regard to the other purchases, the CTA granted the claim, but it computed the
refund based on rates deemed paid under RA 1435, and not on the higher rates actualhy paid by
petitioner under the NIRC.

Insisting that the basis for computing the refund should be the increased rates prescribed by Sections
153 and 156 of the NIRC, petitioner elevated the matter to the Court of Appeals. As noted earlier, the
Court of Appeals affirmed the CTA Decision. Hence, this petition for review. 9

Public Respondent's Ruling

In its petition before the Court of Appeals, petitioner raised the following arguments:

I. The respondent Court of Tax Appeals failed to apply the Supreme Court's Decision in Insular Lumber
Co. v. Court of Tax Appeals which granted the claim for partial refund of specific taxes paid by the
claimant, without qualification or limitation.

II. The respondent Court of Tax Appeals ignored the increase in rates imposed by succeeding
amendatory laws,under which the petitioner paid the specific taxes on manufactured and diesel fuels.

III. In its decision, the respondent Court of Tax Appeals ruled contrary to established tenets of law
when it lent itself to interpreting Section 5 of R.A. 1435, when the construction of said law is not
necessary.

IV. Sections 1 and 2 of R.A. 1435 are not the operative provisions to be applied but rather, Sections
153 and 156 of the National Internal Revenue Code, as amended.

V. To rule that the basis for computation of the refunded taxes should be Sections 1 and 2 of R.A.
1435 rather than Section 153 and 156 of the National Internal Revenue Code is unfair, erroneous,
arbitrary, inequitable and oppressive. 10

The Court of Appeals held that the claim for refund should indeed be computed on the basis of the
amounts deemed paid under Sections 1 and 2 of RA 1435. In so ruling, it cited our pronouncement
in Commissioner of Internal Revenue v. Rio Tuba Nickel Mining Corporation 11and subsequent
Resolution dated June 15, 1992 clarifying the said Decision. Respondent Court further ruled that the
claims for refund which prescribed and those which were not filed at the administrative level must be
excluded.

The Issue

In its Memorandum, petitioner raises one critical issue:

Whether or not petitioner is entitled under Republic Act No. 1435 to the refund of 25% of the amount
of specific taxes it actually paid on various refined and manufactured mineral oils and other oil

85 | P a g e
products taxed under Sec. 153 and Sec. 156 of the 1977 (Sec. 142 and Sec. 145 of the 1939)
National Internal Revenue Code. 12

In the main, the question before us pertains only to the computation of the tax refund. Petitioner
argues that the refund should be based on the increased rates of specific taxes which it actually paid,
as prescribed in Sections 153 and 156 of the NIRC. Public respondent, on the other hand, contends
that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435.

The Court's Ruling

The petition is not meritorious.

Petitioner Entitled to Refund

Under Sec. 5 of RA 1435

At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA
1435, which was enacted to provide means for increasing the Highway Special Fund.

The rationale for this grant of partial refund of specific taxes paid on purchases of manufactured diesel
and fuel oils rests on the character of the Highway Special Fund. The specific taxes collected on
gasoline and fuel accrue to the Fund, which is to be used for the construction and maintenance of the
highway system. But because the gasoline and fuel purchased by mining and lumber concessionaires
are used within their own compounds and roads, and their vehicles seldom use the national highways,
they do not directly benefit from the Fund and its use. Hence, the tax refund gives the mining and the
logging companies a measure of relief in light of their peculiar situation. 13 When the Highway Special
Fund was abolished in 1985, the reason for the refund likewise ceased to exist. 14 Since petitioner
purchased the subject manufactured diesel and fuel oils from July 1, 1980 to January 31, 1982 and
submitted the required proof that these were actually used in operating its forest concession, it is
entitled to claim the refund under Section 5 of RA 1435.

Tax Refund Strictly Constrtued

Against the Grantee

Petitioner submits that it is entitled to the refund of 25 percent of the specific taxes it had actually
paid for the petroleum products used in its operations. In other words, it claims a refund based on the
increased rates under Sections 153 and 156 of the NIRC. 15 Petitioner argues that the statutory grant
of the refund privilege, specifically the phrase "twenty-five per centum of the specific tax paid thereon
shall be refunded by the Collector of Internal Revenue," is "clear and unambiguous" enough to require
construction or qualification thereof. 16 In addition, it cites our pronouncement in Insular Lumber vs.
Court of Tax Appeals: 17

. . . Sec. 5 [of RA 1435] makes reference to subparagraphs 1 and 2 of Section 1 only for the purpose
of prescribing the procedure for refund. This express reference cannot be expanded in scope to include
the limitation of the period of refund. If the limitation of the period of refund of specific taxes paid on
oils used in aviation and agriculture is intended to cover similar taxes paid on oil used by miners and
forest concessionaires, there would have been no need of dealing with oil used by miners and forest
concessions separately and Section 5 would very well have been included in Section 1 of Republic Act
No. 1435, notwithstanding the different rate of exemption.

Petitioner then reasons that "the express mention of Section 1 of RA 1435 in Section 5 cannot be
expanded to include a limitation on the tax rates to be applied . . . [otherwise,] Section 5 should very
well have been included in Section 1 . . . ." 18

86 | P a g e
The Court is nor persuaded. The relevant statutory provisions do not clearly support petitioner's claim
for refund. RA 1435 provides:

Sec. 1 Section one hundred and forty-two of the National Internal Revenue Code, as amended, is
further amended to read as follows:

Sec. 142. Specific tax on manufactured oils and other fuels. - On refined and manufactured mineral
oils and motor fuels, there shall be collected the following taxes:

(a) Kerosene or petroleum, per liter of volume capacity, two and one-half centavos;

(b) Lubricating oils, per liter of volume capacity, seven centavos;

(c) Naptha, gasoline, and all other similar products of distillation, per liter of volume capacity, eight
centavos; and

(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo: Provided, That if the denatured alcohol is mixed with gasoline, the specific tax on which has
already been paid, only the alcohol content shall be subject to the tax herein prescribed. For the
purpose of this subsection, the removal of denatured alcohol of not less than one hundred eighty
degrees proof (ninety per centum absolute alcohol) shall be deemed to have been removed for motive
power, unless shown to the contrary.

Whenever any of the oils mentioned above are, during the five years from June eighteen, nineteen
hundred and fifty two, used in agriculture and aviation, fifty per centum of the specific tax paid
thereon shall be refunded by the Collector of Internal Revenue upon the submission of the following:

(1) A sworn affidavit of the producer and two disinterested persons proving that the said oils were
actually used in agriculture, or in lieu thereof.

(2) Should the producer belong to any producers' association or federation, duly registered with the
Securities and Exchange Commission, the affidavit of the president of the association or federation,
attesting to the fact that the oils were actually used in agriculture.

(3) In the case of aviation oils, a sworn certificate satisfactory to the Collector proving that the said
oils were actually used in aviation: Provided, That no such refunds shall be granted in respect to the
oils used in aviation by citizens and corporations of foreign countries which do not grant equivalent
refunds or exemptions in respect to similar oils used in aviation by citizens and corporations of the
Philippines.

Sec. 2 Section one hundred and forty-five of the National Internal Revenue Code, as amended, is
further amended to read as follows:

Sec. 145. Specific Tax on Diesel fuel oil. - On fuel oil, commercially known as diesel fuel oil, and on all
similar fuel oils, having more or less the same generating power, there shall be collected, per metric
ton, one peso.

xxx xxx xxx

Sec. 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and bridge
funds of the political subdivision for whose benefit the tax is collected: Provided, however, That
whenever any oils mentioned above are used by miners or forest concessionaires in their operations,
twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of Internal
Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in
subparagraphs one and two of section one hereof, amending section one hundred forty-two of the

87 | P a g e
Internal Revenue Code: Provided, further, That no new road shall be constructed unless the route or
location thereof shall have been approved by the Commissioner of Public Highways after a
determination that such road can be made part of an integral and articulated route in the Philippine
Highway System, as required in section twenty-six of the Philippine Highway Act of 1953.

Subsequently the 1977 NIRC, PD 1672 and EO 672 amended the first two provisions, renumbering
them and prescribing higher rates. Accordingly, petitioner paid specific taxes on petroleum products
purchased from July 1, 1980 to January 31, 1982 under the following statutory provisions.

From February 8, 1980 to March 20, 1981, Sections 153 and 156 provided as follows:

Sec. 153. Specific tax on manufactured oils and other fuels. - On refined and manufactured mineral
oils and motor fuels, there shall be collected the following taxes which shall attach to the articles
hereunder enumerated as soon as they are in existence as such:

(a) Kerosene, per liter of volume capacity, seven centavos;

(b) Lubricating oils, per liter of volume capacity, eighty centavos;

(c) Naphtha, gasoline and all other similar products of distillation, per liter of volume capacity, ninety-
one centavos: Provided, That on premium and aviation gasoline, the tax shall be one peso per liter of
volume capacity;

(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo: Provided, That unless otherwise provided for by special laws, if the denatured alcohol is
mixed with gasoline, the specific tax on which has already been paid, only the alcohol content shall be
subject to the tax herein prescribed. For the purposes of this subsection, the removal of denatured
alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol) shall
be deemed to have been removed for motive power, unless shown to the contrary;

(e) Processed gas, per liter of volume capacity, three centavos;

(f) Thinners and solvents, per liter of volume capacity, fifty-seven centavos;

(g) Liquefied petroleum gas, per kilogram, fourteen centavos: Provided, That liquefied petroleum gas
used for motive power shall be taxed at the equivalent rate as the specific tax on diesel fuel oil;

(h) Asphalts, per kilogram, eight centavos;

(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;

(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five centavos. (As amended by Sec. 1,
P.D. No. 1672.)

xxx xxx xxx

Sec. 156. Specific tax on diesel fuel oil. - On fuel oil, commercially known as diesel fuel oil, and on all
similar fuel oils, having more or less the same generating power, per liter of volume capacity,
seventeen and one-half centavos, which tax shall attach to this fuel oil as soon as it is in existence as
such.

Then on March 21, 1981, these provisions were amended by EO 672 to read:

88 | P a g e
Sec. 153. Specific tax on manufactured oils and other fuels. - On refined and manufactured mineral
oils and motor fuels, there shall be collected the following taxes which shall attach to the articles
hereunder enumerated as soon as they are in existence as such:

(a) Kerosene, per liter of volume capacity, nine centavos;

(b) Lubricating oils, per liter of volume capacity, eighty centavos;

(c) Naphtha, gasoline and all other similar products of distillation, per liter of volume capacity, one
peso and six centavos: Provided, That on premium and aviation gasoline, the tax shall be one peso
and ten centavos and one peso, respectively, per liter of volume capacity;

(d) On denatured alcohol to be used for motive power, per liter of volume capacity, one
centavo; Provided, That unless otherwise provided for by special laws, if the denatured alcohol is
mixed with gasoline, the specific tax on which has already been paid, only the alcohol content shall be
subject to the tax herein prescribed. For the purpose of this subsection, the removal of denatured
alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol) shall
be deemed to have been removed for motive power, unless shown to the contrary;

(e) Processed gas, per liter of volume capacity, three centavos;

(f) Thinners and solvents, per liter of volume capacity, sixty-one centavos;

(g) Liquefied petroleum gas, per kilogram, twenty-one centavos: Provided, That, liquified petroleum
gas used for motive power shall be taxed at the equivalent rate as the specific tax on diesel fuel oil;

(h) Asphalts, per kilogram, twelve centavos;

(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;

(j) Aviation turbo-jet fuel, per liter of volume capacity, sixty-four centavos.

xxx xxx xxx

Sec. 156. Specific tax on diesel fuel oil. - On fuel oil, commercially known as diesel fuel oil, and all
similar fuel oils, having more or less the same generating power, per liter of volume capacity, twenty-
five and one-half centavos, which tax shall attach to this fuel oil as soon as it is in existence as such.

A tax cannot be imposed unless it is supported by the clear and express language of a statute; 19 on
the other hand, once the tax is unquestionably imposed, "[a] claim of exemption from tax payments
must be clearly shown and based on language in the law too plain to be mistaken." 20 Since the partial
refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, 21 it must be
construed strictissimi Juris against the grantee. Hence, petitioner's claim of refund on the basis of the
specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to
be mistaken.

We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and found no expression
of a legislative will authorizing a refund based on the higher rates claimed by petitioner. The mere fact
that the privilege of refund was included in Section 5, and not in Section 1, is insufficient to support
petitioner's claim. When the law itself does not explicitly provide that a refund under RA 1435 may be
based on higher rates which were nonexistent at the time of its enactment, this Coure cannot presume
otherwise. A legislative lacuna cannot be filled by judicial fiat. 22

The issue is not really novel. In Commissioner of Internal Revenue vs. Court of Appeals and Atlas
Consolidated Mining and Development

89 | P a g e
Corporation 23 (the second Atlas case), the CIR contended that the refund should be based on
Sections 1 and 2 of RA 1435, not Sections 153 and 156 of the NIRC of 1977. In categorically ruling
that Private Respondent Atlas Consolidated Mining and Development Corporation was entitled to a
refund based on Sections 1 and 2 of RA 1435, the Court, through Mr. Justice Hilario G. Davide, Jr.,
reiterated our pronouncement in Commissioner of Internal Revenue vs. Rio Tuba Nickel and Mining
Corporation:

Our Resolution of 25 March 1992 modifying our 30 September 1991 Decision in the Rio Tuba case sets
forth the controlling doctrine. In that Resolution, we stated:

Since the private respondent's claim for refund covers specific taxes paid from 1980 to July 1983 then
we find that the private respondent is entitled to a refund. It should be made clear, however, that Rio
Tuba is not entitled to the whole amount it claims as refund.

The specific taxes on oils which Rio Tuba paid for the aforesaid period were no longer based on the
rates specified by Sections 1 and 2 of R.A. No. 1435 but on the increased rates mandated under
Sections 153 and 156 of the National Internal Revenue Code of 1977. We note however, that the
latter law does not specifically provide for a refund to these mining and lumber companies of specific
taxes paid on manufactured and diesel fuel oils.

In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710 [1981]), the Court held that the
authorized partial refund under Section 5 of R.A. No. 1435 partakes of the nature of a tax exemption
and therefore cannot be allowed unless granted in the most explicit and categorical language. Since
the grant of refund privileges must be strictly construed against the taxpayer, the basis for the refund
shall be the amounts deemed paid under Sections 1 and 2 of R.A. No. 1435.

ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby MODIFIED. The private respondent's
CLAIM for REFUND is GRANTED, computed on the basis of the amounts deemed paid under Sections 1
and 2 of R.A. No. 1435, without interest. 24

We rule, therefore, that since Atlas's claims for refund cover specific taxes paid before 1985, it should
be granted the refund based on the rates specified by Sections 1 and 2 of R.A. No. 1435 and not on
the increased rates under Sections 153 and 156 of the Tax Code of 1977, provided the claims are not
yet barred by prescription. (Emphasis supplied.)

Insular Lumber Co. and First Atlas Case

Not Inconsistent With Rio Tuba

and Second Atlas Case

Petitioner argues that the applicable jurisprudence in this case should be Commissioner of Internal
Revenue vs. Atlas Consolidated and Mining Corp. (the first Atlas case), an unsigned resolution,
and Insular Lumber Co. vs. Court of Tax Appeals, an en banc decision. 25Petitioner also asks the Court
to take a "second look" at Rio Tuba and the second Atlas case, both decided by Divisions, in view
of Insularwhich was decided en banc. Petitioner posits that "[I]n view of the similarity of the situation
of herein petitioner with Insular Lumber Company (claimant in Insular Lumber) and Rio Tuba Nickel
Mining Corporation (claimant in Rio Tuba), a dilemma has been created as to whether or not Insular
Lumber, which has been decided by the Honorable Court en banc, or Rio Tuba, which was decided only
[by] the Third Division of the Honorable Court, should
apply." 26

We find no conflict between these two pairs of cases. Neither Insular Lumber Co. nor the first Atlas
case ruled on the issue of whether the refund privilege under Section 5 should be computed based on
the specific tax deemed paid under Sections 1 and 2 of RA 1435, regardless of what was actually paid
under the increased rates. Rio Tuba and the second Atlas case did.

90 | P a g e
Insular Lumber Co. decided a claim for refund on specific tax paid on petroleum products purchased in
the year 1963, when the increased rates under the NIRC of 1977 were nor yet in effect. Thus, the
issue now before us did not exist at the time, since the applicable rates were still those prescribed
under Sections 1 and 2 of RA 1435.

On the other hand, the issue raised in the first Atlas case was whether the claimant was entitled to the
refund under Section 5, notwithstanding its failure to pay any additional tax under a municipal or city
ordinance. Although Atlas purchased petroleum products in the years, 1976 to 1978 when the rates
had already been changed, the Court did not decide or make any pronouncement on the issue in that
case.

Clearly, it is impossible for these two decisions to clash with our pronouncement in Rio Tuba and
second Atlas case, in which we ruled that the refund granted be computed on the basis of the amounts
deemed paid under Sections 1 and 2 of RA 1435. In this light, we find no basis for petitioner's
invocation of the constitutional proscription that "no doctrine or principle of law laid down by the Court
in a decision rendered en banc or in division may be modified or reversed except by the Court
sitting en banc. 27

Finally, petitioner asserts that "equity and justice demand that the computation of the tax refunds be
based on actual amounts paid under Sections 153 and 156 of the NIRC." 28 We disagree. According to
an eminent authority on taxation, "there is no tax exemption solely on the, ground of equity." 29

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is
AFFIRMED.

SO ORDERED.

91 | P a g e
G.R. No. 120880 June 5, 1997

FERDINAND R. MARCOS II, petitioner,

vs.
COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and
HERMINIA D. DE GUZMAN, respondents.

TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again assailed as precipitate and
unfair, suffering the basic and oftly implored requisites of due process of law. Specifically, the
petition assails the Decision 1of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No.
31363, where the said court held:

In view of all the foregoing, we rule that the deficiency income tax assessments and
estate tax assessment, are already final and (u)nappealable-and-the subsequent
levy of real properties is a tax remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of
any other tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the

petition for certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to costs.

SO ORDERED.

More than seven years since the demise of the late Ferdinand E. Marcos, the former President of
the Republic of the Philippines, the matter of the settlement of his estate, and its dues to the
government in estate taxes, are still unresolved, the latter issue being now before this Court for
resolution. Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questions
the actuations of the respondent Commissioner of Internal Revenue in assessing, and collecting
through the summary remedy of Levy on Real Properties, estate and income tax delinquencies upon
the estate and properties of his father, despite the pendency of the proceedings on probate of the
will of the late president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of
Pasig, Branch 156.

Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with
an application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993,
seeking to —

I. Annul and set aside the Notices of Levy on real property dated February 22, 1993
and May 20, 1993, issued by respondent Commissioner of Internal Revenue;

II. Annul and set aside the Notices of Sale dated May 26, 1993;

92 | P a g e
 III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered by Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its Decision 2 on November
29, 1994, ruling that the deficiency assessments for estate and income tax made upon the petitioner
and the estate of the deceased President Marcos have already become final and unappealable, and
may thus be enforced by the summary remedy of levying upon the properties of the late President,
as was done by the respondent Commissioner of Internal Revenue.

WHEREFORE, premises considered judgment is hereby rendered DISMISSING the

petition for Certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to cost.

SO ORDERED.

Unperturbed, petitioner is now before us assailing the validity of the appellate court's decision,
assigning the following as errors:

A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE

SUMMARY TAX REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT
AFFECTED AND PRECLUDED BY THE PENDENCY OF THE SPECIAL
PROCEEDING FOR THE ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED
WILL. TO THE CONTRARY, THIS PROBATE PROCEEDING PRECISELY PLACED
ALL PROPERTIES WHICH FORM PART OF THE LATE PRESIDENT'S ESTATE IN
CUSTODIA LEGIS OF THE PROBATE COURT TO THE EXCLUSION OF ALL
OTHER COURTS AND ADMINISTRATIVE AGENCIES.

B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING

THAT SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS
HAD ALREADY BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED
TO GO INTO THE MERITS OF THE GROUNDS CITED IN THE PETITION.
INDEPENDENT OF WHETHER THE TAX ASSESSMENTS HAD ALREADY
BECOME FINAL, HOWEVER, PETITIONER HAS THE RIGHT TO QUESTION THE
UNLAWFUL MANNER AND METHOD IN WHICH TAX COLLECTION IS SOUGHT
TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND DE GUZMAN.
THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED THE
MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were issued beyond the
period provided in the Revenue Memorandum Circular No. 38-68.

(2) [a] The numerous pending court cases questioning the late
President's ownership or interests in several properties (both
personal and real) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents' assessment of the
estate tax and their issuance of the Notices of Levy and Sale are
premature, confiscatory and oppressive.

[b] Petitioner, as one of the late President's compulsory heirs, was

never notified, much less served with copies of the Notices of Levy,

93 | P a g e
 contrary to the mandate of Section 213 of the NIRC. As such,
petitioner was never given an opportunity to contest the Notices in
violation of his right to due process of law.

C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT

COURT MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT
INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF THE NIRC
NOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A WRIT OF
PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S
AND DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE ALLEGED
DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.

The facts as found by the appellate court are undisputed, and are hereby adopted:

On September 29, 1989, former President Ferdinand Marcos died in Honolulu,

Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well as
that of his family, associates and "cronies". Said audit team concluded its
investigation with a Memorandum dated July 26, 1991. The investigation disclosed
that the Marcoses failed to file a written notice of the death of the decedent, an estate
tax returns [sic], as well as several income tax returns covering the years 1982 to
1986, — all in violation of the National Internal Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized
under Sections 253 and 254 in relation to Section 252 — a & b) of the National
Internal Revenue Code (NIRC).

The Commissioner of Internal Revenue thereby caused the preparation and filing of
the Estate Tax Return for the estate of the late president, the Income Tax Returns of
the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand "Bongbong" Marcos II for the years 1982 to 1985.

On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment
no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos
in the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment
no. FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-
002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing deficiency income tax for the years
1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand "Bongbong" Marcos II in the
amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60
Pesos representing his deficiency income taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue avers that copies of the deficiency estate and
income tax assessments were all personally and constructively served on August 26,
1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes
"D" and "E" of the Petition). Likewise, copies of the deficiency tax assessments
issued against petitioner Ferdinand "Bongbong" Marcos II were also personally and

94 | P a g e
 constructively served upon him (through his caretaker) on September 12, 1991, at
his last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan,
M.M. (Annexes "J" and "J-1" of the Petition). Thereafter, Formal Assessment notices
were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office,
House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel — but
to no avail.

The deficiency tax assessments were not protested administratively, by Mrs. Marcos
and the other heirs of the late president, within 30 days from service of said
assessments.

On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on
real property against certain parcels of land owned by the Marcoses — to satisfy the
alleged estate tax and deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and
213 of the National Internal Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client Ferdinand
"Bongbong" Marcos II, as well as the interest of the late president — copies of the
aforesaid notices were, served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record, "De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office".

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels
of land took place on July 5, 1993. There being no bidder, the lots were declared
forfeited in favor of the government.

On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos II filed the instant
petition for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer
for temporary restraining order and/or writ of preliminary injunction.

It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the
collection of taxes, is of paramount importance for the sustenance of government. Taxes are the
lifeblood of the government and should be collected without unnecessary hindrance. However, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the
common good, may be achieved. 3

Whether or not the proper avenues of assessment and collection of the said tax obligations were
taken by the respondent Bureau is now the subject of the Court's inquiry.

95 | P a g e
Petitioner posits that notices of levy, notices of sale, and subsequent sale of properties of the late
President Marcos effected by the BIR are null and void for disregarding the established procedure
for the enforcement of taxes due upon the estate of the deceased. The case of Domingo
vs. Garlitos 4 is specifically cited to bolster the argument that "the ordinary procedure by which to
settle claims of indebtedness against the estate of a deceased, person, as in an inheritance (estate)
tax, is for the claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount therefor." This remedy is allegedly, exclusive, and cannot be
effected through any other means.

Petitioner goes further, submitting that the probate court is not precluded from denying a request by
the government for the immediate payment of taxes, and should order the payment of the same only
within the period fixed by the probate court for the payment of all the debts of the decedent. In this
regard, petitioner cites the case of Collector of Internal Revenue vs. The Administratrix of the Estate
of Echarri (67 Phil 502), where it was held that:

The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on
the proposition that the court having control over the administration proceedings has
jurisdiction to entertain the claim presented by the government for taxes due and to
order the administrator to pay the tax should it find that the assessment was proper,
and that the tax was legal, due and collectible. And the rule laid down in that case
must be understood in relation to the case of Collector of Customs
vs. Haygood, supra., as to the procedure to be followed in a given case by the
government to effectuate the collection of the tax. Categorically stated, where during
the pendency of judicial administration over the estate of a deceased person a claim
for taxes is presented by the government, the court has the authority to order
payment by the administrator; but, in the same way that it has authority to order
payment or satisfaction, it also has the negative authority to deny the same. While
there are cases where courts are required to perform certain duties mandatory and
ministerial in character, the function of the court in a case of the present character is
not one of them; and here, the court cannot be an organism endowed with latitude of
judgment in one direction, and converted into a mere mechanical contrivance in
another direction.

On the other hand, it is argued by the BIR, that the state's authority to collect internal revenue taxes
is paramount. Thus, the pendency of probate proceedings over the estate of the deceased does not
preclude the assessment and collection, through summary remedies, of estate taxes over the same.
According to the respondent, claims for payment of estate and income taxes due and assessed after
the death of the decedent need not be presented in the form of a claim against the estate. These
can and should be paid immediately. The probate court is not the government agency to decide
whether an estate is liable for payment of estate of income taxes. Well-settled is the rule that the
probate court is a court with special and limited jurisdiction.

Concededly, the authority of the Regional Trial Court, sitting, albeit with limited jurisdiction, as a
probate court over estate of deceased individual, is not a trifling thing. The court's jurisdiction, once
invoked, and made effective, cannot be treated with indifference nor should it be ignored with
impunity by the very parties invoking its authority.

In testament to this, it has been held that it is within the jurisdiction of the probate court to approve
the sale of properties of a deceased person by his prospective heirs before final adjudication; 5 to
determine who are the heirs of the decedent; 6 the recognition of a natural child; 7 the status of a

96 | P a g e
woman claiming to be the legal wife of the decedent; 8 the legality of disinheritance of an heir by the
testator; 9 and to pass upon the validity of a waiver of hereditary rights. 10

The pivotal question the court is tasked to resolve refers to the authority of the Bureau of Internal
Revenue to collect by the summary remedy of levying upon, and sale of real properties of the
decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate
over the supposed will of the deceased.

The nature of the process of estate tax collection has been described as follows:

Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the
complete settlement of an estate, and, under some statutes, it is made the duty of
the probate court to make the amount of the inheritance tax a part of the final decree
of distribution of the estate. It is not against the property of decedent, nor is it a claim
against the estate as such, but it is against the interest or property right which the
heir, legatee, devisee, etc., has in the property formerly held by decedent. Further,
under some statutes, it has been held that it is not a suit or controversy between the
parties, nor is it an adversary proceeding between the state and the person who
owes the tax on the inheritance. However, under other statutes it has been held that
the hearing and determination of the cash value of the assets and the determination
of the tax are adversary proceedings. The proceeding has been held to be
necessarily a proceeding in rem. 11

In the Philippine experience, the enforcement and collection of estate tax, is executive in character,
as the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. Section 3 of
the National Internal Revenue Code attests to this:

Sec. 3. Powers and duties of the Bureau. — The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
Bureau shall also give effect to and administer the supervisory and police power
conferred to it by this Code or other laws.

Thus, it was in Vera vs. Fernandez 12 that the court recognized the liberal treatment of claims for
taxes charged against the estate of the decedent. Such taxes, we said, were exempted from the
application of the statute of non-claims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei
publicae — taxes are the sinews of the state.

Taxes assessed against the estate of a deceased person, after administration is

opened, need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate.

Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to
allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution
of the estate's properties.

97 | P a g e
 Claims for taxes, whether assessed before or after the death of the deceased, can
be collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of non-claims. The
heirs shall be liable therefor, in proportion to their share in the inheritance. 13

Thus, the Government has two ways of collecting the taxes in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. Another remedy, pursuant to the lien
created by Section 315 of the Tax Code upon all property and rights to property
belong to the taxpayer for unpaid income tax, is by subjecting said property of the
estate which is in the hands of an heir or transferee to the payment of the tax due the
estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September
15, 1967.)

From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a
settlement tribunal over the deceased is not a mandatory requirement in the collection of estate
taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and
sale of the properties allegedly owned by the late President, on the ground that it was required to
seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent
remedial laws that implies the necessity of the probate or estate settlement court's approval of the
state's claim for estate taxes, before the same can be enforced and collected.

On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden
not to authorize the executor or judicial administrator of the decedent's estate to deliver any
distributive share to any party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves
the petitioner's contention that it is the probate court which approves the assessment and collection
of the estate tax.

If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should
have been pursued through the proper administrative and judicial avenues provided for by law.

Section 229 of the NIRC tells us how:

Sec. 229. Protesting of assessment. — When the Commissioner of Internal Revenue

or his duly authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner shall issue an assessment based on
his findings.

Such assessment may be protested administratively by filing a request for

reconsideration or reinvestigation in such form and manner as may be prescribed by
implementing regulations within (30) days from receipt of the assessment; otherwise,
the assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual, association or corporation

adversely affected by the decision on the protest may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of said decision; otherwise, the decision
shall become final, executory and demandable. (As inserted by P.D. 1773)

98 | P a g e
Apart from failing to file the required estate tax return within the time required for the filing of the
same, petitioner, and the other heirs never questioned the assessments served upon them, allowing
the same to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the
properties left by President Marcos.

Petitioner submits, however, that "while the assessment of taxes may have been validly undertaken
by the Government, collection thereof may have been done in violation of the law. Thus, the manner
and method in which the latter is enforced may be questioned separately, and irrespective of the
finality of the former, because the Government does not have the unbridled discretion to enforce
collection without regard to the clear provision of law." 14

Petitioner specifically points out that applying Memorandum Circular No. 38-68, implementing
Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's Notices of Levy on the
Marcos properties, were issued beyond the allowed period, and are therefore null and void:

. . . the Notices of Levy on Real Property (Annexes O to NN of Annex C of this

Petition) in satisfaction of said assessments were still issued by respondents well
beyond the period mandated in Revenue Memorandum Circular No. 38-68. These
Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at
least seventeen (17) months had already lapsed from the last service of tax
assessment on 12 September 1991. As no notices of distraint of personal property
were first issued by respondents, the latter should have complied with Revenue
Memorandum Circular No. 38-68 and issued these Notices of Levy not earlier than
three (3) months nor later than six (6) months from 12 September 1991. In
accordance with the Circular, respondents only had until 12 March 1992 (the last day
of the sixth month) within which to issue these Notices of Levy. The Notices of Levy,
having been issued beyond the period allowed by law, are thus void and of no
effect. 15

We hold otherwise. The Notices of Levy upon real property were issued within the prescriptive
period and in accordance with the provisions of the present Tax Code. The deficiency tax
assessment, having already become final, executory, and demandable, the same can now be
collected through the summary remedy of distraint or levy pursuant to Section 205 of the NIRC.

The applicable provision in regard to the prescriptive period for the assessment and collection of tax
deficiency in this instance is Article 223 of the NIRC, which pertinently provides:

Sec. 223. Exceptions as to a period of limitation of assessment and collection of

taxes. — (a) In the case of a false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud
assessment which has become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action for the collection thereof.

xxx xxx xxx

(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.

xxx xxx xxx

99 | P a g e
The omission to file an estate tax return, and the subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in
case of failure to file a return, the tax may be assessed at any time within ten years after the
omission, and any tax so assessed may be collected by levy upon real property within three years
following the assessment of the tax. Since the estate tax assessment had become final and
unappealable by the petitioner's default as regards protesting the validity of the said assessment,
there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection
against the assessment should have been pursued following the avenue paved in Section 229 of the
NIRC on protests on assessments of internal revenue taxes.

Petitioner further argues that "the numerous pending court cases questioning the late president's
ownership or interests in several properties (both real and personal) make the total value of his
estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time.
Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale
are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos.
0001-0034 and 0141, which were filed by the government to question the ownership and interests of
the late President in real and personal properties located within and outside the Philippines.
Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of
estate taxes upon the decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at
issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect
the enforcement of tax assessments over the properties indubitably included in his estate.

Petitioner also expresses his reservation as to the propriety of the BIR's total assessment of
P23,292,607,638.00, stating that this amount deviates from the findings of the Department of
Justice's Panel of Prosecutors as per its resolution of 20 September 1991. Allegedly, this is clear
evidence of the uncertainty on the part of the Government as to the total value of the estate of the
late President.

This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate tax which had
already become final and unappealable.

It is not the Department of Justice which is the government agency tasked to determine the amount
of taxes due upon the subject estate, but the Bureau of Internal Revenue, 16 whose determinations
and assessments are presumed correct and made in good faith. 17 The taxpayer has the duty of
proving otherwise. In the absence of proof of any irregularities in the performance of official duties,
an assessment will not be disturbed. Even an assessment based on estimates is prima facie valid
and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of
proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the judicial affirmance of said assessment. 18 In
this instance, petitioner has not pointed out one single provision in the Memorandum of the Special
Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed,
the petitioner's attack on the assessment bears mainly on the alleged improbable and
unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the
charge of impropriety of the assessments made.

Moreover, these objections to the assessments should have been raised, considering the ample
remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court
of Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under the
pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his
disregard or even repugnance of the established institutions for governance in the scheme of a well-
ordered society. The subject tax assessments having become final, executory and enforceable, the

100 | P a g e
same can no longer be contested by means of a disguised protest. In the main, Certiorari may not
be used as a substitute for a lost appeal or remedy. 19 This judicial policy becomes more pronounced
in view of the absence of sufficient attack against the actuations of government.

On the matter of sufficiency of service of Notices of Assessment to the petitioner, we find the
respondent appellate court's pronouncements sound and resilient to petitioner's attacks.

Anent grounds 3(b) and (B) — both alleging/claiming lack of notice — We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.

Even if we are to rule out the notices of assessments personally given to the
caretaker of Mrs. Marcos at the latter's last known address, on August 26, 1991 and
September 12, 1991, as well as the notices of assessment personally given to the
caretaker of petitioner also at his last known address on September 12, 1991 — the
subsequent notices given thereafter could no longer be ignored as they were sent at
a time when petitioner was already here in the Philippines, and at a place where said
notices would surely be called to petitioner's attention, and received by responsible
persons of sufficient age and discretion.

Thus, on October 20, 1992, formal assessment notices were served upon Mrs.
Marcos c/o the petitioner, at his office, House of Representatives, Batasan
Pambansa, Q.C. (Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210,
Comment/Memorandum of OSG). Moreover, a notice to taxpayer dated October 8,
1992 inviting Mrs. Marcos to a conference relative to her tax liabilities, was furnished
the counsel of Mrs. Marcos — Dean Antonio Coronel (Annex "B", p. 211, ibid).
Thereafter, copies of Notices were also served upon Mrs. Imelda Marcos, the
petitioner and their counsel "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio
Law Office", on April 7, 1993 and June 10, 1993. Despite all of these Notices,
petitioner never lifted a finger to protest the assessments, (upon which the Levy and
sale of properties were based), nor appealed the same to the Court of Tax Appeals.

There being sufficient service of Notices to herein petitioner (and his mother) and it
appearing that petitioner continuously ignored said Notices despite several
opportunities given him to file a protest and to thereafter appeal to the Court of Tax
Appeals, — the tax assessments subject of this case, upon which the levy and sale
of properties were based, could no longer be contested (directly or indirectly) via this
instant petition for certiorari. 20

Petitioner argues that all the questioned Notices of Levy, however, must be nullified for having been
issued without validly serving copies thereof to the petitioner. As a mandatory heir of the decedent,
petitioner avers that he has an interest in the subject estate, and notices of levy upon its properties
should have been served upon him.

We do not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the
delinquent taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner
as heir of the deceased. In the same vein, in the matter of income tax delinquency of the late
president and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of notices
of levy in satisfaction of these tax delinquencies upon the petitioner is not required by law, as under
Section 213 of the NIRC, which pertinently states:

101 | P a g e
 xxx xxx xxx

. . . Levy shall be effected by writing upon said certificate a description of the property
upon which levy is made. At the same time, written notice of the levy shall be mailed
to or served upon the Register of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be absent from the Philippines, to
his agent or the manager of the business in respect to which the liability arose, or if
there be none, to the occupant of the property in question.

xxx xxx xxx

The foregoing notwithstanding, the record shows that notices of warrants of distraint and levy of sale
were furnished the counsel of petitioner on April 7, 1993, and June 10, 1993, and the petitioner
himself on April 12, 1993 at his office at the Batasang Pambansa. 21 We cannot therefore,
countenance petitioner's insistence that he was denied due process. Where there was an
opportunity to raise objections to government action, and such opportunity was disregarded, for no
justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions
of government. He who comes to court must come with clean hands. Otherwise, he not only taints
his name, but ridicules the very structure of established authority.

IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The Decision of the Court
of Appeals dated November 29, 1994 is hereby AFFIRMED in all respects.

SO ORDERED.

102 | P a g e
G.R. Nos. L-49839-46 April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities as appointed
and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H.
NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed
and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS
CATIIL in his capacity as City Assessor of Manila,respondents.

Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:

This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board
of Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v.
Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29,
1976 decision of the Board of Tax Assessment Appeals 2 in BTAA Cases Nos. 614, 614-A-J, 615,
615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros
Reyes v. City Assessor of Manila" upholding the classification and assessments made by the City
Assessor of Manila.

The facts of the case are as follows:

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

103 | P a g e
 WHEREFORE, and considering that the appellants have failed to submit concrete evidence
which could overcome the presumptive regularity of the classification and assessments
appear to be in accordance with the base schedule of market values and of the base
schedule of building unit values, as approved by the Secretary of Finance, the cases should
be, as they are hereby, upheld.

SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).

The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among
1âwphi1

others, the summary of the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity where the subject properties
of petitioners are located. To better appreciate the locational and physical features of the land, the
Board of Hearing Commissioners conducted an ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of the case. Neither the owners nor their
authorized representatives were present during the said ocular inspection despite proper notices
served them. It was found that certain parcels of land were below street level and were affected by
the tides (Rollo, pp. 24-25).

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

WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots
covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is
affirmed.

For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-
266, the appealed Decision is modified by allowing a 20% reduction in their respective
market values and applying therein the assessment level of 30% to arrive at the
corresponding assessed value.

SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)

Petitioner's subsequent motion for reconsideration was denied, hence, this petition.

The Reyeses assigned the following error:

THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES

APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.

The petition is impressed with merit.

The crux of the controversy is in the method used in tax assessment of the properties in question.
Petitioners maintain that the "Income Approach" method would have been more realistic for in
disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real estate taxes would
admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under
P.D. 20. Hence, petitioners protested against the levels of the values assigned to their properties as

104 | P a g e
revised and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).

On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that
the income approach is used in determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is rejected in the consideration and study
of land values as in the case of properties affected by the Rent Control Law for they do not project
the true market value in the open market (Rollo, p. 21). Thus, respondents opted instead for the
"Comparable Sales Approach" on the ground that the value estimate of the properties predicated
upon prices paid in actual, market transactions would be a uniform and a more credible standards to
use especially in case of mass appraisal of properties (Ibid.). Otherwise stated, public respondents
would have this Court completely ignore the effects of the restrictions of P.D. No. 20 on the market
value of properties within its coverage. In any event, it is unquestionable that both the "Comparable
Sales Approach" and the "Income Approach" are generally acceptable methods of appraisal for
taxation purposes (The Law on Transfer and Business Taxation by Hector S. De Leon, 1988
Edition). However, it is conceded that the propriety of one as against the other would of course
depend on several factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v.
Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the assessors, in
finding the value of the property, have to consider all the circumstances and elements of value and
must exercise a prudent discretion in reaching conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only
be uniform, but must also be equitable and progressive.

Uniformity has been defined as that principle by which all taxable articles or kinds of property of the
same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.

Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses of
the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it
were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power to
tax involves the power to destroy." The web or unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power to
destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984];
Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).

In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to
confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).

The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a spirit of hostility, or at the very least
discrimination that finds no support in reason. It suffices then that the laws operate equally and

105 | P a g e
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different both in the privileges conferred and the liabilities imposed
(Ibid., p. 662).

Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes
is that the property must be "appraised at its current and fair market value."

By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much lesser
market value in view of the rental restrictions.

Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing seller
and a willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice that for properties covered by P.D. 20 especially
during the time in question, there were hardly any willing buyers. As a general rule, there were no
takers so that there can be no reasonable basis for the conclusion that these properties were
comparable with other residential properties not burdened by P.D. 20. Neither can the given
circumstances be nonchalantly dismissed by public respondents as imposed under distressed
conditions clearly implying that the same were merely temporary in character. At this point in time,
the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.

Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxations, which
is the promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue
Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle
of social justice should not now be penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.

By the public respondents' own computation the assessment by income approach would amount to
only P10.00 per sq. meter at the time in question.

PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment
Appeals of Manila and the City Assessor of Manila are ordered to make a new assessment by the
income approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).

SO ORDERED.

106 | P a g e
 G.R. No. 194065, June 20, 2016

PHILIPPINE BANK OF COMMUNICATIONS, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.

DECISION

SERENO, C.J.:

This is a Petition for Review1 filed by the Philippine Bank of Communications (petitioner) under Rule 45 of
the 1997 Rules of Civil Procedure assailing the Court of Tax Appeals en banc (CTA en banc) Decision2dated
13 May 2010 and Resolution3 dated 14 October 2010 in C.T.A. EB Nos. 555 and 556.

THE FACTS

Pursuant to Revenue Regulations (RR) No. 7-92, the Bureau of Internal Revenue (BIR) issued Certificate No.
08-0434 on 31 July 2001 authorizing petitioner to operate and use the On-line Electronic Documentary
Stamp Metering Machine (DS metering machine) with Serial No. SN363 1711.

Petitioner purchased documentary stamps from the BIR and loaded them to its DS metering machine.
During the period 23 March 2004 to 23 December 2004, petitioner executed several repurchase agreements
with the Bangko Sentral ng Pilipinas (BSP). The documentary stamps were imprinted on the Confirmation
Letters corresponding to those repurchase agreements through petitioner's DS metering machine.

Petitioner claimed that the repurchase agreements were not subject to the documentary stamp tax (DST).
Thus, on 12 May 2006, it filed with the BIR an administrative claim for the issuance of tax credit certificates
for the alleged erroneous payment of the DST in the total amount of P11,063,866.67.

Alleging the inaction of the BIR on the administrative claim of petitioner, the latter filed a Petition for Review
with the CTA on 18 May 2006. Petitioner reiterated its claim for the refund or issuance of its tax credit
certificate for the amount of P11,063,866.67 representing the erroneously paid DST for several repurchase
agreements it had executed with the BSP.

THE CTA SECOND DIVISION RULING4

The CTA Division found that the evidence adduced by petitioner showed that the latter had duly executed
various repurchase agreements with the BSP from 23 March 2004 to 23 December 2004. It further held that
the repurchase agreements were exempt from the imposition of the DST pursuant to Section 9 of Republic
Act (R.A.) No. 9243,5 which provides: ChanRoblesVirtua lawlib rary

SECTION 9. Section 199 of the National Internal Revenue Code of 1997, as amended is hereby further
amended to read as follows:

SEC. 199. Documents and Papers Not Subject to Stamp Tax. - The provisions of Section 173 to the
chanRoblesvirtualLaw libra ry

contrary notwithstanding, the following instruments, documents and papers shall be exempt from the
documentary stamp tax:

chanRoblesvirtualLaw libra ry xxxx

(h) Derivatives: Provided, That for purposes of this exemption, repurchase agreements and reverse
repurchase agreements shall be treated similarly as derivatives.

xxxx

(l) All contracts, deeds, documents and transactions related to the conduct of business of the Banko Sentral
ng Pilipinas.
Although the DST on the repurchase agreements were paid, the CTA Division found that petitioner had
substantiated only P10,633,881.20. Out of that amount, P3,072,521.60 was barred by prescription, and only
the claim for the remaining P7,561,359.60 fell within the two-year prescriptive period. The CTA Division
reckoned the counting of the two-year period from the date of the Confirmation Letters of the repurchase
agreements. Considering that petitioner filed its administrative claim on 12 May 2006 and the judicial claim

107 | P a g e
on 18 May 2006, the DST paid on the repurchase agreements earlier than 18 May 2004 was disallowed due
to prescription.

THE CTA en banc RULING6

The CTA en banc ruled that insofar as the taxpayers using the DS metering machine were concerned, the
DST was deemed paid upon the purchase of documentary stamps for loading and reloading on the DS
metering machine, through the filing of the DST Declaration under BIR Form No. 2000. Thus, the two-year
prescriptive period for taxpayers using DS metering machine started to run from the date of filing of the DST
Declaration under BIR Form No. 2000, and not from the date appearing on the documentary stamp
imprinted through the DS metering machine. Consequently, the refundable amount was further reduced to
P5,238,495.40 representing the erroneously paid DST that had not yet been barred by prescription.

ISSUE

The arguments raised by petitioner boil down to the sole issue of whether the date of imprinting the
documentary stamps on the document or the date of purchase of documentary stamps for loading and
reloading on the DS metering machine should be deemed as payment of the DST contemplated under
Section 200 (D) of the NIRC for the purpose of counting the two-year prescriptive period for filing a claim for
a refund or tax credit.

THE COURT'S RULING

Under Section 2297 of the NIRC of 1997, the claim for a refund of erroneously paid DST must be within two
years from the date of payment of the DST. When read in conjuction with Section 2008 of the same Code,
Section 229 shows that payment of the DST may be done by imprinting the stamps on the taxable
document through a DS metering machine, in the manner as may be prescribed by rules and regulations.

In relation thereto, the BIR has issued the following regulations:

ChanRoblesV irtualaw library

REVENUE REGULATIONS NO. 05-979

SUBJECT: Revised Regulations Prescribing the New Procedure on the Purchase and Affixture of Documentary
Stamp on Taxable Documents/Transactions

xxxx

SECTION 4. New Procedure on Purchase of a Documentary Stamp for Use in BIR Registered Metering
Machine. — Purchase of Documentary Stamps for future applications not covered by Sections 2 and 3 of
these Regulations shall be allowed only to persons authorized to use BIR Registered Metering Machine under
Revenue Regulations No. 7-92, dated September 7, 1992.

SECTION 5. Documentary Stamp Tax Declaration. — The following persons are required to accomplish and
file a documentary stamp tax declaration under BIR Form 2000;

xxxx

5.3 Any person duly authorized to use DST Metering Machine shall
file a DST Declaration under BIR Form No. 2000 each time
documentary stamps are purchased for loading or reloading
on the said machine. This declaration shall be filed with any duly
Authorized Agent Bank, Revenue Recollection Officer, or duly
authorized City or Municipal Treasurer in the Philippines. The amount
of documentary stamps to be reloaded on the Metering Machine
should be equal to the amount of documentary stamps consumed
from previous purchase. The details of usage or consumption of
documentary stamps should be indicated on the declaration.

108 | P a g e
On the basis of these provisions, the CTA en banc ruled in this case that payment of the DST was done when
the documentary stamps were loaded/reloaded on the DS metering machine and the corresponding DST
Declaration was filed. Thus, the two-year prescriptive period for the claim for a refund of petitioner's
erroneously paid DST was reckoned from the date the DS metering machine was reloaded.

The CTA en banc, in ruling on the particular issue of prescription, said that RR No. 05-97 should govern the
payment of the DST considering that petitioner is a DS metering machine user. The DST is deemed paid
upon the purchase of documentary stamps for loading/reloading on the DS metering machine through the
filing of the DST Declaration (BIR Form No. 2000) as required by the said regulation.

We do not agree.

The DS metering machine was developed and used for businesses with material DST transactions like banks
and insurance companies for their regular transactions. These businesses authorized by the BIR may load
documentary stamps on their DS metering machine in accordance with the rules and regulations. In other
words, this system allows advanced payment of the DST for future applications.

However, for purposes of determining the prescriptive period for a claim for a refund or tax credit, this Court
finds it imperative to emphasize the nature of the DST.

A DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, right or property incident thereto. The DST is actually an
excise tax, because it is imposed on the transaction rather than on the document. 10 chanrobleslaw

The rule is that the date of payment is when the tax liability falls due. Jurisprudence has made exceptions
for reckoning the period of prescription from the actual date of payment of tax by instead reckoning that
date from the filing of the final adjusted returns, i.e. income tax and other withholding taxes.11 These
exceptions are nevertheless grounded on the same rationale that payment of the tax is deemed made when
it falls due.

In Gibbs v. Commissioner of Internal Revenue,12 this Court ruled that "[p]ayment is a mode of extinguishing
obligations (Art. 1231, Civil Code) and it means not only the delivery of money but also the performance, in
any other manner, of an obligation. A taxpayer, resident or non-resident, does so not really to deposit an
amount to the Commissioner of Internal Revenue, but, in truth, to perform and extinguish his tax obligation
for the year concerned. In other words, he is paying his tax liabilities for that year. Consequently, a
taxpayer whose income is withheld at source will be deemed to have paid his tax liability when the same
falls due at the end of the tax year. It is from this latter date then, or when the tax liability falls due, that
the two-year prescriptive period under Section 306 (now part of Section 230) of the Revenue Code starts to
run with respect to payments effected through the withholding tax system." The aforequoted ruling presents
two alternative reckoning dates: (1) the end of the tax year; and (2) the date when the tax liability falls
due.13chanrobleslaw

Applying the same rationale to this case, the payment of the DST and the filing of the DST Declaration
Return upon loading/reloading of the DS metering machine must not be considered as the "date of
payment" when the prescriptive period to file a claim for a refund/credit must commence. For DS metering
machine users, the payment of the DST upon loading/reloading is merely an advance payment for future
application. The liability for the payment of the DST falls due only upon the occurrence of a taxable
transaction. Therefore, it is only then that payment may be considered for the purpose of filing a claim for a
refund or tax credit. Since actual payment was already made upon loading/reloading of the DS metering
machine and the filing of the DST Declaration Return, the date of imprinting the documentary stamp on the
taxable document must be considered as the date of payment contemplated under Section 229 of the NIRC.

This interpretation is more logical and consistent with Section 200 (D) that "the tax may be paid xxx by
imprinting the stamps through a documentary stamp metering machine, on the taxable document, in the
manner as may be prescribed by rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner." The policies issued by the Secretary of Finance were made to
regulate the use of the DS metering machine, but they cannot be interpreted to limit the prescriptive period
for claims for a refund. In fact, the details attached to the DST Declaration Return are those of usage or
consumption of the DST from the previous purchase. It is in effect a final return of the DST previously
purchased, but advances the payment for the new purchase. Thus, to cure the ambiguity caused by the
uniqueness of this system, we must bear in mind the nature of the tax for the purpose of determining
prescription.

109 | P a g e
Applying the foregoing to this case, the DST fell due when petitioner entered into repurchase agreements
with the BSP and the corresponding documentary stamps were imprinted on the Confirmation Letters.
Considering, however, that this transaction is exempt from tax, petitioner is entitled to a refund. The
prescriptive period for the filing of a claim for a refund or tax credit under Section 229 must be reckoned
from the date when the documentary stamps were imprinted on the Confirmation Letters.

Consequently, the CTA Division's counting of the prescriptive period from the date when the documentary
stamps were imprinted on the Confirmation Letters of the repurchase agreements is more in accord with the
rationale of Section 229. Since we also find that the evidence presented by petitioner was carefully
considered, we find no reason to overturn the factual finding of the CTA Division. Accordingly, the Decision
in C.T.A. Case No.7486 dated 13 July 200914 must be reinstated.

WHEREFORE, premises considered, the Petition is PARTLY GRANTED. The CTA en banc Decision dated 13
May 2010 and Resolution dated 14 October 2010 in C.T.A. EB Nos. 555 and 556 are hereby SET ASIDE,
and the Decision in C.T.A. Case No.7486 dated 13 July 2009 is REINSTATED.

SO ORDERED. chanRoblesvirtualLawl ibrary

110 | P a g e
G.R. No. L-22074 April 30, 1965

THE PHILIPPINE GUARANTY CO., INC., petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.

Josue H. Gustilo and Ramirez and Ortigas for petitioner.

Office of the Solicitor General and Attorney V.G. Saldajena for respondents.

BENGZON, J.P., J.:

The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance
contracts, on various dates, with foreign insurance companies not doing business in the Philippines
namely: Imperio Compañia de Seguros, La Union y El Fenix Español, Overseas Assurance Corp.,
Ltd., Socieded Anonima de Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union
Assurance Society Ltd., Swiss Reinsurance Company and Tariff Reinsurance Limited. Philippine
Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a portion of the premiums on
insurance it has originally underwritten in the Philippines, in consideration for the assumption by the
latter of liability on an equivalent portion of the risks insured. Said reinsurrance contracts were
signed by Philippine Guaranty Co., Inc. in Manila and by the foreign reinsurers outside the
Philippines, except the contract with Swiss Reinsurance Company, which was signed by both parties
in Switzerland.

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

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

1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71
1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it file its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them.
Consequently, per letter dated April 13, 1959, the Commissioner of Internal Revenue assessed
against Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums, thus:

1953

Gross premium per investigation . . . . . . . . . . P768,580.00

111 | P a g e
 Withholding tax due thereon at 24% . . . . . . . . P184,459.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00
Compromise for non-filing of withholding
100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .

TOTAL AMOUNT DUE & COLLECTIBLE . . . . P230,673.00

==========
1954
Gross premium per investigation . . . . . . . . . . P780.880.68
Withholding tax due thereon at 24% . . . . . . . . P184,411.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00

Compromise for non-filing of withholding

100.00
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .

TOTAL AMOUNT DUE & COLLECTIBLE . . . . P234,364.00

==========

Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums
ceded to foreign reinsurers not doing business in the Philippines are not subject to withholding tax.
Its protest was denied and it appealed to the Court of Tax Appeals.

On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:

IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc.

is hereby ordered to pay to the Commissioner of Internal Revenue the respective sums of
P202,192.00 and P173,153.00 or the total sum of P375,345.00 as withholding income taxes
for the years 1953 and 1954, plus the statutory delinquency penalties thereon. With costs
against petitioner.

Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal
Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to
the foreign reinsurers.

Petitioner maintain that the reinsurance premiums in question did not constitute income from
sources within the Philippines because the foreign reinsurers did not engage in business in the
Philippines, nor did they have office here.

The reinsurance contracts, however, show that the transactions or activities that constituted the
undertaking to reinsure Philippine Guaranty Co., Inc. against loses arising from the original
insurances in the Philippines were performed in the Philippines. The liability of the foreign reinsurers
commenced simultaneously with the liability of Philippine Guaranty Co., Inc. under the original
insurances. Philippine Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign
reinsurers. Entries made in such register bound the foreign resinsurers, localizing in the Philippines
the actual cession of the risks and premiums and assumption of the reinsurance undertaking by the
foreign reinsurers. Taxes on premiums imposed by Section 259 of the Tax Code for the privilege of

112 | P a g e
doing insurance business in the Philippines were payable by the foreign reinsurers when the same
were not recoverable from the original assured. The foreign reinsurers paid Philippine Guaranty Co.,
Inc. an amount equivalent to 5% of the ceded premiums, in consideration for administration and
management by the latter of the affairs of the former in the Philippines in regard to their reinsurance
activities here. Disputes and differences between the parties were subject to arbitration in the City of
Manila. All the reinsurance contracts, except that with Swiss Reinsurance Company, were signed by
Philippine Guaranty Co., Inc. in the Philippines and later signed by the foreign reinsurers abroad.
Although the contract between Philippine Guaranty Co., Inc. and Swiss Reinsurance Company was
signed by both parties in Switzerland, the same specifically provided that its provision shall be
construed according to the laws of the Philippines, thereby manifesting a clear intention of the
parties to subject themselves to Philippine law.

Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within
the Philippines. The word "sources" has been interpreted as the activity, property or service giving
rise to the income. 1 The reinsurance premiums were income created from the undertaking of the
foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc., against liability for loss
under original insurances. Such undertaking, as explained above, took place in the Philippines.
These insurance premiums, therefore, came from sources within the Philippines and, hence, are
subject to corporate income tax.

The foreign insurers' place of business should not be confused with their place of
activity. Business should not be continuity and progression of transactions 2 while activity may
consist of only a single transaction. An activity may occur outside the place of business. Section 24
of the Tax Code does not require a foreign corporation to engage in business in the Philippines in
subjecting its income to tax. It suffices that the activity creating the income is performed or done in
the Philippines. What is controlling, therefore, is not the place of business but the place
of activity that created an income.

Petitioner further contends that the reinsurance premiums are not income from sources within the
Philippines because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is
not an all-inclusive enumeration, for it merely directs that the kinds of income mentioned therein
should be treated as income from sources within the Philippines but it does not require that other
kinds of income should not be considered likewise. 1äwphï1.ñët

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a

necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to
resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve,
public improvement designed for the enjoyment of the citizenry and those which come within the
State's territory, and facilities and protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were afforded protection by the government
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such
reinsurance premiums and reinsurers should share the burden of maintaining the state.

Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of
Internal Revenue requiring no withholding of the tax due on the reinsurance premiums in question
relieved it of the duty to pay the corresponding withholding tax thereon. This defense of petitioner
may free if from the payment of surcharges or penalties imposed for failure to pay the corresponding
withholding tax, but it certainly would not exculpate if from liability to pay such withholding tax The
Government is not estopped from collecting taxes by the mistakes or errors of its agents. 3

In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax

113 | P a g e
Code, suffice it to state that this question has already been answered in the affirmative in Alexander
Howden & Co., Ltd. vs. Collector of Internal Revenue, L-19393, April 14, 1965.

Finally, petitioner contends that the withholding tax should be computed from the amount actually
remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not remit
any amount to its foreign insurers in 1953 and 1954, no withholding tax was due.

The pertinent section of the Tax Code States:

Sec. 54. Payment of corporation income tax at source. — In the case of foreign corporations
subject to taxation under this Title not engaged in trade or business within the Philippines
and not having any office or place of business therein, there shall be deducted and withheld
at the source in the same manner and upon the same items as is provided in Section fifty-
three a tax equal to twenty-four per centum thereof, and such tax shall be returned and paid
in the same manner and subject to the same conditions as provided in that section.

The applicable portion of Section 53 provides:

(b) Nonresident aliens. — All persons, corporations and general copartnerships

(compañias colectivas), in what ever capacity acting, including lessees or mortgagors of real
or personal property, trustees acting in any trust capacity, executors, administrators,
receivers, conservators, fiduciaries, employers, and all officers and employees of the
Government of the Philippines having the control, receipt, custody, disposal, or payment of
interest, dividends, rents, salaries, wages, premiums, annuities, compensation,
remunerations, emoluments, or other fixed or determinable annual or periodical gains,
profits, and income of any nonresident alien individual, not engaged in trade or business
within the Philippines and not having any office or place of business therein, shall (except in
the case provided for in subsection [a] of this section) deduct and withhold from such annual
or periodical gains, profits, and income a tax equal to twelve per
centum thereof: Provided That no deductions or withholding shall be required in the case of
dividends paid by a foreign corporation unless (1) such corporation is engaged in trade or
business within the Philippines or has an office or place of business therein, and (2) more
than eighty-five per centum of the gross income of such corporation for the three-year period
ending with the close of its taxable year preceding the declaration of such dividends (or for
such part of such period as the corporation has been in existence)was derived from sources
within the Philippines as determined under the provisions of section thirty-
seven: Provided, further, That the Collector of Internal Revenue may authorize such tax to be
deducted and withheld from the interest upon any securities the owners of which are not
known to the withholding agent.

The above-quoted provisions allow no deduction from the income therein enumerated in determining
the amount to be withheld. According, in computing the withholding tax due on the reinsurance
premium in question, no deduction shall be recognized.

WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby
ordered to pay to the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00,
or a total amount of P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the
amount of P375,345.00 is not paid within 30 days from the date this judgement becomes final, there
shall be collected a surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month
from the date of delinquency to the date of payment, provided that the maximum amount that may
be collected as interest shall not exceed the amount corresponding to a period of three (3) years.
With costs againsts petitioner.

114 | P a g e
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala,
JJ., concur.
Makalintal and Zaldivar, JJ., took no part.

Footnotes

115 | P a g e
G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX
APPEALS, respondents.

ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8,
1996 in CA-G.R. SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872
dated March 16, 1995 2 ordering it to pay the amount of P110,677,668.52 as excise tax liability for
the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from
August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.

The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax
liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the
total amount of P123,821.982.52 computed as follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE

TAX DUE

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91

3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

————— ————— —————— ——————

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

————— ————— —————— ——————

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

————— ————— —————— ——————

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

————— ————— —————— ——————

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 3

116 | P a g e
 ========= ========= ========= =========

In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989
to 1991 in the amount of P119,977,037.02 plus interest. Therefore these claims for tax credit/refund
should be applied against the tax liabilities, citing our ruling in Commissioner of Internal Revenue v.
Itogon-Suyoc Mines, Inc. 5

In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since
these pending claims have not yet been established or determined with certainty, it follows that no
legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the
amount plus interest within 30 days from the receipt of the letter.

In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its
excise tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In
the course of the proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of
P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively
lowered the latter's tax obligation to P110,677,688.52.

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest, elucidating its reason, to wit:

Thus, for legal compensation to take place, both obligations must be liquidated and
demandable. "Liquidated" debts are those where the exact amount has already been
determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition,
p. 259). In the instant case, the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A
fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be
set-off against the unliquidated claim which Petitioner conceived to exist in its favor
(see Compañia General de Tabacos vs. French and Unson, No. 14027, November 8,
1918, 39 Phil. 34). 8

Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation
since claim for taxes is not a debt or contract." 9 The dispositive portion of the CTA
decision 10 provides:

In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and
Petitioner is hereby ORDERED to PAY the Respondent the amount of
P110,677,668.52 representing excise tax liability for the period from the 2nd quarter
of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994
until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended.

Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-
GR. CV No. 36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of
Tax Appeals observation. The pertinent portion of which reads: 12

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and
the decision dated March 16, 1995 is AFFIRMED.

Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July
11, 1996. 13

117 | P a g e
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its
VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994,
computed as follows: 14

Period Covered Tax Credit Date

By Claims For Certificate of

VAT refund/credit Number Issue Amount

1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46

1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso
jure, off-set its excise tax liabilities 15 since both had already become "due and demandable, as well
as fully liquidated;" 16 hence, legal compensation can properly take place.

We see no merit in this contention.

In several instances prior to the instant case, we have already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the government and the taxpayer are
not creditors and debtors of each other. 17 There is a material distinction between a tax and debt.
Debts are due to the Government in its corporate capacity, while taxes are due to the Government in
its sovereign capacity. 18 We find no cogent reason to deviate from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held
that taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of taxes against the
claims that the taxpayer may have against the government. A person cannot refuse
to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.

The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v.
Commission on Audit, 20which reiterated that:

. . . a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government
and taxpayer are not mutually creditors and debtors of each other and a claim for
taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines
Inc., wherein we ruled that a pending refund may be set off against an existing tax liability even

118 | P a g e
though the refund has not yet been approved by the Commissioner, 21 is no longer without any
support in statutory law.

It is important to note, that the premise of our ruling in the aforementioned case was anchored on
Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue
Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was
based was omitted. 22 Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by
Philex.

Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of
surcharge and interest for the non-payment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay the excise tax liabilities within the
prescribed period since, after all, it still has pending claims for VAT input credit/refund with BIR. 23

We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax
law that taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. 24 Evidently, to countenance Philex's whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in jurisprudence.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has
a pending tax claim for refund or credit against the government which has not yet been granted. It
must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of
bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 If any taxpayer can
defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit,
this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his
taxes when they fall due simply because he has a claim against the government or that the
collection of the tax is contingent on the result of the lawsuit it filed against the
government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund
against its tax liabilities can easily give rise to confusion and abuse, depriving the government of
authority over the manner by which taxpayers credit and offset their tax liabilities.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is
immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the
Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any
authority to waive the collection thereof. 28 The same cannot be condoned for flimsy
reasons, 29 similar to the one advanced by Philex in justifying its non-payment of its tax liabilities.

Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code
of 1977, which requires the refund of input taxes within 60 days, 31 when it took five years for the
latter to grant its tax claim for VAT input credit/refund. 32

In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof
to establish the factual basis of his or her claim for tax credit or refund, 33 however, once the claimant
has submitted all the required documents it is the function of the BIR to assess these documents
with purposeful dispatch. After all, since taxpayers owe honestly to government it is but just that
government render fair service to the taxpayers. 34

In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these
erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and
judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that
simple justice requires the speedy refund of wrongly-held taxes. 35 Fair dealing and nothing less, is

119 | P a g e
expected by the taxpayer from the BIR in the latter's discharge of its function. As aptly held in Roxas
v. Court of Tax Appeals: 36

The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
the "hen that lays the golden egg" And, in order to maintain the general public's trust
and confidence in the Government this power must be used justly and not
treacherously.

Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a
settled rule that in the performance of governmental function, the State is not bound by the neglect
of its agents and officers. Nowhere is this more true than in the field of taxation. 37 Again, while we
understand Philex's predicament, it must be stressed that the same is not a valid reason for the non-
payment of its tax liabilities.

To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or
employees, especially BIR examiners who, in investigating tax claims are seen to drag their feet
needlessly. First, if the BIR takes time in acting upon the taxpayer's claim for refund, the latter can
seek judicial remedy before the Court of Tax Appeals in the manner prescribed by law. 38 Second, if
the inaction can be characterized as willful neglect of duty, then recourse under the Civil Code and
the Tax Code can also be availed of.

Art. 27 of the Civil Code provides:

Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may file
an action for damages and other relief against the latter, without prejudice to any
disciplinary action that may be taken.

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:

xxx xxx xxx

(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the
performance of duty or wilfully neglecting to perform, any other duties enjoyed by
law.

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the
performance of official duties. 39 In no uncertain terms must we stress that every public employee or
servant must strive to render service to the people with utmost diligence and efficiency. Insolence
and delay have no place in government service. The BIR, being the government collecting arm, must
and should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer
if it wishes to remain true to its mission of hastening the country's development. We take judicial
notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to
prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the
same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law
into his own hands" should have guided Philex's action.

120 | P a g e
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed
decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.

SO ORDERED.

121 | P a g e
 G.R. No. L-12353 September 30, 1960

NORTH CAMARINES LUMBER CO., INC., Petitioner,

vs. COLLECTOR OF INTERNAL REVENUE,Respondent.

Miguel San Jose and A.B. Christi for petitioner.

Assistant Solicitor General Jose P. Alejandro and Atty. S. D. Paredes
for respondent.

PARAS, C.J.: chanrobles virtual law li brary

This is an appeal from the resolution of the Court of Tax

Appeals dismissing the petition for review filed by the petitioner for
lack of jurisdiction to try it on the merits, the same having been
filed beyond the 30-day period fixed in Section 11 of Republic Act
No. 1125. chanroblesvirtualawlibrarychanro bles virtual law library

The petitioner, North Camarines Lumber Co., Inc., is a

domestic corporation engaged in the lumber business. On June 19,
1951 and July 31, 1951, it sold a total of 2,164,863 board feet of
logs to the General Lumber Co., Inc., with the agreement that the
latter would assume responsibility for the payment of the sales tax
thereon in the amount of P7,768.51. After being consulted on the
matter, the respondent Collector of Internal Revenue, in his letters
dated June 18, 1951 and August 6, 1951, advised the petitioner
that he was interposing no objection to the arrangement, provided
the General Lumber Co., Inc., would file the corresponding bonds to
cover the sales tax liabilities. chanroblesvirtualawlib rarychanrobles virtua l law lib rary

The General Lumber Co., Inc., complied with the condition.

In view, however, of its failure and that of the surety to pay the tax
liabilities, the respondent Collector, in his letter dated August 30,
1955, required the petitioner to pay the total amount of P9,598.72
as sales tax and incidental penalties in the sale of logs to the
General Lumber Co., Inc. Although the date of receipt by petitioner
of this letter does not appeal in the records, it may be presumed to
be September 9, 1955, when the petitioner addressed a letter to the
respondent Collector, which was received on September 12, 1955,
wherein the petitioner acknowledged receipt of the letter of demand
and at the same time requested for the reconsideration of the

122 | P a g e
assessment. This was denied by the respondent Collector in his
letter of December 8, 1955, received by the petitioner on January 5,
1956. The respondent Collector having denied the second request
for reconsideration in his letter dated January 30, 1956, which the
petitioner received on February 16, 1956, the latter, on March 13,
1956, filed a petition for review with the Court of Tax Appeals. The
Court, after a preliminary hearing on respondent Collector's motion
to dismiss, ruled that, as the petition was filed beyond the 30-day
period prescribed by Section 11 of Republic Act No. 1125, it has no
jurisdiction to try the same. Accordingly, the case was dismissed.
law library
chanroblesvirtualawl ibrarychanrob les virtual

In contending that the Court of Tax Appeals erred, the

petitioner points out that Section 7, and not Section 11, of Republic
Act No. 1125 confers and determines the jurisdiction of the
respondent court, and that Section 11 refers merely to the
prescriptive period for filing appeals. chanroblesvirtualawlibrarychan robles virtual la w library

While the petitioner is correct as to the attribute of Section 7,

it should be remembered that, for the respondent court to have
jurisdiction over any case, the party seeking redress must first
invoke its exercise in the manner and within the time prescribed by
the law. Thus Section 7, which enumerates the specific cases falling
within the jurisdiction of the Court of Tax Appeals must be read
together with Section 11, which fixes the time for invoking said
jurisdiction. chanroblesvirtua lawl ibrarychanrobles virtua l law l ibrary

There is no question that petitioner's case is covered by

Section 7 and, therefore, comes within the jurisdiction of the
respondent court. But we said jurisdiction invoked by the petitioner
within the period prescribed by Section 11? chanrobles virtual law library

The respondent court ruled that the time consumed by the

petitioner in perfecting its appeal after deducting the time during
which the period for appeal was suspended by a pending request for
reconsideration is as follows:

From September 9, 1955, presumed

date of receipt of decision, to September 12,
1955, the filing of request for reconsideration 3
................................................................ days

123 | P a g e
 From January 5, 1956, presumed date
of receipt of denial of reconsideration, to
January 9, 1956, the filing of the second
request for reconsideration 4
................................................................ days
From February 16, 1956, receipt of
denial of second request for reconsideration,
to March 13, 1956, the filing of petition for
review 26
................................................................ days

Total
33
................................................................
days

As the petitioner had consumed thirty-three days, its appeal

was clearly filed out of time. It is argued, however, that in
computing the 30-day period fixed in Section 11 of Republic Act No.
1125, the letter of the respondent Collector dated January 30,
1956, denying the second request for reconsideration, should be
considered as the final decision contemplated in Section 7, and not
the letter of demand dated August 30, 1955. chanroblesvirtualawlib rarychanrobles virtua l law lib rary

This contention is untenable. We cannot countenance that

theory that would make the commencement of the statutory 30-day
period solely dependent on the will of the taxpayer and place the
latter in a position to put off indefinitely and at his convenience the
finality of a tax assessment. Such an absurd procedure would be
detrimental to the interest of the Government, for "taxes are the
lifeblood of the government, and their prompt and certain
availability an imperious need." (Bull vs. U.S. 295, U.S. 247). chanroblesvirtualawlibrarychan robles virtual la w library

WHEREFORE, the resolution appealed from is affirmed, with

costs. 3m 3 so ordered.

Bengzon, Padilla, Bautista Angelo, Labrador, Concepcion, Reyes,

J.B.L., Barrera, Gutierrez David, Paredes and Dizon, JJ., concur.

124 | P a g e
 G.R. No. 213394, April 06, 2016

SPOUSES EMMANUEL D. PACQUIAO AND JINKEE J.

PACQUIAO, Petitioners, v. THE COURT OF TAX APPEALS - FIRST DIVISION AND
THE COMMISSION OF INTERNAL REVENUE, Respondents.

DECISION

MENDOZA, J.:

Before this Court is a petition for review on certiorari1 under Rule 65 of the Rules of Court filed by petitioner
spouses, now Congressman Emmanuel D. Pacquiao (Pacquiao) and Vice-Governor Jinkee J. Pacquiao (Jinkee),
to set aside and annul the April 22, 2014 Resolution2 and the July 11, 2014 Resolution3 of the Court of Tax
Appeals (CTA), First Division, in CTA Case No. 8683.

Through the assailed issuances, the CTA granted the petitioners' Urgent Motion to Lift Warrants of Distraint &
Levy and Garnishment and for the Issuance of an Order to Suspend the Collection of Tax (with Prayer for the
Issuance of a Temporary Restraining Order4[Urgent Motion], dated October 18, 2013, but required them, as
a condition, to deposit a cash bond in the amount of P3,298,514,894.35-or post a bond of P4,947,772,341.53.

The Antecedents

The genesis of the foregoing controversy began a few years before the petitioners became elected officials in
their own right. Prior to their election as public officers, the petitioners relied heavily on Pacquiao's claim to
fame as a world-class professional boxer. Due to his success, Pacquiao was able to amass income from both
the Philippines and the United States of America (US). His income from the US came primarily from the purses
he received for the boxing matches he took part under Top Rank, Inc. On the other hand, his income from the
Philippines consisted of talent fees received from various Philippine corporations for product endorsements,
advertising commercials and television appearances.

In compliance with his duty to his home country, Pacquiao filed his 2008 income tax return on April 15, 2009
reporting his Philippine-sourced income.5 It was subsequently amended to include his US-sourced income.6

The controversy began on March 25, 2010, when Pacquiao received a Letter of Authority7(March LA) from the
Regional District Office No. 43 (RDO) of the Bureau of Internal Revenue (BIR) for the examination of his books
of accounts and other accounting records for the period covering January 1, 2008 to December 31, 2008.

On April 15, 2010, Pacquiao filed his 2009 income tax return,8 which although reflecting his Philippines-sourced
income, failed to include his income derived from his earnings in the US.9 He also failed to file his Value Added
Tax (VAT) returns for the years 2008 and 2009. 10

Finding the need to directly conduct the investigation and determine the tax liabilities of the petitioners,
respondent Commissioner on Internal Revenue (CIR) issued another Letter of Authority, dated July 27,
2010 (July LA), authorizing the BIR's National Investigation Division (NID) to examine the books of accounts
and other accounting records of both Pacquiao and Jinkee for the last 15 years, from 1995 to 2009.11 On
September 21, 2010 and September 22, 2010, the CIR replaced the July LA by issuing to both Pacquiao12 and
Jinkee13 separate electronic versions of the July LA pursuant to Revenue Memorandum Circular (RMC) No. 56-
2010.14

Due to these developments, the petitioners, through counsel, wrote a letter15 questioning the propriety of the
CIR investigation. According to the petitioners, they were already subjected to an earlier investigation by the
BIR for the years prior to 2007, and no fraud was ever found to have been committed. They added that
pursuant to the March LA issued by the RDO, they were already being investigated for the year 2008.

In its letter,16 dated December 13, 2010, the NID informed the counsel of the petitioners that the July LA
issued by the CIR had effectively cancelled and superseded the March LA issued by its RDO. The same letter
also stated that:

125 | P a g e
Although fraud had been established in the instant case as determined by the Commissioner, your
clients would still be given the opportunity to present documents as part of their procedural rights to due
process with regard to the civil aspect thereof. Moreover, any tax credits and/or payments from the taxable
year 2007 & prior years will be properly considered and credited in the current investigation.17

[Emphasis Supplied]

The CIR informed the petitioners that its reinvestigation of years prior to 2007 was justified because the
assessment thereof was pursuant to a "fraud investigation" against the petitioners under the "Run After Tax
Evaders" (RATE) program of the BIR.

On January 5 and 21, 2011, the petitioners submitted various income tax related documents for the years
2007-2009.18 As for the years 1995 to 2006, the petitioners explained that they could not furnish the
bureau with the books of accounts and other, tax related documents as they had already been disposed in
accordance with Section 235 of the Tax Code.19 They added that even if they wanted to, they could no
longer find copies of the documents because during those years, their accounting records were then
managed by previous counsels, who had since passed away. Finally, the petitioners pointed out that their
tax liabilities for the said years had already been fully settled with then CIR Jose Mario Bu

126 | P a g e
G.R. No. L-7859 December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio
Jayme Ledesma,plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.

Ernesto J. Gonzaga for appellant.

Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres
and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the
taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.

Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to
the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market";
wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from
the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its preferential position in the United States market and
the imposition of the export taxes."

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture
of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on
owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others
for a consideration, on lease or otherwise —

a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.

According to section 6 of the law —

SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid
out only for any or all of the following purposes or to attain any or all of the following
objectives, as may be provided by law.

First, to place the sugar industry in a position to maintain itself, despite the gradual loss of
the preferntial position of the Philippine sugar in the United States market, and ultimately to
insure its continued existence notwithstanding the loss of that market and the consequent
necessity of meeting competition in the free markets of the world;

Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof — the mill, the landowner, the planter of the sugar cane, and the laborers in
the factory and in the field — so that all might continue profitably to engage
therein;lawphi1.net

127 | P a g e
 Third, to limit the production of sugar to areas more economically suited to the production
thereof; and

Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the adjourment
of the next regular session of the National Assembly, make the necessary disbursements
from the fund herein created (1) for the establishment and operation of sugar experiment
station or stations and the undertaking of researchers (a) to increase the recoveries of the
centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and
propagate higher yielding varieties of sugar cane more adaptable to different district
conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the
buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the
possibility of utilizing the other by-products of the industry, (f) to determine what crop or
crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other
problems the solution of which would help rehabilitate and stabilize the industry, and (2) for
the improvement of living and working conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary agency or agencies to take charge of the
expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated,
and, likewise, authorizing the disbursement from the fund herein created of the necessary
amount or amounts needed for salaries, wages, travelling expenses, equipment, and other
sundry expenses of said agency or agencies.

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40
paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950;
alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar
industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be
constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs
appealed the case directly to this Court (Judiciary Act, section 17).

The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily an exercise of the police power.

This Court can take judicial notice of the fact that sugar production is one of the great industries of
our nation, sugar occupying a leading position among its export products; that it gives employment
to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of
the important sources of foreign exchange needed by our government, and is thus pivotal in the
plans of a regime committed to a policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general welfare. Hence it was competent for the
legislature to find that the general welfare demanded that the sugar industry should be stabilized in
turn; and in the wide field of its police power, the lawmaking body could provide that the distribution
of benefits therefrom be readjusted among its components to enable it to resist the added strain of
the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson
vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).

As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida —

The protection of a large industry constituting one of the great sources of the state's wealth
and therefore directly or indirectly affecting the welfare of so great a portion of the population

128 | P a g e
 of the State is affected to such an extent by public interests as to be within the police power
of the sovereign. (128 Sp. 857).

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of
public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may
be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.
S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4
Wheat. 316, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to
tax that a state be free to select the subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class for taxation, or exemption infringe
no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed.
1245, citing numerous authorities, at p. 1251).

From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is
that very enterprise that is being protected. It may be that other industries are also in need of similar
protection; that the legislature is not required by the Constitution to adhere to a policy of "all or
none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the
law presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;" and that "the legislative authority, exerted within its
proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel
Corp. 301 U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of
tax money to experimental stations to seek increase of efficiency in sugar production, utilization of
by-products and solution of allied problems, as well as to the improvements of living and working
conditions in sugar mills or plantations, without any part of such money being channeled directly to
private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs.
Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

The decision appealed from is affirmed, with costs against appellant. So ordered.

129 | P a g e
 G.R. No. L-23645 October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee, vs. ENRICO

PALOMAR, in his capacity as Postmaster General, HON.
BRIGIDO R. VALENCIA, in his capacity as Secretary of Public
Works and Communications, and DOMINGO GOPEZ, in his
capacity as Acting Postmaster of San Fernando,
Pampanga, respondent-appellants.

Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-

appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor
General Frine C. Zaballero and Solicitor Dominador L. Quiroz for
respondents-appellants.

CASTRO, J.:

This appeal puts in issue the constitutionality of Republic Act

1635,1 as amended by Republic Act 2631,2which provides as
follows:

To help raise funds for the Philippine Tuberculosis Society, the

Director of Posts shall order for the period from August nineteen to
September thirty every year the printing and issue of semi-postal
stamps of different denominations with face value showing the
regular postage charge plus the additional amount of five centavos
for the said purpose, and during the said period, no mail matter
shall be accepted in the mails unless it bears such semi-postal
stamps: Provided, That no such additional charge of five centavos
shall be imposed on newspapers. The additional proceeds realized
from the sale of the semi-postal stamps shall constitute a special
fund and be deposited with the National Treasury to be expended by
the Philippine Tuberculosis Society in carrying out its noble work to
prevent and eradicate tuberculosis.

The respondent Postmaster General, in implementation of the law,

thereafter issued four (4) administrative orders numbered 3 (June
20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July
15, 1960). All these administrative orders were issued with the

130 | P a g e
approval of the respondent Secretary of Public Works and
Communications. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

The pertinent portions of Adm. Order 3 read as follows:

Such semi-postal stamps could not be made available during the

period from August 19 to September 30, 1957, for lack of time.
However, two denominations of such stamps, one at "5 + 5"
centavos and another at "10 + 5" centavos, will soon be released
for use by the public on their mails to be posted during the same
period starting with the year 1958.

xxx xxx xxx

chanrobles virtual law libra ry

During the period from August 19 to September 30 each year

starting in 1958, no mail matter of whatever class, and whether
domestic or foreign, posted at any Philippine Post Office and
addressed for delivery in this country or abroad, shall be accepted
for mailing unless it bears at least one such semi-postal stamp
showing the additional value of five centavos intended for the
Philippine Tuberculosis Society. chanroblesvirtualawli brarychanrobles virtua l law li brary

In the case of second-class mails and mails prepaid by means of

mail permits or impressions of postage meters, each piece of such
mail shall bear at least one such semi-postal stamp if posted during
the period above stated starting with the year 1958, in addition to
being charged the usual postage prescribed by existing regulations.
In the case of business reply envelopes and cards mailed during
said period, such stamp should be collected from the addressees at
the time of delivery. Mails entitled to franking privilege like those
from the office of the President, members of Congress, and other
offices to which such privilege has been granted, shall each also
bear one such semi-postal stamp if posted during the said period.
virtual law l ibrary
chanroblesvirtualawlibra rychanrobles

Mails posted during the said period starting in 1958, which are
found in street or post-office mail boxes without the required semi-
postal stamp, shall be returned to the sender, if known, with a
notation calling for the affixing of such stamp. If the sender is
unknown, the mail matter shall be treated as nonmailable and
forwarded to the Dead Letter Office for proper disposition.

131 | P a g e
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads
as follows:

In the case of the following categories of mail matter and mails

entitled to franking privilege which are not exempted from the
payment of the five centavos intended for the Philippine
Tuberculosis Society, such extra charge may be collected in cash,
for which official receipt (General Form No. 13, A) shall be issued,
instead of affixing the semi-postal stamp in the manner hereinafter
indicated:chanrobles virtual law library

1. Second-class mail. - Aside from the postage at the second-class

rate, the extra charge of five centavos for the Philippine
Tuberculosis Society shall be collected on each separately-
addressed piece of second-class mail matter, and the total sum thus
collected shall be entered in the same official receipt to be issued
for the postage at the second-class rate. In making such entry, the
total number of pieces of second-class mail posted shall be stated,
thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra
charge shall be entered separate from the postage in both of the
official receipt and the Record of Collections. chanroblesvirtualawlibra rychanrobles virtual law libra ry

2. First-class and third-class mail permits. - Mails to be posted

without postage affixed under permits issued by this Bureau shall
each be charged the usual postage, in addition to the five-centavo
extra charge intended for said society. The total extra charge thus
received shall be entered in the same official receipt to be issued for
the postage collected, as in subparagraph 1. chanroblesvirtualawlibrarychanr obles virtual la w library

3. Metered mail. - For each piece of mail matter impressed by

postage meter under metered mail permit issued by this Bureau,
the extra charge of five centavos for said society shall be collected
in cash and an official receipt issued for the total sum thus received,
in the manner indicated in subparagraph 1. chanroblesvirtualawlib rarychanrobles virtua l law lib rary

4. Business reply cards and envelopes. - Upon delivery of business

reply cards and envelopes to holders of business reply permits, the
five-centavo charge intended for said society shall be collected in
cash on each reply card or envelope delivered, in addition to the
required postage which may also be paid in cash. An official receipt
132 | P a g e
shall be issued for the total postage and total extra charge received,
in the manner shown in subparagraph 1. chanroblesvirtualawlibra rychanrobles virtual law libra ry

5. Mails entitled to franking privilege. - Government agencies,

officials, and other persons entitled to the franking privilege under
existing laws may pay in cash such extra charge intended for said
society, instead of affixing the semi-postal stamps to their mails,
provided that such mails are presented at the post-office window,
where the five-centavo extra charge for said society shall be
collected on each piece of such mail matter. In such case, an official
receipt shall be issued for the total sum thus collected, in the
manner stated in subparagraph 1. chanroblesvirtualawlibrarychanro bles virtual law library

Mail under permits, metered mails and franked mails not presented
at the post-office window shall be affixed with the necessary semi-
postal stamps. If found in mail boxes without such stamps, they
shall be treated in the same way as herein provided for other mails.

Adm. Order 9, amending Adm. Order 3, as amended, exempts

"Government and its Agencies and Instrumentalities Performing
Governmental Functions." Adm. Order 10, amending Adm. Order 3,
as amended, exempts "copies of periodical publications received for
mailing under any class of mail matter, including newspapers and
magazines admitted as second-class mail." chanrobles virtual law li brary

The FACTS. On September l5, 1963 the petitioner Benjamin P.

Gomez mailed a letter at the post office in San Fernando,
Pampanga. Because this letter, addressed to a certain Agustin
Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the
special anti-TB stamp required by the statute, it was returned to the
petitioner.
chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

In view of this development, the petitioner brough suit for

declaratory relief in the Court of First Instance of Pampanga, to test
the constitutionality of the statute, as well as the implementing
administrative orders issued, contending that it violates the equal
protection clause of the Constitution as well as the rule of uniformity
and equality of taxation. The lower court declared the statute and
the orders unconstitutional; hence this appeal by the respondent
postal authorities. chanrobles virtualawli brarychanrobles virtua l law li brary

133 | P a g e
For the reasons set out in this opinion, the judgment appealed from
must be reversed.

I. chanrobles virtual law library

Before reaching the merits, we deem it necessary to dispose of the

respondents' contention that declaratory relief is unavailing because
this suit was filed after the petitioner had committed a breach of the
statute. While conceding that the mailing by the petitioner of a
letter without the additional anti-TB stamp was a violation of
Republic Act 1635, as amended, the trial court nevertheless refused
to dismiss the action on the ground that under section 6 of Rule 64
of the Rules of Court, "If before the final termination of the case a
breach or violation of ... a statute ... should take place, the action
may thereupon be converted into an ordinary action." chanrobles virtual law lib rary

The prime specification of an action for declaratory relief is that it

must be brought "before breach or violation" of the statute has
been committed. Rule 64, section 1 so provides. Section 6 of the
same rule, which allows the court to treat an action for declaratory
relief as an ordinary action, applies only if the breach or violation
occurs after the filing of the action but before the termination
thereof.3chanrobles virtual law li brary

Hence, if, as the trial court itself admitted, there had been a breach
of the statute before the firing of this action, then indeed the
remedy of declaratory relief cannot be availed of, much less can the
suit be converted into an ordinary action. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

Nor is there merit in the petitioner's argument that the mailing of

the letter in question did not constitute a breach of the statute
because the statute appears to be addressed only to postal
authorities. The statute, it is true, in terms provides that "no mail
matter shall be accepted in the mails unless it bears such semi-
postal stamps." It does not follow, however, that only postal
authorities can be guilty of violating it by accepting mails without
the payment of the anti-TB stamp. It is obvious that they can be
guilty of violating the statute only if there are people who use the
mails without paying for the additional anti-TB stamp. Just as in
bribery the mere offer constitutes a breach of the law, so in the
134 | P a g e
matter of the anti-TB stamp the mere attempt to use the mails
without the stamp constitutes a violation of the statute. It is not
required that the mail be accepted by postal authorities. That
requirement is relevant only for the purpose of fixing the liability of
postal officials.
chanroblesvirtualaw librarychanro bles virtual law library

Nevertheless, we are of the view that the petitioner's choice of

remedy is correct because this suit was filed not only with respect to
the letter which he mailed on September 15, 1963, but also with
regard to any other mail that he might send in the future. Thus, in
his complaint, the petitioner prayed that due course be given to
"other mails without the semi-postal stamps which he may deliver
for mailing ... if any, during the period covered by Republic Act
1635, as amended, as well as other mails hereafter to be sent by or
to other mailers which bear the required postage, without collection
of additional charge of five centavos prescribed by the same
Republic Act." As one whose mail was returned, the petitioner is
certainly interested in a ruling on the validity of the statute
requiring the use of additional stamps.

II. chanrobles virtual law library

We now consider the constitutional objections raised against the

statute and the implementing orders. chanroblesvirtualawlib rarychanrobles virtua l law lib rary

1. It is said that the statute is violative of the equal protection

clause of the Constitution. More specifically the claim is made that it
constitutes mail users into a class for the purpose of the tax while
leaving untaxed the rest of the population and that even among
postal patrons the statute discriminatorily grants exemption to
newspapers while Administrative Order 9 of the respondent
Postmaster General grants a similar exemption to offices performing
governmental functions. . chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

The five centavo charge levied by Republic Act 1635, as amended,

is in the nature of an excise tax, laid upon the exercise of a
privilege, namely, the privilege of using the mails. As such the
objections levelled against it must be viewed in the light of
applicable principles of taxation. chanroblesvirtualawlibra rychanrobles virtual law libra ry

135 | P a g e
To begin with, it is settled that the legislature has the inherent
power to select the subjects of taxation and to grant
exemptions.4 This power has aptly been described as "of wide range
and flexibility."5Indeed, it is said that in the field of taxation, more
than in other areas, the legislature possesses the greatest freedom
in classification.6 The reason for this is that traditionally,
classification has been a device for fitting tax programs to local
needs and usages in order to achieve an equitable distribution of
the tax burden.7 chanrobles virtual law library

That legislative classifications must be reasonable is of course

undenied. But what the petitioner asserts is that statutory
classification of mail users must bear some reasonable relationship
to the end sought to be attained, and that absent such relationship
the selection of mail users is constitutionally impermissible. This is
altogether a different proposition. As explained in Commonwealth v.
Life Assurance Co.:8

While the principle that there must be a reasonable relationship

between classification made by the legislation and its purpose is
undoubtedly true in some contexts, it has no application to a
measure whose sole purpose is to raise revenue ... So long as the
classification imposed is based upon some standard capable of
reasonable comprehension, be that standard based upon ability to
produce revenue or some other legitimate distinction, equal
protection of the law has been afforded. See Allied Stores of Ohio,
Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown
Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56, 573, 80 S.
Ct. 578, 580 (1910).

We are not wont to invalidate legislation on equal protection

grounds except by the clearest demonstration that it sanctions
invidious discrimination, which is all that the Constitution forbids.
The remedy for unwise legislation must be sought in the legislature.
Now, the classification of mail users is not without any reason. It is
based on ability to pay, let alone the enjoyment of a privilege, and
on administrative convinience. In the allocation of the tax burden,
Congress must have concluded that the contribution to the anti-TB

136 | P a g e
fund can be assured by those whose who can afford the use of the
mails.chanroblesvirtualaw librarychanro bles virtual law library

The classification is likewise based on considerations of

administrative convenience. For it is now a settled principle of law
that "consideration of practical administrative convenience and cost
in the administration of tax laws afford adequate ground for
imposing a tax on a well recognized and defined class."9 In the case
of the anti-TB stamps, undoubtedly, the single most important and
influential consideration that led the legislature to select mail users
as subjects of the tax is the relative ease and convenienceof
collecting the tax through the post offices. The small amount of five
centavos does not justify the great expense and inconvenience of
collecting through the regular means of collection. On the other
hand, by placing the duty of collection on postal authorities the tax
was made almost self-enforcing, with as little cost and as little
inconvenience as possible. chanroblesvirtualawlibra rychanrobles virtual law library

And then of course it is not accurate to say that the statute

constituted mail users into a class. Mail users were already a class
by themselves even before the enactment of the statue and all that
the legislature did was merely to select their class. Legislation is
essentially empiric and Republic Act 1635, as amended, no more
than reflects a distinction that exists in fact. As Mr. Justice
Frankfurter said, "to recognize differences that exist in fact is living
law; to disregard [them] and concentrate on some abstract
identities is lifeless logic."10 chanrobles virtual law li brary

Granted the power to select the subject of taxation, the State's

power to grant exemption must likewise be conceded as a
necessary corollary. Tax exemptions are too common in the law;
they have never been thought of as raising issues under the equal
protection clause. chanroblesvirtualawlibra rychanrobles virtual law libra ry

It is thus erroneous for the trial court to hold that because certain
mail users are exempted from the levy the law and administrative
officials have sanctioned an invidious discrimination offensive to the
Constitution. The application of the lower courts theory would
require all mail users to be taxed, a conclusion that is hardly tenable

137 | P a g e
in the light of differences in status of mail users. The Constitution
does not require this kind of equality. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

As the United States Supreme Court has said, the legislature may
withhold the burden of the tax in order to foster what it conceives to
be a beneficent enterprise.11 This is the case of newspapers which,
under the amendment introduced by Republic Act 2631, are exempt
from the payment of the additional stamp. chanroblesvirtualawlibra rychanrobles virtual law libra ry

As for the Government and its instrumentalities, their exemption

rests on the State's sovereign immunity from taxation. The State
cannot be taxed without its consent and such consent, being in
derogation of its sovereignty, is to be strictly
construed.12 Administrative Order 9 of the respondent Postmaster
General, which lists the various offices and instrumentalities of the
Government exempt from the payment of the anti-TB stamp, is but
a restatement of this well-known principle of constitutional law. chanroblesvirtualawlib rarychanrobles virtua l law lib rary

The trial court likewise held the law invalid on the ground that it
singles out tuberculosis to the exclusion of other diseases which, it
is said, are equally a menace to public health. But it is never a
requirement of equal protection that all evils of the same genus be
eradicated or none at all.13 As this Court has had occasion to say, "if
the law presumably hits the evil where it is most felt, it is not to be
overthrown because there are other instances to which it might
have been applied."14 chanrobles virtual law libra ry

2. The petitioner further argues that the tax in question is invalid,

first, because it is not levied for a public purpose as no special
benefits accrue to mail users as taxpayers, and second, because it
violates the rule of uniformity in taxation. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

The eradication of a dreaded disease is a public purpose, but if by

public purpose the petitioner means benefit to a taxpayer as a
return for what he pays, then it is sufficient answer to say that the
only benefit to which the taxpayer is constitutionally entitled is that
derived from his enjoyment of the privileges of living in an
organized society, established and safeguarded by the devotion of
taxes to public purposes. Any other view would preclude the levying
of taxes except as they are used to compensate for the burden on
138 | P a g e
those who pay them and would involve the abandonment of the
most fundamental principle of government - that it exists primarily
to provide for the common good.15 chanrobles virtual law libra ry

Nor is the rule of uniformity and equality of taxation infringed by the

imposition of a flat rate rather than a graduated tax. A tax need not
be measured by the weight of the mail or the extent of the service
rendered. We have said that considerations of administrative
convenience and cost afford an adequate ground for classification.
The same considerations may induce the legislature to impose a flat
tax which in effect is a charge for the transaction, operating equally
on all persons within the class regardless of the amount
involved.16 As Mr. Justice Holmes said in sustaining the validity of a
stamp act which imposed a flat rate of two cents on every $100 face
value of stock transferred:

One of the stocks was worth $30.75 a share of the face value of
$100, the other $172. The inequality of the tax, so far as actual
values are concerned, is manifest. But, here again equality in this
sense has to yield to practical considerations and usage. There must
be a fixed and indisputable mode of ascertaining a stamp tax. In
another sense, moreover, there is equality. When the taxes on two
sales are equal, the same number of shares is sold in each case;
that is to say, the same privilege is used to the same extent.
Valuation is not the only thing to be considered. As was pointed out
by the court of appeals, the familiar stamp tax of 2 cents on checks,
irrespective of income or earning capacity, and many others,
illustrate the necessity and practice of sometimes substituting count
for weight ...17

According to the trial court, the money raised from the sales of the
anti-TB stamps is spent for the benefit of the Philippine Tuberculosis
Society, a private organization, without appropriation by law. But as
the Solicitor General points out, the Society is not really the
beneficiary but only the agency through which the State acts in
carrying out what is essentially a public function. The money is
treated as a special fund and as such need not be appropriated by
law.18chanrobles virtual law li brary

139 | P a g e
3. Finally, the claim is made that the statute is so broadly drawn
that to execute it the respondents had to issue administrative
orders far beyond their powers. Indeed, this is one of the grounds
on which the lower court invalidated Republic Act 1631, as
amended, namely, that it constitutes an undue delegation of
legislative power.
chanroblesvirtualawlib rarychanrobles virtua l law lib rary

Administrative Order 3, as amended by Administrative Orders 7 and

10, provides that for certain classes of mail matters (such as mail
permits, metered mails, business reply cards, etc.), the five-centavo
charge may be paid in cash instead of the purchase of the anti-TB
stamp. It further states that mails deposited during the period
August 19 to September 30 of each year in mail boxes without the
stamp should be returned to the sender, if known, otherwise they
should be treated as nonmailable. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

It is true that the law does not expressly authorize the collection of
five centavos except through the sale of anti-TB stamps, but such
authority may be implied in so far as it may be necessary to prevent
a failure of the undertaking. The authority given to the Postmaster
General to raise funds through the mails must be liberally
construed, consistent with the principle that where the end is
required the appropriate means are given.19 chanrobles virtual law l ibrary

The anti-TB stamp is a distinctive stamp which shows on its face not
only the amount of the additional charge but also that of the regular
postage. In the case of business reply cards, for instance, it is
obvious that to require mailers to affix the anti-TB stamp on their
cards would be to make them pay much more because the cards
likewise bear the amount of the regular postage. chanroblesvirtualawlibra rychanrobles virtual law libra ry

It is likewise true that the statute does not provide for the
disposition of mails which do not bear the anti-TB stamp, but a
declaration therein that "no mail matter shall be accepted in the
mails unless it bears such semi-postal stamp" is a declaration that
such mail matter is nonmailable within the meaning of section 1952
of the Administrative Code. Administrative Order 7 of the
Postmaster General is but a restatement of the law for the guidance
of postal officials and employees. As for Administrative Order 9, we
have already said that in listing the offices and entities of the
140 | P a g e
Government exempt from the payment of the stamp, the
respondent Postmaster General merely observed an established
principle, namely, that the Government is exempt from taxation.
library
chanroblesvirtualawlibrarychanrob les virtual law

ACCORDINGLY, the judgment a quo is reversed, and the complaint

is dismissed, without pronouncement as to costs.
chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

141 | P a g e
G.R. No. L-4817 May 26, 1954

SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.

Calanog and Alafriz for plaintiffs-appellants.

City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.

REYES, J.:

This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical
practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf
and in behalf of other professionals practising in the City of Manila who may desire to join it." Object
of the suit is the annulment of Ordinance No. 3398 of the City of Manila together with the provision of
the Manila charter authorizing it and the refund of taxes collected under the ordinance but paid under
protest.

The ordinance in question, which was approved by the municipal board of the City of Manila on July
25, 1950, imposes a municipal occupation tax on persons exercising various professions in the city
and penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by
imprisonment of not more than six months, or by both such fine and imprisonment in the discretion of
the court." Among the professions taxed were those to which plaintiffs belong. The ordinance was
enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila (as
amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various
professions above referred to.

Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same
under protest and then brought the present suit for the purpose already stated. The lower court
upheld the validity of the provision of law authorizing the enactment of the ordinance but declared
the ordinance itself illegal and void on the ground that the penalty there in provided for non-payment
of the tax was not legally authorized. From this decision both parties appealed to this Court, and the
only question they have presented for our determination is whether this ruling is correct or not, for
though the decision is silent on the refund of taxes paid plaintiffs make no assignment of error on
this point.

To begin with defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The last
paragraph (kk) of the very section that authorizes the enactment of this tax ordinance (section 18 of
the Manila Charter) in express terms also empowers the Municipal Board "to fix penalties for the
violation of ordinances which shall not exceed to(sic) two hundred pesos fine or six months"
imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement
below that the ordinance in question is illegal and void because it imposes a penalty not authorized
by law is clearly without basis.

As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double
taxation.

142 | P a g e
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the
professions to which they respectively belong have been singled out for the imposition of this
municipal occupation tax; and in any event, the Legislature may, in its discretion, select what
occupations shall be taxed, and in the exercise of that discretion it may tax all, or it may select for
taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp.
3393-3395.) Plaintiffs' complaint is that while the law has authorized the City of Manila to impose the
said tax, it has withheld that authority from other chartered cities, not to mention municipalities. We
do not think it is for the courts to judge what particular cities or municipalities should be empowered
to impose occupation taxes in addition to those imposed by the National Government. That matter is
peculiarly within the domain of the political departments and the courts would do well not to
encroach upon it. Moreover, as the seat of the National Government and with a population and
volume of trade many times that of any other Philippine city or municipality, Manila, no doubt, offers
a more lucrative field for the practice of the professions, so that it is but fair that the professionals in
Manila be made to pay a higher occupation tax than their brethren in the provinces.

Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who
have no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs
make a distinction that is not found in the ordinance. The ordinance imposes the tax upon every
person "exercising" or "pursuing" — in the City of Manila naturally — any one of the occupations
named, but does not say that such person must have his office in Manila. What constitutes exercise
or pursuit of a profession in the city is a matter of judicial determination. The argument against
double taxation may not be invoked where one tax is imposed by the state and the other is imposed
by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am.
Jur., 341.)

In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance
No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the
provision of the Manila charter authorizing it. With costs against plaintiffs-appellants.

Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

143 | P a g e
G.R. No. L-67649 June 28, 1988

ENGRACIO FRANCIA, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:

The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the
auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at
public auction to Ho Fernandez and ordered titled in the latter's name.

The antecedent facts are as follows:

Engracio Francia is the registered owner of a residential lot and a two-story house built upon it
situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an
area of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739
(37795) of the Registry of Deeds of Pasay City.

On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the
Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent
to the assessed value of the aforesaid portion.

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5,
1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section
73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax
delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.

Francia was not present during the auction sale since he was in Iligan City at that time helping his
uncle ship bananas.

On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for
Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739
(37795) and the issuance in his name of a new certificate of title. Upon verification through his
lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the
City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated
at the back of TCT No. 4739 (37795) by the Register of Deeds.

On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his
complaint on January 24, 1980.

On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the

amended complaint and ordering:

(a) The Register of Deeds of Pasay City to issue a new Transfer

Certificate of Title in favor of the defendant Ho Fernandez over the
parcel of land including the improvements thereon, subject to

144 | P a g e
 whatever encumbrances appearing at the back of TCT No. 4739
(37795) and ordering the same TCT No. 4739 (37795) cancelled.

(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00

as attorney's fees. (p. 30, Record on Appeal)

The Intermediate Appellate Court affirmed the decision of the lower court in toto.

Hence, this petition for review.

Francia prefaced his arguments with the following assignments of grave errors of law:

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW

IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX
DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS
INDEBTED TO THE FORMER.

II

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS

ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED
THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977
TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.

III

RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS

ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF
P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO
SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY
WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE
THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)

We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that
his property was sold at public auction without notice to him and that the price paid for the property
was shockingly inadequate, amounting to fraud and deprivation without due process of law.

A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his
petition upon himself. While we commiserate with him at the loss of his property, the law and the
facts militate against the grant of his petition. We are constrained to dismiss it.

Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of his land was
expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as
of October 15, 1977.

There is no legal basis for the contention. By legal compensation, obligations of persons, who in
their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil

145 | P a g e
Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to
wit:

(1) that each one of the obligors be bound principally and that he be at the same time
a principal creditor of the other;

xxx xxx xxx

(3) that the two debts be due.

xxx xxx xxx

This principal contention of the petitioner has no merit. We have consistently ruled that there can be
no off-setting of taxes against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government owes him an amount equal to
or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit
against the government.

In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal
Revenue Taxes can not be the subject of set-off or compensation. We stated that:

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off under the statutes of set-off, which are construed uniformly, in the light of
public policy, to exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither are they
a proper subject of recoupment since they do not arise out of the contract or
transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of
public policy is well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The reason on which the general
rule is based, is that taxes are not in the nature of contracts between the party and
party but grow out of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of individual taxpayers is not
required. ..."

We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he
has a claim against the governmental body not included in the tax levy.

This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "...
internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer
are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a
"claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."

There are other factors which compel us to rule against the petitioner. The tax was due to the city
government while the expropriation was effected by the national government. Moreover, the amount
of P4,116.00 paid by the national government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale at public auction of his remaining
property. Notice of the deposit dated September 28, 1977 was received by the petitioner on
September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00
deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw
P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public
auction.

146 | P a g e
Petitioner had one year within which to redeem his property although, as well be shown later, he
claimed that he pocketed the notice of the auction sale without reading it.

Petitioner contends that "the auction sale in question was made without complying with the
mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was
presented that the procedure outlined by law on sales of property for tax delinquency was followed.
... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore
rests upon him to show that plaintiff was duly and properly notified ... .(Petition for Review, Rollo p.
18; emphasis supplied)

We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the
burden of proof to show that there was compliance with all the prescribed requisites for a tax sale.

The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:

xxx xxx xxx

... [D]ue process of law to be followed in tax proceedings must be established by

proof and the general rule is that the purchaser of a tax title is bound to take upon
himself the burden of showing the regularity of all proceedings leading up to the
sale. (emphasis supplied)

There is no presumption of the regularity of any administrative action which results in depriving a
taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular
Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings
are presumed to be regular.

But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been
complied with, the petitioner can not, however, deny that he did receive the notice for the auction
sale. The records sustain the lower court's finding that:

[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not
properly notified of the auction sale. Surprisingly, however, he admitted in his
testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown
by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on
December 5, 1977 the date of the auction sale because he went to Iligan City. As
long as there was substantial compliance with the requirements of the notice, the
validity of the auction sale can not be assailed ... .

We quote the following testimony of the petitioner on cross-examination, to wit:

Q. My question to you is this letter marked as Exhibit I for Ho

Fernandez notified you that the property in question shall be sold at
public auction to the highest bidder on December 5, 1977 pursuant to
Sec. 74 of PD 464. Will you tell the Court whether you received the
original of this letter?

A. I just signed it because I was not able to read the same. It was just
sent by mail carrier.

147 | P a g e
 Q. So you admit that you received the original of Exhibit I and you
signed upon receipt thereof but you did not read the contents of it?

A. Yes, sir, as I was in a hurry.

Q. After you received that original where did you place it?

A. I placed it in the usual place where I place my mails.

Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he
ignored such notice. By his very own admission that he received the notice, his now coming to court
assailing the validity of the auction sale loses its force.

Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy
of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation
Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo
Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of
price is not material when the law gives the owner the right to redeem as when a sale is made at
public auction, upon the theory that the lesser the price, the easier it is for the owner to effect
redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held:

... [R]espondent treasurer now claims that the prices for which the lands were sold
are unconscionable considering the wide divergence between their assessed values
and the amounts for which they had been actually sold. However, while in ordinary
sales for reasons of equity a transaction may be invalidated on the ground of
inadequacy of price, or when such inadequacy shocks one's conscience as to justify
the courts to interfere, such does not follow when the law gives to the owner the right
to redeem, as when a sale is made at public auction, upon the theory that the lesser
the price the easier it is for the owner to effect the redemption. And so it was aptly
said: "When there is the right to redeem, inadequacy of price should not be material,
because the judgment debtor may reacquire the property or also sell his right to
redeem and thus recover the loss he claims to have suffered by reason of the price
obtained at the auction sale."

The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et
al. (188 Wash. 162, 61 P. 2d, 1290):

If mere inadequacy of price is held to be a valid objection to a sale for taxes, the
collection of taxes in this manner would be greatly embarrassed, if not rendered
altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is
stated as follows: "where land is sold for taxes, the inadequacy of the price given is
not a valid objection to the sale." This rule arises from necessity, for, if a fair price for
the land were essential to the sale, it would be useless to offer the property. Indeed,
it is notorious that the prices habitually paid by purchasers at tax sales are grossly
out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307,
73 P. 367, 369).

In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P.
555):

Like most cases of this character there is here a certain element of hardship from
which we would be glad to relieve, but do so would unsettle long-established rules

148 | P a g e
 and lead to uncertainty and difficulty in the collection of taxes which are the life blood
of the state. We are convinced that the present rules are just, and that they bring
hardship only to those who have invited it by their own neglect.

We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in
value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the
expropriation of adjoining areas, real estate values have gone up in the area. However, the price
quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the
foregoing reasons which answer the petitioner's claims lead us to deny the petition.

And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no
strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14
years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale
without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the
expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for
the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on
November 3, 1978, during the period of redemption, regarding his tax delinquency. There is
furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez.
The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly
asking for the annulment of the sale.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision
of the respondent court is affirmed.

SO ORDERED.

149 | P a g e
 G.R. No. L-18994 June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal

Revenue, Petitioner, vs. HON. LORENZO C. GARLITOS, in his
capacity as Judge of the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate
Estate of the late Walter Scott Price, Respondents.

Office of the Solicitor General and Atty. G. H. Mantolino for

petitioner.
Benedicto and Martinez for respondents.

LABRADOR, J.: chanrobles virtual law lib rary

This is a petition for certiorari and mandamus against the Judge of

the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos,
presiding, seeking to annul certain orders of the court and for an
order in this Court directing the respondent court below to execute
the judgment in favor of the Government against the estate of
Walter Scott Price for internal revenue taxes.chanroblesvirtualawlib rarychanrobles virtua l law lib rary

It appears that in Melecio R. Domingo vs. Hon. Judge S. C.

Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared
as final and executory the order for the payment by the estate of
the estate and inheritance taxes, charges and penalties, amounting
to P40,058.55, issued by the Court of First Instance of Leyte in,
special proceedings No. 14 entitled "In the matter of the Intestate
Estate of the Late Walter Scott Price." In order to enforce the claims
against the estate the fiscal presented a petition dated June 21,
1961, to the court below for the execution of the judgment. The
petition was, however, denied by the court which held that the
execution is not justifiable as the Government is indebted to the
estate under administration in the amount of P262,200. The orders
of the court below dated August 20, 1960 and September 28, 1960,
respectively, are as follows:

Atty. Benedicto submitted a copy of the contract between Mrs.

Simeona K. Price, Administratrix of the estate of her late husband
Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands
dated September 19, 1956 and acknowledged before Notary Public

150 | P a g e
Salvador V. Esguerra, legal adviser in Malaca�ang to Executive
Secretary De Leon dated December 14, 1956, the note of His
Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August
2, 1958, directing the latter to pay to Mrs. Price the sum
ofP368,140.00, and an extract of page 765 of Republic Act No. 2700
appropriating the sum of P262.200.00 for the payment to the Leyte
Cadastral Survey, Inc., represented by the administratrix Simeona
K. Price, as directed in the above note of the President. Considering
these facts, the Court orders that the payment of inheritance taxes
in the sum of P40,058.55 due the Collector of Internal Revenue as
ordered paid by this Court on July 5, 1960 in accordance with the
order of the Supreme Court promulgated July 30, 1960 in G.R. No.
L-14674, be deducted from the amount of P262,200.00 due and
payable to the Administratrix Simeona K. Price, in this estate, the
balance to be paid by the Government to her without further delay.
(Order of August 20, 1960) chanrobles virtual law library

The Court has nothing further to add to its order dated August 20,
1960 and it orders that the payment of the claim of the Collector of
Internal Revenue be deferred until the Government shall have paid
its accounts to the administratrix herein amounting to P262,200.00.
It may not be amiss to repeat that it is only fair for the
Government, as a debtor, to its accounts to its citizens-creditors
before it can insist in the prompt payment of the latter's account to
it, specially taking into consideration that the amount due to the
Government draws interests while the credit due to the present
state does not accrue any interest. (Order of September 28, 1960)

The petition to set aside the above orders of the court below and for
the execution of the claim of the Government against the estate
must be denied for lack of merit. The ordinary procedure by which
to settle claims of indebtedness against the estate of a deceased
person, as an inheritance tax, is for the claimant to present a claim
before the probate court so that said court may order the
administrator to pay the amount thereof. To such effect is the
decision of this Court in Aldamiz vs. Judge of the Court of First
Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:

151 | P a g e
. . . a writ of execution is not the proper procedure allowed by the
Rules of Court for the payment of debts and expenses of
administration. The proper procedure is for the court to order the
sale of personal estate or the sale or mortgage of real property of
the deceased and all debts or expenses of administrator and with
the written notice to all the heirs legatees and devisees residing in
the Philippines, according to Rule 89, section 3, and Rule 90, section
2. And when sale or mortgage of real estate is to be made, the
regulations contained in Rule 90, section 7, should be complied
with.chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

Execution may issue only where the devisees, legatees or heirs

have entered into possession of their respective portions in the
estate prior to settlement and payment of the debts and expenses
of administration and it is later ascertained that there are such
debts and expenses to be paid, in which case "the court having
jurisdiction of the estate may, by order for that purpose, after
hearing, settle the amount of their several liabilities, and order how
much and in what manner each person shall contribute, and
may issue execution if circumstances require" (Rule 89, section
6; see also Rule 74, Section 4; Emphasis supplied.) And this is not
the instant case.

The legal basis for such a procedure is the fact that in the testate or
intestate proceedings to settle the estate of a deceased person, the
properties belonging to the estate are under the jurisdiction of the
court and such jurisdiction continues until said properties have been
distributed among the heirs entitled thereto. During the pendency of
the proceedings all the estate is in custodia legis and the proper
procedure is not to allow the sheriff, in case of the court judgment,
to seize the properties but to ask the court for an order to require
the administrator to pay the amount due from the estate and
required to be paid. chanroblesvirtualawlibra rychanrobles virtual law library

Another ground for denying the petition of the provincial fiscal is the
fact that the court having jurisdiction of the estate had found that
the claim of the estate against the Government has been recognized
and an amount of P262,200 has already been appropriated for the
purpose by a corresponding law (Rep. Act No. 2700). Under the

152 | P a g e
above circumstances, both the claim of the Government for
inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable is well as
fully liquidated. Compensation, therefore, takes place by operation
of law, in accordance with the provisions of Articles 1279 and 1290
of the Civil Code, and both debts are extinguished to the concurrent
amount, thus:

ART. 1200. When all the requisites mentioned in article 1279 are
present, compensation takes effect by operation of law, and
extinguished both debts to the concurrent amount, eventhough the
creditors and debtors are not aware of the compensation.

It is clear, therefore, that the petitioner has no clear right to

execute the judgment for taxes against the estate of the deceased
Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the
petitioner. Appeal is the remedy.chanroblesvirtualawl ibrarychanrobles virtua l law l ibrary

The petition is, therefore, dismissed, without costs.

153 | P a g e
 [G.R. No. L-75697. June 18, 1987.]

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, Petitioner, v.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY
MAYOR and CITY TREASURER OF MANILA, Respondents.

Nelson Y . Ng for Petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

DECISION

MELENCIO-HERRERA, J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of
other videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987
entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October
5, 1985 and took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official
Gazette.chanrobles.com:cralaw:red

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree
No. 1994 amended the National Internal Revenue Code providing, inter alia: jgc:chanrobles.com.ph

"SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported
blank video tapes shall be subject to sales tax." cralaw virtua1aw lib rary

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over
petitioner’s opposition, upon the allegations that intervention was necessary for the complete protection of
their rights and that their "survival and very existence is threatened by the unregulated proliferation of film
piracy." The Intervenors were thereafter allowed to file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows: jgc:chanrobles.com.ph

"1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the
operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at
least forty percent (40%) and a tremendous drop in the collection of sales, contractor’s specific, amusement
and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government
revenues;

"2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals,
sales and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving
the Government of approximately P180 Million in taxes each year;

"3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the
movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and
occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses
and theaters;

"4. WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create
an environment conducive to growth and development of all business industries, including the movie
industry which has an accumulated investment of about P3 Billion.

154 | P a g e
"5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire
financial condition of the movie industry upon which more than 75,000 families and 500,00 workers depend
for their livelihood, but also provide an additional source of revenue for the Government, and at the same
time rationalize the heretofore distribution of videograms;

"6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and
present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the
Constitution for the State to support the rearing of the youth for civic efficiency and the development of
moral character and promote their physical, intellectual, and social being;

"7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant
malpractice’s which have flaunted our censorship and copyright law;

"8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and
betraying the national economic recovery program, bold emergency measures must be adopted with
dispatch; . . ." (Numbering of paragraphs supplied).

Petitioner’s attack on the constitutionality of the DECREE rests on the following grounds: jgc:chanrobles.com.ph

"1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is
a RIDER and the same is not germane to the subject matter thereof;

"2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the
due process clause of the Constitution;

"3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon
him by Amendment No. 6;

"4. There is undue delegation of power and authority;

"5. The Decree is an ex-post facto law; and

"6. There is over regulation of the video industry as if it were a nuisance, which it is not." cralaw virtua1aw library

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in
the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general
purpose which a statute seeks to achieve. It is not necessary that the title express each and every end that
the statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and
are germane to the subject matter expressed in the title, or as long as they are not inconsistent with or
foreign to the general subject and title. 2 An act having a single general subject, indicated in the title, may
contain any number of provisions, no matter how diverse they may be, so long as they are not inconsistent
with or foreign to the general subject, and may be considered in furtherance of such subject by providing for
the method and means of carrying out the general object." 3 The rule also is that the constitutional
requirement as to the title of a bill should not be so narrowly construed as to cripple or impede the power of
legislation. 4 It should be given a practical rather than technical construction. 5

Tested by the foregoing criteria, petitioner’s contention that the tax provision of the DECREE is a rider is
without merit. That section reads, inter alia:jgc:chanrobles.com.ph

"Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law to the
contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the
case may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion
picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the
province, and the other fifty percent (50%) shall accrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the
Metropolitan Manila Commission.

x x x

155 | P a g e
The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of,
the general object of the DECREE, which is the regulation of the video industry through the Videogram
Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that
general subject and title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms
scattered throughout the DECREE. The express purpose of the DECREE to include taxation of the video
industry in order to regulate and rationalize the heretofore uncontrolled distribution of videograms is evident
from Preambles 2 and 5, supra. Those preambles explain the motives of the lawmaker in presenting the
measure. The title of the DECREE, which is the creation of the Videogram Regulatory Board, is
comprehensive enough to include the purposes expressed in its Preamble and reasonably covers all its
provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the
body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory,
and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely
because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes
is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it.
9 In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security
against erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user
tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the
30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden
on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators. cralawnad

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating
the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual
property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the
DECREE to protect the movie industry, the tax remains a valid imposition.

"The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose
the tax was to favor one industry over another. 11

"It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation’." 12 Taxation has been made the implement of the state’s
police power. 13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the
former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the
judgment of the President . . ., there exists a grave emergency or a threat or imminence thereof, or
whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to act
adequately on any matter for any reason that in his judgment requires immediate action, he may, in order
to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which sharp form part
of the law of the land."
cralaw virtua1aw library

In refutation, the Intervenors and the Solicitor General’s Office aver that the 8th "whereas" clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the people
and betraying the national economic recovery problem necessitated bold emergency measures to be
adopted with dispatch. Whatever the reasons "in the judgment" of the then President, considering that the
issue of the validity of the exercise of legislative power under the said Amendment still pends resolution in
several other cases, we reserve resolution of the question raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power.
The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other
agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of
such agencies and units to perform enforcement functions for the Board" is not a delegation of the power to

156 | P a g e
legislate but merely a conferment of authority or discretion as to its execution, enforcement, and
implementation. "The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be
exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can
be made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit such
assistance is for a "fixed and limited period" with the deputized agencies concerned being "subject to the
direction and control of the BOARD." That the grant of such authority might be the source of graft and
corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved
parties will not be without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different
testimony than the law required at the time of the commission of the offense." It is petitioner’s position that
Section 15 of the DECREE in providing that: jgc:chanrobles.com.ph

"All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the
effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all their inventories of videograms, including
videotapes, discs, cassettes or other technical improvements or variations thereof, before they could be
sold, leased, or otherwise disposed of. Thereafter any videogram found in the possession of any person
engaged in the videogram business without the required proof of registration by the BOARD, shall be prima
facie evidence of violation of the Decree, whether the possession of such videogram be for private showing
and/or public exhibition."cralaw virtua1aw library

raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration
of any videogram cannot be presented and thus partakes of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta v. Court of Appeals, Et. Al. 15

". . . it is now well settled that ‘there is no constitutional objection to the passage of a law providing that the
presumption of innocence may be overcome by a contrary presumption founded upon the experience of
human conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence’
(People v. Mingoa, 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL
LIMITATIONS, 639-641). And the ‘legislature may enact that when certain facts have been proved that they
shall be prima facie evidence of the existence of the guilt of the accused and shift the burden of proof
provided there be a rational connection between the facts proved and the ultimate facts presumed so that
the inference of the one from proof of the others is not unreasonable and arbitrary because of lack of
connection between the two in common experience’." 16

Applied to the challenged provision, there is no question that there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides
the fact that the prima facie presumption of violation of the DECREE attaches only after a forty-five-day
period counted from its effectivity and is, therefore, neither retrospective in character.

6. We do not share petitioner’s fears that the video industry is being over-regulated and being eased out of
existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent.
While the underlying objective of the DECREE is to protect the moribund movie industry, there is no
question that public welfare is at bottom of its enactment, considering "the unfair competition posed by
rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the availability of
unclassified and unreviewed video tapes containing pornographic films and films with brutally violent
sequences; and losses in government revenues due to the drop in theatrical attendance, not to mention the
fact that the activities of video establishments are virtually untaxed since mere payment of Mayor’s permit
and municipal license fees are required to engage in business." 17

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

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

"Only congressional power or competence, not the wisdom of the action taken, may be the basis for

157 | P a g e
declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the main
wisely allocated the respective authority of each department and confined its jurisdiction to such a sphere.
There would then be intrusion not allowable under the Constitution if on a matter left to the discretion of a
corporate branch, the judiciary would substitute its own. If there be adherence to the rule of law, as there
ought to be, the last offender should be courts of justice, to which rightly litigants submit their controversy
precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack on the validity
of the challenged provision likewise insofar as there may be objections, even if valid and cogent, on its
wisdom cannot be sustained." 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We
find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987
as unconstitutional and void.chanrobles law library

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.

158 | P a g e
 G.R. No. L-24756 October 31, 1968

CITY OF BAGUIO, Plaintiff-Appellee, vs. FORTUNATO DE

LEON, Defendant-Appellant.

The City Attorney for plaintiff-appellee.

Fortunato de Leon for and in his own behalf as defendant-appellant.

FERNANDO, J.:

In this appeal, a lower court decision upholding the validity of an

ordinance1 of the City of Baguio imposing a license fee on any
person, firm, entity or corporation doing business in the City of
Baguio is assailed by defendant-appellant Fortunato de Leon. He
was held liable as a real estate dealer with a property therein worth
more than P10,000, but not in excess of P50,000, and therefore
obligated to pay under such ordinance the P50 annual fee. That is
the principal question. In addition, there has been a firm and
unyielding insistence by defendant-appellant of the lack of
jurisdiction of the City Court of Baguio, where the suit originated, a
complaint having been filed against him by the City Attorney of
Baguio for his failure to pay the amount of P300 as license fee
covering the period from the first quarter of 1958 to the fourth
quarter of 1962, allegedly, inspite of repeated demands. Nor was
defendant-appellant agreeable to such a suit being instituted by the
City Treasurer without the consent of the Mayor, which for him was
indispensable. The lower court was of a different mind. chanroblesvirtualawl ibrarychanrobles virtua l law li brary

In its decision of December 19, 1964, it declared the above

ordinance as amended, valid and subsisting, and held defendant-
appellant liable for the fees therein prescribed as a real estate
dealer. Hence, this appeal. Assume the validity of such ordinance,
and there would be no question about the liability of defendant-
appellant for the above license fee, it being shown in the partial
stipulation of facts, that he was "engaged in the rental of his
property in Baguio" deriving income therefrom during the period
covered by the first quarter of 1958 to the fourth quarter of
1962.chanroblesvirtualawlibra rychanrobles virtual law libra ry

159 | P a g e
The source of authority for the challenged ordinance is supplied by
Republic Act No. 329, amending the city charter of
Baguio2 empowering it to fix the license fee and regulate
"businesses, trades and occupations as may be established or
practiced in the City."
chanrobles virtual law li brary

Unless it can be shown then that such a grant of authority is not

broad enough to justify the enactment of the ordinance now
assailed, the decision appealed from must be affirmed. The task
confronting defendant-appellant, therefore, was far from easy. Why
he failed is understandable, considering that even a cursory reading
of the above amendment readily discloses that the enactment of the
ordinance in question finds support in the power thus conferred. chanroblesvirtualawli brarychanrobles virtua l law li brary

Nor is the question raised by him as to the validity thereof novel in

character. In Medina v. City of Baguio,3 the effect of the
amendatory section insofar as it would expand the previous power
vested by the city charter was clarified in these terms: "Appellants
apparently have in mind section 2553, paragraph (c) of the Revised
Administrative Code, which empowers the City of Baguio merely to
impose a license fee for the purpose of rating the business that may
be established in the city. The power as thus conferred is indeed
limited, as it does not include the power to levy a tax. But on July
15, 1948, Republic Act No. 329 was enacted amending the charter
of said city and adding to its power to license the power to tax and
to regulate. And it is precisely having in view this amendment that
Ordinance No. 99 was approved in order to increase the revenues of
the city. In our opinion, the amendment above adverted to
empowers the city council not only to impose a license fee but also
to levy a tax for purposes of revenue, more so when in amending
section 2553 (b), the phrase 'as provided by law' has been removed
by section 2 of Republic Act No. 329. The city council of Baguio,
therefore, has now the power to tax, to license and to regulate
provided that the subjects affected be one of those included in the
charter. In this sense, the ordinance under consideration cannot be
considered ultra vires whether its purpose be to levy a tax or
impose a license fee. The terminology used is of no consequence." chanrobles virtual law libra ry

160 | P a g e
It would be an undue and unwarranted emasculation of the above
power thus granted if defendant-appellant were to be sustained in
his contention that no such statutory authority for the enactment of
the challenged ordinance could be discerned from the language
used in the amendatory act. That is about all that needs to be said
in upholding the lower court, considering that the City of Baguio was
not devoid of authority in enacting this particular ordinance. As
mentioned at the outset, however, defendant-appellant likewise
alleged procedural missteps and asserted that the challenged
ordinance suffered from certain constitutional infirmities. To such
points raised by him, we shall now turn. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

1. Defendant-appellant makes much of the alleged lack of

jurisdiction of the City Court of Baguio in the suit for the collection
of the real estate dealer's fee from him in the amount of P300. He
contended before the lower court, and it is his contention now, that
while the amount of P300 sought was within the jurisdiction of the
City Court of Baguio where this action originated, since the principal
issue was the legality and constitutionality of the challenged
ordinance, it is not such City Court but the Court of First Instance
that has original jurisdiction. chanroblesvirtuala wlibrarychanrob les virtual law l ibrary

There is here a misapprehension of the Judiciary Act. The City Court

has jurisdiction. Only recently, on September 7, 1968 to be exact,
we rejected a contention similar in character in Nemenzo v.
Sabillano.4The plaintiff in that case filed a claim for the payment of
his salary before the Justice of the Peace Court of Pagadian,
Zamboanga del Sur. The question of jurisdiction was raised; the
defendant Mayor asserted that what was in issue was the
enforcement of the decision of the Commission of Civil Service; the
Justice of the Peace Court was thus without jurisdiction to try the
case. The above plea was curtly dismissed by Us, as what was
involved was "an ordinary money claim" and therefore "within the
original jurisdiction of the Justice of the Peace Court where it was
filed, considering the amount involved." Such is likewise the
situation here.chanroblesvirtualawl ibrarychanrobles virtua l law l ibrary

Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect

from a defendant this license fee corresponding to the years 1951

161 | P a g e
and 1952 was filed with the Municipal Court of Manila, in view of the
amount involved. The thought that the municipal court lacked
jurisdiction apparently was not even in the minds of the parties and
did not receive any consideration by this Court. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

Evidently, the fear is entertained by defendant-appellant that

whenever a constitutional question is raised, it is the Court of First
Instance that should have original jurisdiction on the matter. It does
not admit of doubt, however, that what confers jurisdiction is the
amount set forth in the complaint. Here, the sum sought to be
recovered was clearly within the jurisdiction of the City Court of
Baguio. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

Nor could it be plausibly maintained that the validity of such

ordinance being open to question as a defense against its
enforcement from one adversely affected, the matter should be
elevated to the Court of First Instance. For the City Court could rely
on the presumption of the validity of such ordinance,6 and the mere
fact, however, that in the answer to such a complaint a
constitutional question was raised did not suffice to oust the City
Court of its jurisdiction. The suit remains one for collection, the lack
of validity being only a defense to such an attempt at recovery.
Since the City Court is possessed of judicial power and it is likewise
axiomatic that the judicial power embraces the ascertainment of
facts and the application of the law, the Constitution as the highest
law superseding any statute or ordinance in conflict therewith, it
cannot be said that a City Court is bereft of competence to proceed
on the matter. In the exercise of such delicate power, however, the
admonition of Cooley on inferior tribunals is well worth
remembering. Thus: "It must be evident to any one that the power
to declare a legislative enactment void is one which the judge,
conscious of the fallibility of the human judgment, will shrink from
exercising in any case where he can conscientiously and with due
regard to duty and official oath decline the responsibility."7 While it
remains undoubted that such a power to pass on the validity of an
ordinance alleged to infringe certain constitutional rights of a litigant
exists, still it should be exercised with due care and circumspection,
considering not only the presumption of validity but also the
relatively modest rank of a city court in the judicial hierarchy. chanroblesvirtualawli brarychanrobles virtua l law li brary

162 | P a g e
2. To repeat the challenged ordinance cannot be considered ultra
vires as there is more than ample statutory authority for the
enactment thereof. Nonetheless, its validity on constitutional
grounds is challenged because of the allegation that it imposed
double taxation, which is repugnant to the due process clause, and
that it violated the requirement of uniformity. We do not view the
matter thus.chanroblesvirtualaw librarychanrob les virtual law l ibrary

As to why double taxation is not violative of due process, Justice

Holmes made clear in this language: "The objection to the taxation
as double may be laid down on one side. ... The 14th Amendment
[the due process clause] no more forbids double taxation than it
does doubling the amount of a tax, short of confiscation or
proceedings unconstitutional on other grounds."8With that decision
rendered at a time when American sovereignty in the Philippines
was recognized, it possesses more than just a persuasive effect. To
some, it delivered the coup de grace to the bogey of double taxation
as a constitutional bar to the exercise of the taxing power. It would
seem though that in the United States, as with us, its ghost as
noted by an eminent critic, still stalks the juridical state. In a 1947
decision, however,9 we quoted with approval this excerpt from a
leading American decision:10 "Where, as here, Congress has clearly
expressed its intention, the statute must be sustained even though
double taxation results." chanrobles virtual law library

At any rate, it has been expressly affirmed by us that such an

"argument against double taxation may not be invoked where one
tax is imposed by the state and the other is imposed by the city ...,
it being widely recognized that there is nothing inherently obnoxious
in the requirement that license fees or taxes be exacted with
respect to the same occupation, calling or activity by both the state
and the political subdivisions thereof."11 chanrobles virtual law li brary

The above would clearly indicate how lacking in merit is this

argument based on double taxation. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

Now, as to the claim that there was a violation of the rule of

uniformity established by the constitution. According to the
challenged ordinance, a real estate dealer who leases property
worth P50,000 or above must pay an annual fee of P100. If the
163 | P a g e
property is worth P10,000 but not over P50,000, then he pays P50
and P24 if the value is less than P10,000. On its face, therefore, the
above ordinance cannot be assailed as violative of the constitutional
requirement of uniformity. In Philippine Trust Company v.
Yatco,12 Justice Laurel, speaking for the Court, stated: "A tax is
considered uniform when it operates with the same force and effect
in every place where the subject may be found." chanrobles virtual law library

There was no occasion in that case to consider the possible effect on

such a constitutional requirement where there is a classification.
The opportunity came in Eastern Theatrical Co. v. Alfonso.13 Thus:
"Equality and uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same
rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation; ..." About two years
later, Justice Tuason, speaking for this Court in Manila Race Horses
Trainers Assn. v. De la Fuente14 incorporated the above excerpt in
his opinion and continued: "Taking everything into account, the
differentiation against which the plaintiffs complain conforms to the
practical dictates of justice and equity and is not discriminatory
within the meaning of the Constitution." chanrobles virtual law lib rary

To satisfy this requirement then, all that is needed as held in

another case decided two years later, 15 is that the statute or
ordinance in question "applies equally to all persons, firms and
corporations placed in similar situation." This Court is on record as
accepting the view in a leading American case16 that "inequalities
which result from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation."17 chanrobles virtual law lib rary

It is thus apparent from the above that in much the same way that
the plea of double taxation is unavailing, the allegation that there
was a violation of the principle of uniformity is inherently lacking in
persuasiveness. There is no need to pass upon the other allegations
to assail the validity of the above ordinance, it being maintained
that the license fees therein imposed "is excessive, unreasonable
and oppressive" and that there is a failure to observe the mandate
of equal protection. A reading of the ordinance will readily disclose
their inherent lack of plausibility.
chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

164 | P a g e
3. That would dispose of all the errors assigned, except the last two,
which would predicate a grievance on the complaint having been
started by the City Treasurer rather than the City Mayor of Baguio.
These alleged errors, as was the case with the others assigned, lack
merit.chanroblesvirtualawlib rarychanrobles virtua l law lib rary

In much the same way that an act of a department head of the

national government, performed within the limits of his authority, is
presumptively the act of the President unless reprobated or
disapproved,18similarly the act of the City Treasurer, whose position
is roughly analogous, may be assumed to carry the seal of approval
of the City Mayor unless repudiated or set aside. This should be the
case considering that such city official is called upon to see to it that
revenues due the City are collected. When administrative steps are
futile and unavailing, given the stubbornness and obduracy of a
taxpayer, convinced in good faith that no tax was due, judicial
remedy may be resorted to by him. It would be a reflection on the
state of the law if such fidelity to duty would be met by
condemnation rather than commendation. chanroblesvirtualawlibra rychanrobles virtual law libra ry

So, much for the analytical approach. The conclusion thus reached
has a reinforcement that comes to it from the functional and
pragmatic test. If a city treasurer has to await the nod from the city
mayor before a municipal ordinance is enforced, then opportunity
exists for favoritism and undue discrimination to come into play.
Whatever valid reason may exist as to why one taxpayer is to be
accorded a treatment denied another, the suspicion is unavoidable
that such a manifestation of official favor could have been induced
by unnamed but not unknown consideration. It would not be going
too far to assert that even defendant-appellant would find no
satisfaction in such a sad state of affairs. The more desirable legal
doctrine therefore, on the assumption that a choice exists, is one
that would do away with such temptation on the part of both
taxpayer and public official alike. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

WHEREFORE, the lower court decision of December 19, 1964, is

hereby affirmed. Costs against defendant-appellant. chanroblesvirtualawlibrarychan robles virtual la w library

165 | P a g e
Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro,
Angeles and Capistrano, JJ., concur.
Zaldivar, J., is on leave.

166 | P a g e
G.R. No. L-41631 December 17, 1976

HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as

Secretary to the Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF
MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of
Manila, Branch XXX and the FEDERATION OF MANILA MARKET VENDORS, INC., respondents.

Santiago F. Alidio and Restituto R. Villanueva for petitioners.

Antonio H. Abad, Jr. for private respondent.

Federico A. Blay for petitioner for intervention.

MARTIN, J.:

The chief question to be decided in this case is what law shall govern the publication of a tax
ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as
amended), which requires publication of the ordinance before its enactment and after its approval, or
the Local Tax Code (P.D. No. 231), which only demands publication after approval.

On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE
RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR
OTHER PURPOSES." The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on
June 15, 1974.

On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil
Case 96787 before the Court of First Instance of Manila presided over by respondent Judge,
seeking the declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication
requirement under the Revised Charter of the City of Manila has not been complied with; (b) the
Market Committee was not given any participation in the enactment of the ordinance, as envisioned
by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated;
and (d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972 prescribing the
collection of fees and charges on livestock and animal products.

Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent
Judge issued an order on March 11, 1975, denying the plea for failure of the respondent Federation
of Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax
Code.

After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975,
declaring the nullity of Ordinance No. 7522 of the City of Manila on the primary ground of non-
compliance with the requirement of publication under the Revised City Charter. Respondent Judge
ruled:

There is, therefore, no question that the ordinance in question was not published at
all in two daily newspapers of general circulation in the City of Manila before its

167 | P a g e
 enactment. Neither was it published in the same manner after approval, although it
was posted in the legislative hall and in all city public markets and city public
libraries. There being no compliance with the mandatory requirement of publication
before and after approval, the ordinance in question is invalid and, therefore, null and
void.

Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-
publication is required by the Local Tax Code; and (b) private respondent failed to exhaust all
administrative remedies before instituting an action in court.

On September 26, 1975, respondent Judge denied the motion.

Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.

We find the petition impressed with merits.

1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the
City of Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the
Municipal Board of Manila. For, while Section 17 of the Revised Charter provides:

Each proposed ordinance shall be published in two daily newspapers of general

circulation in the city, and shall not be discussed or enacted by the Board until after
the third day following such publication. * * * Each approved ordinance * * * shall be
published in two daily newspapers of general circulation in the city, within ten days
after its approval; and shall take effect and be in force on and after the twentieth day
following its publication, if no date is fixed in the ordinance.

Section 43 of the Local Tax Code directs:

Within ten days after their approval, certified true copies of all provincial, city,
municipal and barrio ordinances levying or imposing taxes, fees or other
charges shall be published for three consecutive days in a newspaper or publication
widely circulated within the jurisdiction of the local government, or posted in the local
legislative hall or premises and in two other conspicuous places within the territorial
jurisdiction of the local government. In either case, copies of all provincial, city,
municipal and barrio ordinances shall be furnished the treasurers of the respective
component and mother units of a local government for dissemination.

In other words, while the Revised Charter of the City of Manila requires publication before the
enactment of the ordinance and after the approval thereof in two daily newspapers of general
circulation in the city, the Local Tax Code only prescribes for publication after the approval of
"ordinances levying or imposing taxes, fees or other charges" either in a newspaper or publication
widely circulated within the jurisdiction of the local government or by posting the ordinance in the
local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction
of the local government. Petitioners' compliance with the Local Tax Code rather than with the
Revised Charter of the City spawned this litigation.

There is no question that the Revised Charter of the City of Manila is a special act since it relates
only to the City of Manila, whereas the Local Tax Code is a general law because it applies
universally to all local governments. Blackstone defines general law as a universal rule affecting the
entire community and special law as one relating to particular persons or things of a class. 1 And the
rule commonly said is that a prior special law is not ordinarily repealed by a subsequent general law.

168 | P a g e
The fact that one is special and the other general creates a presumption that the special is to be
considered as remaining an exception of the general, one as a general law of the land, the other as
the law of a particular case. 2 However, the rule readily yields to a situation where the special statute
refers to a subject in general, which the general statute treats in particular. The exactly is the
circumstance obtaining in the case at bar. Section 17 of the Revised Charter of the City of Manila
speaks of "ordinance" in general, i.e., irrespective of the nature and scope thereof, whereas, Section
43 of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or other charges" in
particular. In regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is
doubtless dominant, but, that dominant force loses its continuity when it approaches the realm of
"ordinances levying or imposing taxes, fees or other charges" in particular. There, the Local Tax
Code controls. Here, as always, a general provision must give way to a particular provision. 3 Special
provision governs. 4 This is especially true where the law containing the particular provision was
enacted later than the one containing the general provision. The City Charter of Manila was
promulgated on June 18, 1949 as against the Local Tax Code which was decreed on June 1, 1973.
The law-making power cannot be said to have intended the establishment of conflicting and hostile
systems upon the same subject, or to leave in force provisions of a prior law by which the new will of
the legislating power may be thwarted and overthrown. Such a result would render legislation a
useless and Idle ceremony, and subject the law to the reproach of uncertainty and unintelligibility. 5

The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for
damages arising from the injuries he suffered when he fell inside an uncovered and unlighted
catchbasin or manhole on P. Burgos Avenue. The City of Manila denied liability on the basis of the
City Charter (R.A. 409) exempting the City of Manila from any liability for damages or injury to
persons or property arising from the failure of the city officers to enforce the provisions of the charter
or any other law or ordinance, or from negligence of the City Mayor, Municipal Board, or other
officers while enforcing or attempting to enforce the provisions of the charter or of any other law or
ordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable for damages for
the death of, or injury suffered by any persons by reason of the defective condition of roads, streets,
bridges, public buildings, and other public works under their control or supervision. On review, the
Court held the Civil Code controlling. It is true that, insofar as its territorial application is concerned,
the Revised City Charter is a special law and the subject matter of the two laws, the Revised City
Charter establishes a general rule of liability arising from negligence in general, regardless of the
object thereof, whereas the Civil Code constitutes a particular prescription for liability due to
defective streets in particular. In the same manner, the Revised Charter of the City prescribes a rule
for the publication of "ordinance" in general, while the Local Tax Code establishes a rule for the
publication of "ordinance levying or imposing taxes fees or other charges in particular.

In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a
general or broad one. 7 A charter provision may be impliedly modified or superseded by a later
statute, and where a statute is controlling, it must be read into the charter notwithstanding any
particular charter provision. 8 A subsequent general law similarly applicable to all cities prevails over
any conflicting charter provision, for the reason that a charter must not be inconsistent with the
general laws and public policy of the state. 9 A chartered city is not an independent sovereignty. The
state remains supreme in all matters not purely local. Otherwise stated, a charter must yield to the
constitution and general laws of the state, it is to have read into it that general law which governs the
municipal corporation and which the corporation cannot set aside but to which it must yield. When a
city adopts a charter, it in effect adopts as part of its charter general law of such character. 10

2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as

having been violated by private respondent in bringing a direct suit in court. This is because Section
47 of the Local Tax Code provides that any question or issue raised against the legality of any tax
ordinance, or portion thereof, shall be referred for opinion to the city fiscal in the case of tax
ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice, whose

169 | P a g e
decision shall be final and executory unless contested before a competent court within thirty (30)
days. But, the petition below plainly shows that the controversy between the parties is deeply rooted
in a pure question of law: whether it is the Revised Charter of the City of Manila or the Local Tax
Code that should govern the publication of the tax ordinance. In other words, the dispute is sharply
focused on the applicability of the Revised City Charter or the Local Tax Code on the point at issue,
and not on the legality of the imposition of the tax. Exhaustion of administrative remedies before
resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the question litigated
upon is purely a legal one, the rule does not apply. 11 The principle may also be disregarded when it
does not provide a plain, speedy and adequate remedy. It may and should be relaxed when its
application may cause great and irreparable damage. 12

3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because
the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-
raising function, so that the procedure for publication under the Local Tax Code finds no application.
The pretense bears its own marks of fallacy. Precisely, the raising of revenues is the principal object
of taxation. Under Section 5, Article XI of the New Constitution, "Each local government unit shall
have the power to create its own sources of revenue and to levy taxes, subject to such provisions as
may be provided by law." 13 And one of those sources of revenue is what the Local Tax Code points
to in particular: "Local governments may collect fees or rentals for the occupancy or use of public
markets and premises * * *." 14 They can provide for and regulate market stands, stalls and
privileges, and, also, the sale, lease or occupancy thereof. They can license, or permit the use of,
lease, sell or otherwise dispose of stands, stalls or marketing privileges. 15

It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated
September 30, 1972, insofar as it affects livestock and animal products, because the said decree
prescribes the collection of other fees and charges thereon "with the exception of ante-mortem and
post-mortem inspection fees, as well as the delivery, stockyard and slaughter fees as may be
authorized by the Secretary of Agriculture and Natural Resources." 16Clearly, even the exception
clause of the decree itself permits the collection of the proper fees for livestock. And the Local Tax
Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may collect fees for
the slaughter of animals and the use of corrals * * * "

4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522
supposedly in accordance with Republic Act No. 6039, an amendment to the City Charter of Manila,
providing that "the market committee shall formulate, recommend and adopt, subject to the
ratification of the municipal board, and approval of the mayor, policies and rules or regulation
repealing or maneding existing provisions of the market code" does not infect the ordinance with any
germ of invalidity. 17 The function of the committee is purely recommendatory as the underscored
phrase suggests, its recommendation is without binding effect on the Municipal Board and the City
Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a condition sine qua
non before the Municipal Board could enact such ordinance. The native power of the Municipal
Board to legislate remains undisturbed even in the slightest degree. It can move in its own initiative
and the Market Committee cannot demur. At most, the Market Committee may serve as a legislative
aide of the Municipal Board in the enactment of city ordinances affecting the city markets or, in plain
words, in the gathering of the necessary data, studies and the collection of consensus for the
proposal of ordinances regarding city markets. Much less could it be said that Republic Act 6039
intended to delegate to the Market Committee the adoption of regulatory measures for the operation
and administration of the city markets. Potestas delegata non delegare potest.

5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are
diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of said
fees had been let by the City of Manila to the said corporation in a "Management and Operating
Contract." The assumption is of course saddled on erroneous premise. The fees collected do not go

170 | P a g e
direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation
but for the purpose of raising revenues for the city. That is the object it serves. The entrusting of the
collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is
public, it does not matter whether the agency through which the money is dispensed is public or
private. The right to tax depends upon the ultimate use, purpose and object for which the fund is
raised. It is not dependent on the nature or character of the person or corporation whose
intermediate agency is to be used in applying it. The people may be taxed for a public purpose,
although it be under the direction of an individual or private corporation. 18

Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt
Practices Act because the increased rates of market stall fees as levied by the ordinance will
necessarily inure to the unwarranted benefit and advantage of the corporation. 19 We are concerned
only with the issue whether the ordinance in question is intra vires. Once determined in the
affirmative, the measure may not be invalidated because of consequences that may arise from its
enforcement. 20

ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No.
7522 of the City of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No.
costs.

SO ORDERED.

Castro, C.J., Barredo, Makasiar, Antonio, Muñoz Palma, Aquino and Concepcion, Jr., JJ., concur.

Teehankee, J., reserves his vote.

171 | P a g e
G.R. No. L-10405 December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-

appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-
appellees.

Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.

Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:

Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued,
without costs.

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this
action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An
Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a)
thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and
improvement" of Pasig feeder road terminals (Gen. Roxas — Gen. Araneta — Gen. Lucban — Gen.
Capinpin — Gen. Segundo — Gen. Delgado — Gen. Malvar — Gen. Lim)"; that, at the time of the
passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and
planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . .
Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw
Boulevard, not far away from the intersection between the latter and Highway 54), which projected
feeder roads "do not connect any government property or any important premises to the main
highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder
roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time
of the passage and approval of said Act, was a member of the Senate of the Philippines; that on
May, 1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering
to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the
offer was accepted by the council, subject to the condition "that the donor would submit a plan of the
said roads and agree to change the names of two of them"; that no deed of donation in favor of the
municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote
another letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum
of P85,000.00 appropriated therein for the construction of the projected feeder roads in question;
that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District
Engineer of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch
as the projected feeder roads in question were private property at the time of the passage and
approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the
construction, reconstruction, repair, extension and improvement of said projected feeder roads, was
illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress
because its members were made to believe that the projected feeder roads in question were "public
roads and not private streets of a private subdivision"'; that, "in order to give a semblance of legality,
when there is absolutely none, to the aforementioned appropriation", respondents Zulueta executed
on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of
donation — copy of which is annexed to the petition — of the four (4) parcels of land constituting

172 | P a g e
said projected feeder roads, in favor of the Government of the Republic of the Philippines; that said
alleged deed of donation was, on the same date, accepted by the then Executive Secretary; that
being subject to an onerous condition, said donation partook of the nature of a contract; that, such,
said donation violated the provision of our fundamental law prohibiting members of Congress from
being directly or indirectly financially interested in any contract with the Government, and, hence, is
unconstitutional, as well as null and void ab initio, for the construction of the projected feeder roads
in question with public funds would greatly enhance or increase the value of the aforementioned
subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his
subdivision streets or roads at his own expense"; that the construction of said projected feeder roads
was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the
court, the respondents would continue to execute, comply with, follow and implement the
aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not only
to the petitioner but to the Filipino nation."

Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional
and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta
from ordering or allowing the continuance of the above-mentioned feeder roads project, and from
making and securing any new and further releases on the aforementioned item of Republic Act No.
920, and the disbursing officers of the Department of Public Works and Highways from making any
further payments out of said funds provided for in Republic Act No. 920; and that pending final
hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties
respondent from making and securing any new and further releases on the aforesaid item of
Republic Act No. 920 and from making any further payments out of said illegally appropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to
sue", and that the petition did "not state a cause of action". In support to this motion, respondent
Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the
Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent
is " not aware of any law which makes illegal the appropriation of public funds for the improvements
of . . . private property"; and that, the constitutional provision invoked by petitioner is inapplicable to
the donation in question, the same being a pure act of liberality, not a contract. The other
respondents, in turn, maintained that petitioner could not assail the appropriation in question
because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is
necessarily involved" and petitioner "has not shown that he has a personal and substantial interest"
in said Act "and that its enforcement has caused or will cause him a direct injury."

Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated
October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor
of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite
personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that "the
legislature is without power appropriate public revenues for anything but a public purpose", that the
instructions and improvement of the feeder roads in question, if such roads where private property,
would not be a public purpose; that, being subject to the following condition:

The within donation is hereby made upon the condition that the Government of the Republic
of the Philippines will use the parcels of land hereby donated for street purposes only and for
no other purposes whatsoever; it being expressly understood that should the Government of
the Republic of the Philippines violate the condition hereby imposed upon it, the title to the
land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C.
ZULUETA. (Emphasis supplied.)

173 | P a g e
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely
forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existence and void from the very beginning contracts "whose cause, objector
purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and
that, accordingly, the appropriation in question "should be upheld" and the case dismissed.

At the outset, it should be noted that we are concerned with a decision granting the aforementioned
motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of
fact made in the petition of appellant herein. According to said petition, respondent Zulueta is the
owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio
Subdivision, certain portions of which had been reserved for the projected feeder roads
aforementioned, which, admittedly, were private property of said respondent when Republic Act No.
920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and
improvement" of said roads, was passed by Congress, as well as when it was approved by the
President on June 20, 1953. The petition further alleges that the construction of said roads, to be
undertaken with the aforementioned appropriation of P85,000.00, would have the effect of relieving
respondent Zulueta of the burden of constructing his subdivision streets or roads at his own
expenses, 1and would "greatly enhance or increase the value of the subdivision" of said respondent.
The lower court held that under these circumstances, the appropriation in question was "clearly for a
private, not a public purpose."

Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However,
respondent Zulueta contended, in his motion to dismiss that:

A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws . . . Aside from the fact that movant is not aware of any law
which makes illegal the appropriation of public funds for the improvement of what we, in the
meantime, may assume as private property . . . (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the
Government established under the Constitution of the Republic of the Philippines and the system of
checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this
Court invalidating legislative enactments deemed violative of the Constitution or organic laws. 3

As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:

It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. . . . It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of the
interest to be affected nor the degree to which the general advantage of the community, and
thus the public welfare, may be ultimately benefited by their promotion. Incidental to the
public or to the state, which results from the promotion of private interest and the prosperity
of private enterprises or business, does not justify their aid by the use public money. (25
R.L.C. pp. 398-400; Emphasis supplied.)

The rule is set forth in Corpus Juris Secundum in the following language:

In accordance with the rule that the taxing power must be exercised for public purposes only,
discussed suprasec. 14, money raised by taxation can be expended only for public purposes
and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)

174 | P a g e
Explaining the reason underlying said rule, Corpus Juris Secundum states:

Generally, under the express or implied provisions of the constitution, public funds may be
used only for public purpose. The right of the legislature to appropriate funds is correlative
with its right to tax, and, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to
another purpose, no appropriation of state funds can be made for other than for a public
purpose.

xxx xxx xxx

The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve the
public. (81 C.J.S. pp. 1147; emphasis supplied.)

Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as such,
exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the
established jurisprudence in the United States, after whose constitutional system ours has been
patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional law. lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon
the ground that petitioner may not contest the legality of the donation above referred to because the
same does not affect him directly. This conclusion is, presumably, based upon the following
premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the
aforementioned appropriation; (2) that the latter may not be annulled without a previous declaration
of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil
Code is absolute, and admits of no exception. We do not agree with these premises.

The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter
consists of an amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the
projected feeder roads in question, the legality thereof depended upon whether said roads were
public or private property when the bill, which, latter on, became Republic Act 920, was passed by
Congress, or, when said bill was approved by the President and the disbursement of said sum
became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which
the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is
that said appropriation sought a private purpose, and hence, was null and void. 4 The donation to
the Government, over five (5) months after the approval and effectivity of said Act, made, according
to the petition, for the purpose of giving a "semblance of legality", or legalizing, the appropriation in
question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said
donation need not precede the declaration of unconstitutionality of said appropriation.

Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions.
For instance, the creditors of a party to an illegal contract may, under the conditions set forth in
Article 1177 of said Code, exercise the rights and actions of the latter, except only those which are
inherent in his person, including therefore, his right to the annulment of said contract, even though
such creditors are not affected by the same, except indirectly, in the manner indicated in said legal
provision.

175 | P a g e
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the
instance of taxpayers, laws providing for the disbursement of public funds, 5upon the theory that "the
expenditure of public funds by an officer of the State for the purpose of administering
an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the
request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in the
United States is stated in the American Jurisprudence as follows:

In the determination of the degree of interest essential to give the requisite standing to attack
the constitutionality of a statute, the general rule is that not only persons individually affected,
but also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys
raised by taxation and may therefore question the constitutionality of statutes requiring
expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)

However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon
(262 U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a
taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal
corporation to its government. Indeed, under the composite system of government existing in the
U.S., the states of the Union are integral part of the Federation from an international viewpoint, but,
each state enjoys internally a substantial measure of sovereignty, subject to the limitations imposed
by the Federal Constitution. In fact, the same was made by representatives of each state of the
Union, not of the people of the U.S., except insofar as the former represented the people of the
respective States, and the people of each State has, independently of that of the others, ratified said
Constitution. In other words, the Federal Constitution and the Federal statutes have become binding
upon the people of the U.S. in consequence of an act of, and, in this sense, through the respective
states of the Union of which they are citizens. The peculiar nature of the relation between said
people and the Federal Government of the U.S. is reflected in the election of its President, who is
chosen directly, not by the people of the U.S., but by electors chosen by each State, in such manner
as the legislature thereof may direct (Article II, section 2, of the Federal Constitution).lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that
existing between the people and taxpayers of each state and the government thereof, except that
the authority of the Republic of the Philippines over the people of the Philippines is more fully
direct than that of the states of the Union, insofar as the simple and unitary type of our national
government is not subject to limitations analogous to those imposed by the Federal Constitution
upon the states of the Union, and those imposed upon the Federal Government in the interest of the
Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a
legislation appropriating local or state public funds — which has been upheld by the Federal
Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) — has greater application in the Philippines
than that adopted with respect to acts of Congress of the United States appropriating federal funds.

Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by
the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of
contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality of an appropriation for backpay of
members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and
Barredo vs.Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of
taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same.
Moreover, the reason that impelled this Court to take such position in said two (2) cases — the
importance of the issues therein raised — is present in the case at bar. Again, like the petitioners in

176 | P a g e
the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of Rizal,
which he represents officially as its Provincial Governor, is our most populated political
subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the
Philippines.

Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioners action in contesting the appropriation and donation in question; that this action should not
have been dismissed by the lower court; and that the writ of preliminary injunction should have been
maintained.

Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the
lower court for further proceedings not inconsistent with this decision, with the costs of this instance
against respondent Jose C. Zulueta. It is so ordered.

Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David,
Paredes, and Dizon, JJ., concur.

177 | P a g e
G.R. No. L-18125 May 31, 1963

BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner,

vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS AND SEWERAGE
AUTHORITY (NAWASA),respondents.

Gabriel V. Valero and Rodolfo F. de Gorostiza for petitioner.

Manuel B. Roño for respondent National Waterworks and Sewerage Authority.

CONCEPCION, J.:

This is a petition for review of a decision of the Court of Tax Appeals reversing a resolution or
decision of the Board of Assessment Appeals for the Province of Laguna.

The question involved in this case is whether the water pipes, reservoir, intake and buildings used by
herein respondent, National Waterworks and Sewerage Authority — hereinafter referred to as
NAWASA — in the operation of its waterworks system in the municipalities of Cabuyao, Sta. Rosa
and Biñan, province of Laguna, are subject to real estate tax.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts.
1äwphï1.ñët

The parties have submitted in the Court of Tax Appeals a stipulation of facts. The pertinent parts
thereof are to the effect:

1. That the petitioner National Waterworks and Sewerage Authority (NWSA) is a public
corporation created by virtue of Republic Act No. 1383, and that it is owned by the
Government of the Philippines as well as all property comprising waterworks and sewerage
systems placed under it:.

2. That, pursuant to the provisions of Republic Act No. 1383, petitioner NWSA took over all
the property of the former Metropolitan Water District and all the existing local government-
owned waterworks and sewerage systems all over the Philippines, including the Cabuyao-
Sta. Rosa-Biñan Waterworks System owned by the Province of Laguna (Section 8, Republic
Act No. 1283);

3. That the functions and activities of petitioner NWSA, as enumerated in Republic Act No.
1383, more particularly Section 2 thereof, are the same and identical with the functions of the
defunct Metropolitan Water District, particularly Section 2, Act 2832, is amended;

4. That petitioner National Waterworks and Sewerage Authority (NWSA) has no capital stock
divided into shares of stocks, no stockholders, and is not authorized by its Charter to
distribute dividends; and, on the other hand, whatever surplus funds it has realized, may and
will after meeting its yearly obligations, have been, are and may be, used for the
construction, expansion and improvement of its waterworks and sewer services;

5. That at the time that the Cabuyao-Sta. Rosa-Biñan Waterworks System was taken over by
petitioner NWSA in 1956, the former was self-supporting and revenue-producing, but that all

178 | P a g e
 its surplus income are not declared as profits as this surplus are or may be invested for the
expansion thereof;

6. That in the year 1956 the Provincial Assessor of Laguna assessed, for purposes of real
estate taxes, the property comprising the Cabuyao-Sta. Rosa-Biñan Waterworks System and
described in Tax Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2 hereof,
herein petitioner NWSA had taken over;

7. That against the above-mentioned assessment made by the Provincial Assessor of

Laguna, petitioner NWSA protested, claiming that the property described under Tax
Declaration No. 5987 (Exh. "A-l") are exempted from the payment of real estate taxes in view
of the nature and kind of said property and functions and activities of petitioner, as provided
in Republic Act No. 1383;.

8. That the said protest of petitioner NWSA was overruled on appeal before the herein
respondent Board of Assessment Appeals, hence the present petition for review filed by
petitioner;

xxx xxx xxx"

After appropriate proceedings, the Court of Tax Appeals rendered the aforementioned decision
reversing the action taken by petitioner Board, which, accordingly, has brought the case to us for
review, under the provisions of Republic Act No. 1125, contending that the properties in question are
subject to real estate tax because: (1) although said properties belong to the Republic of the
Philippines, the same holds it, not in its governmental, political or sovereign capacity, but in a
private, proprietary or patrimonial character, which, allegedly, is not covered by the exemption
contained in section 3(a) of Republic Act No. 470; and 2) this exemption, even if applicable to
patrimonial property, must yield to the provisions of section 1 of Republic Act No. 104, under which
all corporations, agencies or instrumentalities owned or controlled by the Government are subject to
taxation, according to petitioner appellant.

Sections 2 and 3(a) of Commonwealth Act No. 470 provide:

SEC. 2. Incidence of real property tax. — Except in chartered cities, there shall be levied,
assessed, and collected, an annual ad valorem tax on real property, including land,
buildings, machinery, and other improvements not hereinafter specifically exempted.

SEC. 3. Property exempt from tax. — The exemptions shall be as follows:

(a) Property owned by . . . the Republic of the Philippines, any province, city, municipality or
municipal district. . . .

It is conceded, in the stipulation of facts, that the property involved in this case "is owned by the
Government of the Philippines". Hence, it belongs to the Republic of the Philippines and falls
squarely within the letter of the above provision. This notwithstanding, petitioner Board maintains
that respondent NAWASA is not entitled to the benefits of the exemption established in said section
3(a), inasmuch as, in the case of the City of Cebu vs. NAWASA, G. R. No. L-12892, decided on April
30, 1960, we ruled that the assets of the water system of the City of Cebu, which the NAWASA had
sought to take over, pursuant to the provisions of Republic Act No. 1383 — as it did in the case at
bar, with respect to the Cabuyao-Sta. Rosa-Biñan Waterworks System — are patrimonial property of
said city, which held it in a proprietary character, not in its governmental capacity.

179 | P a g e
We did not declare, however, in the Cebu case that said assets were subject to taxation. In that case
we merely reiterated the doctrine, laid down in the case of City of Baguio vs. NAWASA, G. R. No. L-
12032, decided on August 31, 1959, that municipal corporations hold in their proprietary character,
the assets of their respective waterworks, which, accordingly, cannot be taken or appropriated by the
National Government and placed under the NAWASA without payment of just compensation. Neither
the Cebu case nor that of Baguio sustains the theory that said assets are taxable.

Upon the other hand, in exempting from taxation "property owned by the Republic of the Philippines,
any province, city, municipality or municipal district . . .," said section 3(a) of Republic Act No. 470
makes no distinction between property held in a sovereign, governmental or political capacity and
those possessed in a private, proprietary or patrimonial character. And where the law does not
distinguish neither may we, unless there are facts and circumstances clearly showing that the
lawmaker intended the contrary, but no such facts and circumstances have been brought to our
attention. Indeed, the noun "property" and the verb "owned" used in said section 3(a) strongly
suggest that the object of exemption is considered more from the view point of dominion, than from
that of domain. Moreover, taxes are financial burdens imposed for the purpose of raising revenues
with which to defray the cost of the operation of the Government, and a tax on property of the
Government, whether national or local, would merely have the effect of taking money from one
pocket to put it in another pocket (Cooley on Taxation, Sec. 621, 4th Edition.) Hence, it would not
serve, in the final analysis, the main purpose of taxation. What is more, it would tend to defeat it, on
account of the paper work, time and consequently, expenses it would entail. (The Law on Local
Taxation, by Justiniano Y. Castillo, p. 13.)

Section 1 of the Republic Act No. 101, upon which petitioner relies, reads:

. . . All corporations, agencies, or instrumentalities owned or controlled by the government

shall pay such duties, taxes, fees and other charges upon their transaction, business,
industries, sale, or income as are imposed by law upon individuals, associations or
corporations engaged in any taxable business, industry, or activity except on goods or
commodities imported or purchased and sold or distributed for relief purposes as may be
determined by the President of the Philippines.

This provision is inapplicable to the case at bar for it refers only to duties, taxes, fees and other
charges upon "transaction, business, industry, sale or income" and does not include taxes on
property like real estate tax.

WHEREFORE, the decision appealed from is hereby affirmed, without special pronouncement as to
costs. It is so ordered.

180 | P a g e
 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.

Sabido, Sabido and Associates for plaintiff-appellant.

The City Attorney of Butuan City for defendants-appellees.

CONCEPCION, C.J.: chanrobles virtual law lib rary

Direct appeal to this Court, from a decision of the Court of First

Instance of Agusan, dismissing plaintiff's complaint, with costs. chanroblesvirtualawli brarychanrobles virtua l law li brary

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. .chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

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,

181 | P a g e
Series of 1960 and Ordinance No. 122 are incorporated herein as
Exhibits "A" and "B", respectively. chanroblesvirtualawlibra rychanrobles virtual law libra ry

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. chanroblesvirtualawlibrarychanrob les virtual law library

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. chanroblesvirtualawlib rarychanrobles virtua l law lib rary

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". chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

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. chanroblesvirtualawlibrarychanrob les virtual law l ibrary

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. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

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.

182 | P a g e
 xxx xxx xxx

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." chanrobles virtual law li brary

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. chanroblesvirtualawlibrarychanro bles virtual law library

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

183 | P a g e
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.1Then, 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.chanroblesvirtualawlib rarychanrobles virtua l law lib rary

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. chanroblesvirtualawl ibrarychanro bles virtual law l ibrary

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
184 | P a g e
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 chanrobles virtual law li brary

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. chanroblesvirtualawlibrarychanro bles virtual law library

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.5The 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
chanrobles virtual law l ibrary

These conditions are not fully met by the ordinance in

question.8 Indeed, if its purpose were merely to levy a burden upon

185 | P a g e
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. chanroblesvirtualawli brarychanrobles virtua l law li brary

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.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles

and Fernando, JJ., concur.

186 | P a g e
 G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES,

INC., Plaintiff-Appellant, v.MUNICIPALITY OF TANAUAN, LEYTE,
THE MUNICIPAL MAYOR, ET AL., defendant appellees.

Sabido, Sabido & Associates for appellant. chanrobles virtual law li brary

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal

Bonifacio R Matol and Assistant Solicitor General Conrado T.
Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of

Leyte in its Civil Case No. 3294, which was certified to Us by the
Court of Appeals on October 6, 1969, as involving only pure
questions of law, challenging the power of taxation delegated to
municipalities under the Local Autonomy Act (Republic Act No.
2264, as amended, June 19, 1959). chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

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

Company of the Philippines, Inc., commenced a complaint with
preliminary injunction before the Court of First Instance of Leyte for
that court to declare Section 2 of Republic Act No. 2264. 1 otherwise
known as the Local Autonomy Act, unconstitutional as an undue
delegation of taxing authority as well as to declare Ordinances Nos.
23 and 27, series of 1962, of the municipality of Tanauan, Leyte,
null and void.chanroblesvirtualawlib rarychanrobles virtua l law lib rary

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

187 | P a g e
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved
on September 25, 1962, levies and collects "from soft drinks
producers and manufacturers a tai of one-sixteenth (1/16) of a
centavo for every bottle of soft drink corked." 2 For the purpose of
computing the taxes due, the person, firm, company or corporation
producing soft drinks shall submit to the Municipal Treasurer a
monthly report, of the total number of bottles produced and corked
during the month. 3 chanrobles virtual law libra ry

On the other hand, Municipal Ordinance No. 27, which was

approved on October 28, 1962, levies and collects "on soft drinks
produced or manufactured within the territorial jurisdiction of this
municipality a tax of ONE CENTAVO (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity." 4 For the purpose of
computing the taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to the
Municipal Treasurer a monthly report of the total number of gallons
produced or manufactured during the month. 5 chanrobles virtual law lib rary

The tax imposed in both Ordinances Nos. 23 and 27 is denominated

as "municipal production tax.' chanrobles virtual law lib rary

On October 7, 1963, the Court of First Instance of Leyte rendered

judgment "dismissing the complaint and upholding the
constitutionality of [Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and constitutional; ordering the
plaintiff to pay the taxes due under the oft the said Ordinances; and
to pay the costs." chanrobles virtual law library

From this judgment, the plaintiff Pepsi-Cola Bottling Company

appealed to the Court of Appeals, which, in turn, elevated the case
to Us pursuant to Section 31 of the Judiciary Act of 1948, as
amended. chanroblesvirtualawlibrarychanro bles virtual law library

There are three capital questions raised in this appeal:

1. - Is Section 2, Republic Act No. 2264 an undue delegation of

power, confiscatory and oppressive? chanrobles virtual law li brary

188 | P a g e
2. - Do Ordinances Nos. 23 and 27 constitute double taxation and
impose percentage or specific taxes? chanrobles virtual law lib rary

3. - Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of

sovereignty, belonging as a matter of right to every independent
government, without being expressly conferred by the people. 6 It is
a power that is purely legislative and which the central legislative
body cannot delegate either to the executive or judicial department
of the government without infringing upon the theory of separation
of powers. The exception, however, lies in the case of municipal
corporations, to which, said theory does not apply. Legislative
powers may be delegated to local governments in respect of
matters of local concern. 7 This is sanctioned by immemorial
practice. 8 By necessary implication, the legislative power to create
political corporations for purposes of local self-government carries
with it the power to confer on such local governmental agencies the
power to tax. 9 Under the New Constitution, local governments are
granted the autonomous authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI provides: "Each
local government unit shall have the power to create its sources of
revenue and to levy taxes, subject to such limitations as may be
provided by law." Withal, it cannot be said that Section 2 of
Republic Act No. 2264 emanated from beyond the sphere of the
legislative power to enact and vest in local governments the power
of local taxation.
chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

The plenary nature of the taxing power thus delegated, contrary to

plaintiff-appellant's pretense, would not suffice to invalidate the said
law as confiscatory and oppressive. In delegating the authority, the
State is not limited 6 the exact measure of that which is exercised
by itself. When it is said that the taxing power may be delegated to
municipalities and the like, it is meant that there may be delegated
such measure of power to impose and collect taxes as the
legislature may deem expedient. Thus, municipalities may be
permitted to tax subjects which for reasons of public policy the
State has not deemed wise to tax for more general
purposes. 10 This is not to say though that the constitutional

189 | P a g e
injunction against deprivation of property without due process of
law may be passed over under the guise of the taxing power, except
when the taking of the property is in the lawful exercise of the
taxing power, as when (1) the tax is for a public purpose; (2) the
rule on uniformity of taxation is observed; (3) either the person or
property taxed is within the jurisdiction of the government levying
the tax; and (4) in the assessment and collection of certain kinds of
taxes notice and opportunity for hearing are provided. 11 Due
process is usually violated where the tax imposed is for a private as
distinguished from a public purpose; a tax is imposed on property
outside the State, i.e., extraterritorial taxation; and arbitrary or
oppressive methods are used in assessing and collecting taxes. But,
a tax does not violate the due process clause, as applied to a
particular taxpayer, although the purpose of the tax will result in an
injury rather than a benefit to such taxpayer. Due process does not
require that the property subject to the tax or the amount of tax to
be raised should be determined by judicial inquiry, and a notice and
hearing as to the amount of the tax and the manner in which it shall
be apportioned are generally not necessary to due process of
law. 12chanrobles virtual law library

There is no validity to the assertion that the delegated authority can

be declared unconstitutional on the theory of double taxation. It
must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may
not be exercised. 13 The reason is that the State has exclusively
reserved the same for its own prerogative. Moreover, double
taxation, in general, is not forbidden by our fundamental law, since
We have not adopted as part thereof the injunction against double
taxation found in the Constitution of the United States and some
states of the Union. 14 Double taxation becomes obnoxious only
where the taxpayer is taxed twice for the benefit of the same
governmental entity 15 or by the same jurisdiction for the same
purpose, 16 but not in a case where one tax is imposed by the State
and the other by the city or municipality. 17chanrobles virtual law libra ry

2. The plaintiff-appellant submits that Ordinance No. 23 and 27

constitute double taxation, because these two ordinances cover the
same subject matter and impose practically the same tax rate. The

190 | P a g e
thesis proceeds from its assumption that both ordinances are valid
and legally enforceable. This is not so. As earlier quoted, Ordinance
No. 23, which was approved on September 25, 1962, levies or
collects from soft drinks producers or manufacturers a tax of one-
sixteen (1/16) of a centavo for .every bottle corked, irrespective of
the volume contents of the bottle used. When it was discovered that
the producer or manufacturer could increase the volume contents of
the bottle and still pay the same tax rate, the Municipality of
Tanauan enacted Ordinance No. 27, approved on October 28, 1962,
imposing a tax of one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity. The difference between the two
ordinances clearly lies in the tax rate of the soft drinks produced: in
Ordinance No. 23, it was 1/16 of a centavo for every bottle corked;
in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity. The intention of the
Municipal Council of Tanauan in enacting Ordinance No. 27 is thus
clear: it was intended as a plain substitute for the prior Ordinance
No. 23, and operates as a repeal of the latter, even without words
to that effect. 18 Plaintiff-appellant in its brief admitted that
defendants-appellees are only seeking to enforce Ordinance No. 27,
series of 1962. Even the stipulation of facts confirms the fact that
the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel
compliance by the plaintiff-appellant of the provisions of said
Ordinance No. 27, series of 1962. The aforementioned admission
shows that only Ordinance No. 27, series of 1962 is being enforced
by defendants-appellees. Even the Provincial Fiscal, counsel for
defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23
as the provisions of the latter are inconsistent with the provisions of
the former." chanrobles virtual law lib rary

That brings Us to the question of whether the remaining Ordinance

No. 27 imposes a percentage or a specific tax. Undoubtedly, the
taxing authority conferred on local governments under Section 2,
Republic Act No. 2264, is broad enough as to extend to almost
"everything, accepting those which are mentioned therein." As long
as the text levied under the authority of a city or municipal
ordinance is not within the exceptions and limitations in the law, the
same comes within the ambit of the general rule, pursuant to the

191 | P a g e
rules of exclucion attehus and exceptio firmat regulum in cabisus
non excepti 19 The limitation applies, particularly, to the prohibition
against municipalities and municipal districts to impose "any
percentage tax 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 Code." For purposes of
this particular limitation, a municipal ordinance which prescribes a
set ratio between the amount of the tax and the volume of sale of
the taxpayer imposes a sales tax and is null and void for being
outside the power of the municipality to enact. 20 But, the
imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity" on all soft drinks produced or
manufactured under Ordinance No. 27 does not partake of the
nature of a percentage tax on sales, or other taxes in any form
based thereon. The tax is levied on the produce (whether sold or
not) and not on the sales. The volume capacity of the taxpayer's
production of soft drinks is considered solely for purposes of
determining the tax rate on the products, but there is not set ratio
between the volume of sales and the amount of the tax. 21 chanrobles virtual law l ibrary

Nor can the tax levied be treated as a specific tax. Specific taxes are
those imposed on specified articles, such as distilled spirits, wines,
fermented liquors, products of tobacco other than cigars and
cigarettes, matches firecrackers, manufactured oils and other fuels,
coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing
cards, saccharine, opium and other habit-forming drugs. 22Soft
drink is not one of those specified.chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity on all softdrinks, produced or manufactured, or an
equivalent of 1- centavos per case, 23cannot be considered unjust
and unfair. 24 an increase in the tax alone would not support the
claim that the tax is oppressive, unjust and confiscatory. Municipal
corporations are allowed much discretion in determining the reates
of imposable taxes. 25 This is in line with the constutional policy of
according the widest possible autonomy to local governments in
matters of local taxation, an aspect that is given expression in the
Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is
so excessive as to be prohibitive, courts will go slow in writing off an

192 | P a g e
ordinance as unreasonable. 27 Reluctance should not deter
compliance with an ordinance such as Ordinance No. 27 if the
purpose of the law to further strengthen local autonomy were to be
realized. 28 chanrobles virtual law library

Finally, the municipal license tax of P1,000.00 per corking machine

with five but not more than ten crowners or P2,000.00 with ten but
not more than twenty crowners imposed on manufacturers,
producers, importers and dealers of soft drinks and/or mineral
waters under Ordinance No. 54, series of 1964, as amended by
Ordinance No. 41, series of 1968, of defendant
Municipality, 29appears not to affect the resolution of the validity of
Ordinance No. 27. Municipalities are empowered to impose, not only
municipal license taxes upon persons engaged in any business or
occupation but also to levy for public purposes, just and uniform
taxes. The ordinance in question (Ordinance No. 27) comes within
the second power of a municipality. chanroblesvirtualawl ibrarychanrob les virtual law l ibrary

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No.

2264, otherwise known as the Local Autonomy Act, as amended, is
hereby upheld and Municipal Ordinance No. 27 of the Municipality of
Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No.
23, same series, is hereby declared of valid and legal effect. Costs
against petitioner-appellant. chanroblesvirtualawlibra rychanrobles virtual law l ibrary

SO ORDERED.

Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra,

Muñoz Palma, Aquino and Concepcion, Jr., JJ., concur.

chanrobles virtual law lib rary

Separate Opinions

FERNANDO, J., concurring: chanrobles virtual law library

The opinion of the Court penned by Justice Martin is impressed with

a scholarly and comprehensive character. Insofar as it shows
adherence to tried and tested concepts of the law of municipal
taxation, I am only in agreement. If I limit myself to concurrence in

193 | P a g e
the result, it is primarily because with the article on Local Autonomy
found in the present Constitution, I feel a sense of reluctance in
restating doctrines that arose from a different basic premise as to
the scope of such power in accordance with the 1935 Charter.
Nonetheless it is well-nigh unavoidable that I do so as I am unable
to share fully what for me are the nuances and implications that
could arise from the approach taken by my brethren. Likewise as to
the constitutional aspect of the thorny question of double taxation, I
would limit myself to what has been set forth in City of Baguio v. De
Leon. 1chanrobles virtual law library

1. The present Constitution is quite explicit as to the power of

taxation vested in local and municipal corporations. It is therein
specifically provided: "Each local government unit shall have the
power to create its own sources of revenue and to levy taxes
subject to such limitations as may be provided by law. 2 That was
not the case under the 1935 Charter. The only limitation then on
the authority, plenary in character of the national government, was
that while the President of the Philippines was vested with the
power of control over all executive departments, bureaus, or offices,
he could only . It exercise general supervision over all local
governments as may be provided by law ... 3As far as legislative
power over local government was concerned, no restriction
whatsoever was placed on the Congress of the Philippines. It would
appear therefore that the extent of the taxing power was solely for
the legislative body to decide. It is true that in 1939, there was a
statute that enlarged the scope of the municipal taxing
power. 4 Thereafter, in 1959 such competence was further
expanded in the Local Autonomy Act. 5Nevertheless, as late as
December of 1964, five years after its enactment of the Local
Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon
Lumber Co. v. City of Butuan, 6 reaffirmed the traditional concept in
these words: "The rule is well-settled that municipal corporations,
unlike sovereign states, after clothed with no power of taxation;
that its charter or a statute must clearly show an intent to confer
that power or the municipal corporation cannot assume and exercise
it, and that any such power granted must be construed strictly, any
doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality." 7 chanrobles virtual law l ibrary

194 | P a g e
Taxation, according to Justice Parades in the earlier case of Tan v.
Municipality of Pagbilao, 8"is an attribute of sovereignty which
municipal corporations do not enjoy." 9 That case left no doubt
either as to weakness of a claim "based merely by inferences,
implications and deductions, [as they have no place in the
interpretation of the power to tax of a municipal corporation." 10As
the conclusion reached by the Court finds support in such grant of
the municipal taxing power, I concur in the result. 2. As to any
possible infirmity based on an alleged double taxation, I would
prefer to rely on the doctrine announced by this Court in City
of Baguio v. De Leon. 11 Thus: "As to why double taxation is not
violative of due process, Justice Holmes made clear in this
language: 'The objection to the taxation as double may be laid down
on one side. ... The 14th Amendment [the due process clause) no
more forbids double taxation than it does doubling the amount of a
tax, short of (confiscation or proceedings unconstitutional on other
grouse With that decision rendered at a time when American
sovereignty in the Philippines was recognized, it possesses more
than just a persuasive effect. To some, it delivered the coup justice
to the bogey of double taxation as a constitutional bar to the
exercise of the taxing power. It would seem though that in the
United States, as with us, its ghost, as noted by an eminent critic,
still stalks the juridical stage. 'In a 1947 decision, however, we
quoted with approval this excerpt from a leading American decision:
'Where, as here, Congress has clearly expressed its intention, the
statute must be sustained even though double taxation results. 12 chanrobles virtual law library

So I would view the issues in this suit and accordingly concur in the
result.
chanroblesvirtualawl ibrarychanrobles virtua l law l ibrary

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with

a scholarly and comprehensive character. Insofar as it shows
adherence to tried and tested concepts of the law of municipal
taxation, I am only in agreement. If I limit myself to concurrence in
195 | P a g e
the result, it is primarily because with the article on Local Autonomy
found in the present Constitution, I feel a sense of reluctance in
restating doctrines that arose from a different basic premise as to
the scope of such power in accordance with the 1935 Charter.
Nonetheless it is well-nigh unavoidable that I do so as I am unable
to share fully what for me are the nuances and implications that
could arise from the approach taken by my brethren. Likewise as to
the constitutional aspect of the thorny question of double taxation, I
would limit myself to what has been set forth in City of Baguio v. De
Leon. 1

1. The present Constitution is quite explicit as to the power of

taxation vested in local and municipal corporations. It is therein
specifically provided: "Each local government unit shall have the
power to create its own sources of revenue and to levy taxes
subject to such limitations as may be provided by law. 2 That was
not the case under the 1935 Charter. The only limitation then on
the authority, plenary in character of the national government, was
that while the President of the Philippines was vested with the
power of control over all executive departments, bureaus, or offices,
he could only . It exercise general supervision over all local
governments as may be provided by law ... 3As far as legislative
power over local government was concerned, no restriction
whatsoever was placed on the Congress of the Philippines. It would
appear therefore that the extent of the taxing power was solely for
the legislative body to decide. It is true that in 1939, there was a
statute that enlarged the scope of the municipal taxing
power. 4 Thereafter, in 1959 such competence was further
expanded in the Local Autonomy Act. 5Nevertheless, as late as
December of 1964, five years after its enactment of the Local
Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon
Lumber Co. v. City of Butuan, 6 reaffirmed the traditional concept in
these words: "The rule is well-settled that municipal corporations,
unlike sovereign states, after clothed with no power of taxation;
that its charter or a statute must clearly show an intent to confer
that power or the municipal corporation cannot assume and exercise
it, and that any such power granted must be construed strictly, any
doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality." 7

196 | P a g e
Taxation, according to Justice Parades in the earlier case of Tan v.
Municipality of Pagbilao, 8"is an attribute of sovereignty which
municipal corporations do not enjoy." 9 That case left no doubt
either as to weakness of a claim "based merely by inferences,
implications and deductions, [as they have no place in the
interpretation of the power to tax of a municipal corporation." 10As
the conclusion reached by the Court finds support in such grant of
the municipal taxing power, I concur in the result. 2. As to any
possible infirmity based on an alleged double taxation, I would
prefer to rely on the doctrine announced by this Court in City
of Baguio v. De Leon. 11 Thus: "As to why double taxation is not
violative of due process, Justice Holmes made clear in this
language: 'The objection to the taxation as double may be laid down
on one side. ... The 14th Amendment [the due process clause) no
more forbids double taxation than it does doubling the amount of a
tax, short of (confiscation or proceedings unconstitutional on other
grouse With that decision rendered at a time when American
sovereignty in the Philippines was recognized, it possesses more
than just a persuasive effect. To some, it delivered the coup justice
to the bogey of double taxation as a constitutional bar to the
exercise of the taxing power. It would seem though that in the
United States, as with us, its ghost, as noted by an eminent critic,
still stalks the juridical stage. 'In a 1947 decision, however, we
quoted with approval this excerpt from a leading American decision:
'Where, as here, Congress has clearly expressed its intention, the
statute must be sustained even though double taxation results. 12

So I would view the issues in this suit and accordingly concur in the
result.

197 | P a g e
G.R. No. 99886 March 31, 1993

JOHN H. OSMEÑA, petitioner,

vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity
as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of
Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.

Nachura & Sarmiento for petitioner.

The Solicitor General for public respondents.

NARVASA, C.J.:

The petitioner seeks the corrective,1 prohibitive and coercive remedies provided by Rule 65 of the
Rules of Court,2upon the following posited grounds, viz.:3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to § 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution; 4

2) the unconstitutionality of § 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order
No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;"5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund,6 because it contravenes § 8, paragraph 2 (2) of
P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.

It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The
OPSF was designed to reimburse oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, 7 and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order
also authorized the investment of the fund in government securities, with the earnings from such
placements accruing to the fund.

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

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion;8 that to abate the worsening deficit, "the Energy Regulatory

198 | P a g e
Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents — Oscar
Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his
capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board — "are poised to accept,
process and pay claims not authorized under P.D. 1956."9

The petition further avers that the creation of the trust fund violates §
29(3), Article VI of the Constitution, reading as follows:

(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.

The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not channeled to another government
objective." 10 Petitioner further points out that since "a 'special fund' consists of monies collected
through the taxing power of a State, such amounts belong to the State, although the use thereof is
limited to the special purpose/objective for which it was created." 11

He also contends that the "delegation of legislative authority" to the ERB violates § 28 (2). Article VI
of the Constitution, viz.:

(2) The Congress may, by law, authorize the President to fix, within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government;

and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, and because they are, supposedly, taxes
levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a
portion thereof is taken from collections of ad valorem taxes and the increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State. The Solicitor General observes that the "argument rests on the assumption that
the OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose." 13 The petitioner's perceptions are, in the Court's view, not quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding in Valmonte v. Energy Regulatory Board, et al. 14 —

The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established
"for the purpose of minimizing the frequent price changes brought about by exchange

199 | P a g e
rate adjustment and/or changes in world market prices of crude oil and imported
petroleum products." 15 Under P.D. No. 1956, as amended by Executive Order No.
137 dated 27 February 1987, this Trust Account may be funded from any of the
following sources:

a) Any increase in the tax collection from ad valorem tax or customs

duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board
of Energy;

b) Any increase in the tax collection as a result of the lifting of tax

exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy:

c) Any additional amount to be imposed on petroleum products to

augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.

xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude
oil and petroleum products from sources of supply to the Philippines may also vary
from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in
world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day or even only from week to week would result in a chaotic market
with unpredictable effects upon the country's economy in general. The OPSF was
established precisely to protect local consumers from the adverse consequences that
such frequent oil price adjustments may have upon the economy. Thus, the OPSF
serves as a pocket, as it were, into which a portion of the purchase price of oil and
petroleum products paid by consumers as well as some tax revenues are inputted
and from which amounts are drawn from time to time to reimburse oil companies,
when appropriate situations arise, for increases in, as well as underrecovery of, costs
of crude importation. The OPSF is thus a buffer mechanism through which the
domestic consumer prices of oil and petroleum products are stabilized, instead of
fluctuating every so often, and oil companies are allowed to recover those portions of
their costs which they would not otherwise recover given the level of domestic prices
existing at any given time. To the extent that some tax revenues are also put into it,
the OPSF is in effect a device through which the domestic prices of petroleum
products are subsidized in part. It appears to the Court that the establishment and
maintenance of the OPSF is well within that pervasive and non-waivable power and

200 | P a g e
 responsibility of the government to secure the physical and economic survival and
well-being of the community, that comprehensive sovereign authority we designate
as the police power of the State. The stabilization, and subsidy of domestic prices of
petroleum products and fuel oil — clearly critical in importance considering, among
other things, the continuing high level of dependence of the country on imported
crude oil — are appropriately regarded as public purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality
of the sugar stabilization fees and explained their nature and character, viz.:

The stabilization fees collected are in the nature of a tax, which is within the power of
the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).

xxx xxx xxx

The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose — that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance if any, is to be
transferred to the general funds of the Government. That is the essence of the trust
intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). 17

The character of the Stabilization Fund as a special kind of fund is emphasized by

the fact that the funds are deposited in the Philippine National Bank and not in the
Philippine Treasury, moneys from which may be paid out only in pursuance of an
appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the
1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to
the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without precedent.

With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides
a sufficient standard by which the authority must be exercised. In addition to the general policy of the
law to protect the local consumer by stabilizing and subsidizing domestic pump rates, § 8(c) of P.D.

201 | P a g e
1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what
is involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the
ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with expediency in
carrying out the objectives of the law which are embraced by the police power of the State.

The interplay and constant fluctuation of the various factors involved in the determination of the price
of oil and petroleum products, and the frequently shifting need to either augment or exhaust the
Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by
the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or
avoid the undesirable consequences of such fluidity. As such, the standard as it is expressed,
suffices to guide the delegate in the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.

For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix
a standard — limits of which
are sufficiently determinate or determinable — to which the delegate must conform. 20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be
carried out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole. 21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law
intended was to permit the additional imposts for as long as there exists a need to protect the
general public and the petroleum industry from the adverse consequences of pump rate fluctuations.
"Where the standards set up for the guidance of an administrative officer and the action taken are in
fact recorded in the orders of such officer, so that Congress, the courts and the public are assured
that the orders in the judgment of such officer conform to the legislative standard, there is no failure
in the performance of the legislative functions." 22

202 | P a g e
This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may
be justified.

In relation to the third question — respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of § 8, paragraph 2
(2) of P.D. 1956, amended 23 — the Court finds for the petitioner.

The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in § 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'" 24 and since these items are reimbursements for which the
OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million." 25 It is argued "that under the principle of ejusdem generis . . . the term 'other
factors' (as used in § 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result
in the reduction of domestic prices of petroleum products." 26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines
of the rule of ejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed
upon the application of ejusdem generis to paragraph 2 of § 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned." 28 A
reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these subparagraphs.
What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly
allows the cost underrecovery only if such were incurred as a result of the reduction
of domestic prices of petroleum products.

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

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

203 | P a g e
Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort
to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the
so-called overpayment refunds. To be sure, the absence of any argument for or against the validity
of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.

Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.

WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement
of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.

SO ORDERED.

Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo,
Melo, Campos, Jr., and Quiason, JJ., concur.

Gutierrez, Jr., J., is on leave.

204 | P a g e
G.R. No. L-29646 November 10, 1978

MAYOR ANTONIO J. VILLEGAS, petitioner,

vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.

Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.

Sotero H. Laurel for respondents.

FERNANDEZ, J.:

This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge
Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil Case No. 72797, the
dispositive portion of winch reads.

Wherefore, judgment is hereby rendered in favor of the petitioner and against the
respondents, declaring Ordinance No. 6 37 of the City of Manila null and void. The
preliminary injunction is made permanent. No pronouncement as to cost.

SO ORDERED.

Manila, Philippines, September 17, 1968.

(SGD.)
FRAN
CISCO
ARCA

J
u
d
g
e
1

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22,
1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. 2

City Ordinance No. 6537 is entitled:

AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF

THE PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO
BE ENGAGED IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN
THE CITY OF MANILA WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT
FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES. 3

205 | P a g e
Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or
participate in any position or occupation or business enumerated therein, whether permanent,
temporary or casual, without first securing an employment permit from the Mayor of Manila and
paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of
foreign countries, or in the technical assistance programs of both the Philippine Government and any
foreign government, and those working in their respective households, and members of religious
orders or congregations, sect or denomination, who are not paid monetarily or in kind.

Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six
(6) months or fine of not less than P100.00 but not more than P200.00 or both such fine and
imprisonment, upon conviction. 5

On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a
petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797,
praying for the issuance of the writ of preliminary injunction and restraining order to stop the
enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537
null and void. 6

In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the
ordinance declared null and void:

1) As a revenue measure imposed on aliens employed in the City of Manila,

Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in
taxation;

2) As a police power measure, it makes no distinction between useful and non-useful

occupations, imposing a fixed P50.00 employment permit, which is out of proportion
to the cost of registration and that it fails to prescribe any standard to guide and/or
limit the action of the Mayor, thus, violating the fundamental principle on illegal
delegation of legislative powers:

3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are
thus, deprived of their rights to life, liberty and property and therefore, violates the
due process and equal protection clauses of the Constitution.7

On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17,
1968 rendered judgment declaring Ordinance No. 6537 null and void and making permanent the writ
of preliminary injunction. 8

Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the
present petition on March 27, 1969. Petitioner assigned the following as errors allegedly committed
by respondent Judge in the latter's decision of September 17,1968: 9

THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF

LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE
OF UNIFORMITY OF TAXATION.

II

206 | P a g e
 RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR
OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE
AGAINST UNDUE DESIGNATION OF LEGISLATIVE POWER.

III

RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT

ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE
PROCESS AND EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.

Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the
ground that it violated the rule on uniformity of taxation because the rule on uniformity of taxation
applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue
measure but is an exercise of the police power of the state, it being principally a regulatory measure
in nature.

The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal
purpose is regulatory in nature has no merit. While it is true that the first part which requires that the
alien shall secure an employment permit from the Mayor involves the exercise of discretion and
judgment in the processing and approval or disapproval of applications for employment permits and
therefore is regulatory in character the second part which requires the payment of P50.00 as
employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting
P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the
ordinance is to raise money under the guise of regulation.

The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid
substantial differences in situation among individual aliens who are required to pay it. Although the
equal protection clause of the Constitution does not forbid classification, it is imperative that the
classification should be based on real and substantial differences having a reasonable relation to the
subject of the particular legislation. The same amount of P50.00 is being collected from every
employed alien whether he is casual or permanent, part time or full time or whether he is a lowly
employee or a highly paid executive

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise
of his discretion. It has been held that where an ordinance of a municipality fails to state any policy
or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by
requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus
conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of building
permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or
prevent an activity per se lawful. 10

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

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

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

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

Requiring a person before he can be employed to get a permit from the City Mayor of Manila who
may withhold or refuse it at will is tantamount to denying him the basic right of the people in the
Philippines to engage in a means of livelihood. While it is true that the Philippines as a State is not
obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived of life
without due process of law. This guarantee includes the means of livelihood. The shelter of
protection under the due process and equal protection clause is given to all persons, both aliens and
citizens. 13

The trial court did not commit the errors assigned.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.

SO ORDERED.

Barredo, Makasiar, Muñoz Palma, Santos and Guerrero, JJ., concur.

Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result.

Concepcion, Jr., J., took no part.

Separate Opinions

TEEHANKEE, J., concurring:

I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment
declaring Ordinance No. 6537 of the City of Manila null and void for the reason that the employment
of aliens within the country is a matter of national policy and regulation, which properly pertain to the
national government officials and agencies concerned and not to local governments, such as the
City of Manila, which after all are mere creations of the national government.

The national policy on the matter has been determined in the statutes enacted by the legislature, viz,
the various Philippine nationalization laws which on the whole recognize the right of aliens to obtain
gainful employment in the country with the exception of certain specific fields and areas. Such
national policies may not be interfered with, thwarted or in any manner negated by any local
government or its officials since they are not separate from and independent of the national
government.

208 | P a g e
As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129:
"The City of Manila is a subordinate body to the Insular (National Government ...). When the Insular
(National) Government adopts a policy, a municipality is without legal authority to nullify and set at
naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised
within the limits of the organic laws, but they must be consistent with the general law and public
policy of the particular state ..." (I McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011).

With more reason are such national policies binding on local governments when they involve our
foreign relations with other countries and their nationals who have been lawfully admitted here, since
in such matters the views and decisions of the Chief of State and of the legislature must prevail over
those of subordinate and local governments and officials who have no authority whatever to take
official acts to the contrary.

209 | P a g e