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G.R. No. L-28896 February 17, 1988 considerations.

It thus had the effect of suspending on January 18,

1965, when it was filed, the reglementary period which started on the
COMMISSIONER OF INTERNAL REVENUE, petitioner, date the assessment was received, viz., January 14, 1965. The period
vs. started running again only on April 7, 1965, when the private
ALGUE, INC., and THE COURT OF TAX respondent was definitely informed of the implied rejection of the
APPEALS, respondents. 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.
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 The petitioner contends that the claimed deduction of P75,000.00 was
negate the very reason for government itself. It is therefore necessary properly disallowed because it was not an ordinary reasonable or
to reconcile the apparently conflicting interests of the authorities and necessary business expense. The Court of Tax Appeals had seen it
the taxpayers so that the real purpose of taxation, which is the differently. Agreeing with Algue, it held that the said amount had
promotion of the common good, may be achieved. 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
The main issue in this case is whether or not the Collector of Internal Vegetable Oil Investment Corporation of the Philippines and its
Revenue correctly disallowed the P75,000.00 deduction claimed by subsequent purchase of the properties of the Philippine Sugar Estate
private respondent Algue as legitimate business expenses in its Development Company.
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. 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
We deal first with the procedural question. 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
The record shows that on January 14, 1965, the private respondent, a was distributed It has been established that the Philippine Sugar
domestic corporation engaged in engineering, construction and other Estate Development Company had earlier appointed Algue as its
allied activities, received a letter from the petitioner assessing it in the agent, authorizing it to sell its land, factories and oil manufacturing
total amount of P83,183.85 as delinquency income taxes for the years process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo
1958 and 1959.1 On January 18, 1965, Algue flied a letter of protest Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked
or request for reconsideration, which letter was stamp received on the for the formation of the Vegetable Oil Investment Corporation,
same day in the office of the petitioner. 2 On March 12, 1965, a inducing other persons to invest in it.14 Ultimately, after its
warrant of distraint and levy was presented to the private respondent, incorporation largely through the promotion of the said persons, this
through its counsel, Atty. Alberto Guevara, Jr., who refused to new corporation purchased the PSEDC properties.15 For this sale,
receive it on the ground of the pending protest. 3 A search of the Algue received as agent a commission of P126,000.00, and it was
protest in the dockets of the case proved fruitless. Atty. Guevara from this commission that the P75,000.00 promotional fees were paid
produced his file copy and gave a photostat to BIR agent Ramon to the aforenamed individuals.16
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 There is no dispute that the payees duly reported their respective
on the protest and it was only then that he accepted the warrant of shares of the fees in their income tax returns and paid the
distraint and levy earlier sought to be served.5 Sixteen days later, on corresponding taxes thereon.17 The Court of Tax Appeals also found,
April 23, 1965, Algue filed a petition for review of the decision of the after examining the evidence, that no distribution of dividends was
Commissioner of Internal Revenue with the Court of Tax Appeals. 6 involved.18

The above chronology shows that the petition was filed seasonably. The petitioner claims that these payments are fictitious because most
According to Rep. Act No. 1125, the appeal may be made within of the payees are members of the same family in control of Algue. It
thirty days after receipt of the decision or ruling challenged. 7 It is true is argued that no indication was made as to how such payments were
that as a rule the warrant of distraint and levy is "proof of the finality made, whether by check or in cash, and there is not enough
of the assessment" 8 and renders hopeless a request for substantiation of such payments. In short, the petitioner suggests a tax
reconsideration," 9 being "tantamount to an outright denial thereof dodge, an attempt to evade a legitimate assessment by involving an
and makes the said request deemed rejected." 10 But there is a special imaginary deduction.
circumstance in the case at bar that prevents application of this
accepted doctrine.
We find that these suspicions were adequately met by the private
respondent when its President, Alberto Guevara, and the accountant,
The proven fact is that four days after the private respondent received Cecilia V. de Jesus, testified that the payments were not made in one
the petitioner's notice of assessment, it filed its letter of protest. This lump sum but periodically and in different amounts as each payee's
was apparently not taken into account before the warrant of distraint need arose. 19 It should be remembered that this was a family
and levy was issued; indeed, such protest could not be located in the corporation where strict business procedures were not applied and
office of the petitioner. It was only after Atty. Guevara gave the BIR immediate issuance of receipts was not required. Even so, at the end
a copy of the protest that it was, if at all, considered by the tax of the year, when the books were to be closed, each payee made an
authorities. During the intervening period, the warrant was premature accounting of all of the fees received by him or her, to make up the
and could therefore not be served. total of P75,000.00. 20 Admittedly, everything seemed to be informal.
This arrangement was understandable, however, in view of the close
As the Court of Tax Appeals correctly noted," 11 the protest filed by relationship among the persons in the family corporation.
private respondent was not pro forma and was based on strong legal
We agree with the respondent court that the amount of the the fees was necessary and reasonable in the light of the efforts
promotional fees was not excessive. The total commission paid by exerted by the payees in inducing investors and prominent
the Philippine Sugar Estate Development Co. to the private businessmen to venture in an experimental enterprise and involve
respondent was P125,000.00. 21After deducting the said fees, Algue themselves in a new business requiring millions of pesos. This was
still had a balance of P50,000.00 as clear profit from the transaction. no mean feat and should be, as it was, sufficiently recompensed.
The amount of P75,000.00 was 60% of the total commission. This
was a reasonable proportion, considering that it was the payees who It is said that taxes are what we pay for civilization society. Without
did practically everything, from the formation of the Vegetable Oil taxes, the government would be paralyzed for lack of the motive
Investment Corporation to the actual purchase by it of the Sugar power to activate and operate it. Hence, despite the natural reluctance
Estate properties. This finding of the respondent court is in accord to surrender part of one's hard earned income to the taxing
with the following provision of the Tax Code: authorities, every person who is able to must contribute his share in
the running of the government. The government for its part, is
SEC. 30. Deductions from gross income.--In expected to respond in the form of tangible and intangible benefits
computing net income there shall be allowed as intended to improve the lives of the people and enhance their moral
deductions — and material values. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that it is an arbitrary
(a) Expenses: method of exaction by those in the seat of power.

(1) In general.--All the ordinary and necessary But even as we concede the inevitability and indispensability of
expenses paid or incurred during the taxable year taxation, it is a requirement in all democratic regimes that it be
in carrying on any trade or business, including a exercised reasonably and in accordance with the prescribed
reasonable allowance for salaries or other procedure. If it is not, then the taxpayer has a right to complain and
compensation for personal services actually the courts will then come to his succor. For all the awesome power of
rendered; ... 22 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.
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
We hold that the appeal of the private respondent from the decision
of the petitioner was filed on time with the respondent court in
SEC. 70. Compensation for personal services.-- accordance with Rep. Act No. 1125. And we also find that the
Among the ordinary and necessary expenses paid claimed deduction by the private respondent was permitted under the
or incurred in carrying on any trade or business Internal Revenue Code and should therefore not have been
may be included a reasonable allowance for disallowed by the petitioner.
salaries or other compensation for personal
services actually rendered. The test of
deductibility in the case of compensation ACCORDINGLY, the appealed decision of the Court of Tax Appeals
payments is whether they are reasonable and are, is AFFIRMED in toto, without costs.
in fact, payments purely for service. This test and
deductibility in the case of compensation SO ORDERED.
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
G.R. No. L-7859 December 22, 1955 Provided, That the President of the Philippines may, until
the adjourment of the next regular session of the National
WALTER LUTZ, as Judicial Administrator of the Intestate Assembly, make the necessary disbursements from the fund
Estate of the deceased Antonio Jayme Ledesma,plaintiff- herein created (1) for the establishment and operation of
appellant, sugar experiment station or stations and the undertaking of
vs. researchers (a) to increase the recoveries of the centrifugal
J. ANTONIO ARANETA, as the Collector of Internal sugar factories with the view of reducing manufacturing
Revenue, defendant-appellee. 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
REYES, J.B L., J.: raising sugar cane, (d) to improve the buying quality of
denatured alcohol from molasses for motor fuel, (e) to
This case was initiated in the Court of First Instance of Negros determine the possibility of utilizing the other by-products
Occidental to test the legality of the taxes imposed by of the industry, (f) to determine what crop or crops are
Commonwealth Act No. 567, otherwise known as the Sugar suitable for rotation and for the utilization of excess cane
Adjustment Act. lands, and (g) on other problems the solution of which
would help rehabilitate and stabilize the industry, and (2)
Promulgated in 1940, the law in question opens (section 1) with a for the improvement of living and working conditions in
declaration of emergency, due to the threat to our industry by the sugar mills and sugar plantations, authorizing him to
imminent imposition of export taxes upon sugar as provided in the organize the necessary agency or agencies to take charge of
Tydings-McDuffe Act, and the "eventual loss of its preferential the expenditure and allocation of said funds to carry out the
position in the United States market"; wherefore, the national policy purpose hereinbefore enumerated, and, likewise,
was expressed "to obtain a readjustment of the benefits derived from authorizing the disbursement from the fund herein created
the sugar industry by the component elements thereof" and "to of the necessary amount or amounts needed for salaries,
stabilize the sugar industry so as to prepare it for the eventuality of wages, travelling expenses, equipment, and other sundry
the loss of its preferential position in the United States market and the expenses of said agency or agencies.
imposition of the export taxes."
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the
In section 2, Commonwealth Act 567 provides for an increase of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the
existing tax on the manufacture of sugar, on a graduated basis, on Collector of Internal Revenue the sum of P14,666.40 paid by the
each picul of sugar manufactured; while section 3 levies on owners or estate as taxes, under section 3 of the Act, for the crop years 1948-
persons in control of lands devoted to the cultivation of sugar cane 1949 and 1949-1950; alleging that such tax is unconstitutional and
and ceded to others for a consideration, on lease or otherwise — 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
a tax equivalent to the difference between the money value dismissed by the Court of First Instance, the plaintifs appealed the
of the rental or consideration collected and the amount case directly to this Court (Judiciary Act, section 17).
representing 12 per centum of the assessed value of such
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
According to section 6 of the law — 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
SEC. 6. All collections made under this Act shall accrue to regulatory purpose, to provide means for the rehabilitation and
a special fund in the Philippine Treasury, to be known as stabilization of the threatened sugar industry. In other words, the act
the 'Sugar Adjustment and Stabilization Fund,' and shall be is primarily an exercise of the police power.
paid out only for any or all of the following purposes or to
attain any or all of the following objectives, as may be This Court can take judicial notice of the fact that sugar production is
provided by law. one of the great industries of our nation, sugar occupying a leading
position among its export products; that it gives employment to
First, to place the sugar industry in a position to maintain thousands of laborers in fields and factories; that it is a great source
itself, despite the gradual loss of the preferntial position of of the state's wealth, is one of the important sources of foreign
the Philippine sugar in the United States market, and exchange needed by our government, and is thus pivotal in the plans
ultimately to insure its continued existence notwithstanding of a regime committed to a policy of currency stability. Its
the loss of that market and the consequent necessity of promotion, protection and advancement, therefore redounds greatly
meeting competition in the free markets of the world; 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
Second, to readjust the benefits derived from the sugar
lawmaking body could provide that the distribution of benefits
industry by all of the component elements thereof — the
therefrom be readjusted among its components to enable it to resist
mill, the landowner, the planter of the sugar cane, and the
the added strain of the increase in taxes that it had to sustain (Sligh
laborers in the factory and in the field — so that all might
vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel.
continue profitably to engage therein;
Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla.
552, 139 So. 121).
Third, to limit the production of sugar to areas more
economically suited to the production thereof; and
As stated in Johnson vs. State ex rel. Marey, with reference to the
citrus industry in Florida —
Fourth, to afford labor employed in the industry a living
wage and to improve their living and working conditions:
The protection of a large industry constituting one of the G.R. No. 99886 March 31, 1993
great sources of the state's wealth and therefore directly or
indirectly affecting the welfare of so great a portion of the JOHN H. OSMEÑA, petitioner,
population of the State is affected to such an extent by vs.
public interests as to be within the police power of the OSCAR ORBOS, in his capacity as Executive Secretary; JESUS
sovereign. (128 Sp. 857). ESTANISLAO, in his capacity as Secretary of Finance;
WENCESLAO DELA PAZ, in his capacity as Head of the Office
Once it is conceded, as it must, that the protection and promotion of of Energy Affairs; REX V. TANTIONGCO, and the ENERGY
the sugar industry is a matter of public concern, it follows that the REGULATORY BOARD, respondents.
Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the NARVASA, C.J.:
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 The petitioner seeks the corrective,1 prohibitive and coercive
objective pursued or are oppressive in character. If objective and remedies provided by Rule 65 of the Rules of Court,2upon the
methods are alike constitutionally valid, no reason is seen why the following posited grounds, viz.:3
state may not levy taxes to raise funds for their prosecution and
attainment. Taxation may be made the implement of the state's police 1) the invalidity of the "TRUST ACCOUNT" in the books of account
power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. of the Ministry of Energy (now, the Office of Energy Affairs),
Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. created pursuant to § 8, paragraph 1, of P.D. No. 1956, as amended,
Maryland, 4 Wheat. 316, 4 L. Ed. 579). "said creation of a trust fund being contrary to Section 29 (3), Article
VI of the . . Constitution;4
That the tax to be levied should burden the sugar producers
themselves can hardly be a ground of complaint; indeed, it appears 2) the unconstitutionality of § 8, paragraph 1 (c) of P.D. No. 1956, as
rational that the tax be obtained precisely from those who are to be amended by Executive Order No. 137, for "being an undue and
benefited from the expenditure of the funds derived from it. At any invalid delegation of legislative power . . to the Energy Regulatory
rate, it is inherent in the power to tax that a state be free to select the Board;"5
subjects of taxation, and it has been repeatedly held that "inequalities
which result from a singling out of one particular class for taxation, 3) the illegality of the reimbursements to oil companies, paid out of
or exemption infringe no constitutional limitation" (Carmichael vs. the Oil Price Stabilization Fund,6 because it contravenes § 8,
Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing paragraph 2 (2) of
numerous authorities, at p. 1251). P. D. 1956, as amended; and

From the point of view we have taken it appears of no moment that 4) the consequent nullity of the Order dated December 10, 1990 and
the funds raised under the Sugar Stabilization Act, now in question, the necessity of a rollback of the pump prices and petroleum products
should be exclusively spent in aid of the sugar industry, since it is to the levels prevailing prior to the said Order.
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." It will be recalled that on October 10, 1984, President Ferdinand
As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. Marcos issued P.D. 1956 creating a Special Account in the General
270, 84 L. Ed. 744, "if the law presumably hits the evil where it is Fund, designated as the Oil Price Stabilization Fund (OPSF). The
most felt, it is not to be overthrown because there are other instances OPSF was designed to reimburse oil companies for cost increases in
to which it might have been applied;" and that "the legislative crude oil and imported petroleum products resulting from exchange
authority, exerted within its proper field, need not embrace all the rate adjustments and from increases in the world market prices of
evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. crude oil.
301 U. S. 1, 81 L. Ed. 893).
Subsequently, the OPSF was reclassified into a "trust liability
Even from the standpoint that the Act is a pure tax measure, it cannot account," in virtue of E.O. 1024,7 and ordered released from the
be said that the devotion of tax money to experimental stations to National Treasury to the Ministry of Energy. The same Executive
seek increase of efficiency in sugar production, utilization of by- Order also authorized the investment of the fund in government
products and solution of allied problems, as well as to the securities, with the earnings from such placements accruing to the
improvements of living and working conditions in sugar mills or fund.
plantations, without any part of such money being channeled directly
to private persons, constitutes expenditure of tax money for private President Corazon C. Aquino, amended P.D. 1956. She promulgated
purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, Executive Order No. 137 on February 27, 1987, expanding the
168 ALR 1392, 1400). grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices
The decision appealed from is affirmed, with costs against appellant. of petroleum products, the amount of the underrecovery being left for
So ordered. determination by the Ministry of Finance.

Now, the petition alleges that the status of the OPSF as of March 31,
1991 showed a "Terminal Fund Balance deficit" of some P12.877
billion;8 that to abate the worsening deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, approving the
increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a
span of six (6) months, but this notwithstanding, the respondents —
Oscar Orbos, in his capacity as Executive Secretary; Jesus Estanislao, The foregoing arguments suggest the presence of
in his capacity as Secretary of Finance; Wenceslao de la Paz, in his misconceptions about the nature and functions of
capacity as Head of the Office of Energy Affairs; Chairman Rex V. the OPSF. The OPSF is a "Trust Account" which
Tantiongco and the Energy Regulatory Board — "are poised to was established "for the purpose of minimizing
accept, process and pay claims not authorized under P.D. 1956."9 the frequent price changes brought about by
exchange rate adjustment and/or changes in
The petition further avers that the creation of the trust fund violates § world market prices of crude oil and imported
29(3), Article VI of the Constitution, reading as follows: 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
(3) All money collected on any tax levied for a from any of the following sources:
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 a) Any increase in the tax collection from ad valorem tax or customs
been fulfilled or abandoned, the balance, if any, duty imposed on petroleum products subject to tax under this
shall be transferred to the general funds of the Decree arising from exchange rate adjustment, as may be determined
Government. by the Minister of Finance in consultation with the Board of Energy;

The petitioner argues that "the monies collected pursuant to . . P.D. b) Any increase in the tax collection as a result of the lifting of tax
1956, as amended, must be treated as a 'SPECIAL FUND,' not as a exemptions of government corporations, as may be determined by the
'trust account' or a 'trust fund,' and that "if a special tax is collected Minister of Finance in consultation with the Board of Energy:
for a specific purpose, the revenue generated therefrom shall 'be
treated as a special fund' to be used only for the purpose indicated, c) Any additional amount to be imposed on petroleum products to
and not channeled to another government objective." 10 Petitioner augment the resources of the Fund through an appropriate Order that
further points out that since "a 'special fund' consists of monies may be issued by the Board of Energy requiring payment of persons
collected through the taxing power of a State, such amounts belong to or companies engaged in the business of importing, manufacturing
the State, although the use thereof is limited to the special and/or marketing petroleum products;
purpose/objective for which it was created." 11
d) Any resulting peso cost differentials in case the actual peso costs
He also contends that the "delegation of legislative authority" to the paid by oil companies in the importation of crude oil and petroleum
ERB violates § 28 (2). Article VI of the Constitution, viz.: products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.
(2) The Congress may, by law, authorize the
President to fix, within specified limits, and xxx xxx xxx
subject to such limitations and restrictions as it
may impose, tariff rates, import and export The fact that the world market prices of oil, measured by the spot
quotas, tonnage and wharfage dues, and other market in Rotterdam, vary from day to day is of judicial notice.
duties or imposts within the framework of the Freight rates for hauling crude oil and petroleum products from
national development program of the sources of supply to the Philippines may also vary from time to time.
Government; 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
and, inasmuch as the delegation relates to the exercise of the power fluctuations in world market prices and in tanker rates and foreign
of taxation, "the limits, limitations and restrictions must be exchange rates would in a completely free market translate into
quantitative, that is, the law must not only specify how to tax, who corresponding adjustments in domestic prices of oil and petroleum
(shall) be taxed (and) what the tax is for, but also impose a specific products with sympathetic frequency. But domestic prices which vary
limit on how much to tax." 12 from day to day or even only from week to week would result in a
chaotic market with unpredictable effects upon the country's
The petitioner does not suggest that a "trust account" is illegal per se, economy in general. The OPSF was established precisely to protect
but maintains that the monies collected, which form part of the local consumers from the adverse consequences that such frequent
OPSF, should be maintained in a special account of the general fund oil price adjustments may have upon the economy. Thus, the OPSF
for the reason that the Constitution so provides, and because they are, serves as a pocket, as it were, into which a portion of the purchase
supposedly, taxes levied for a special purpose. He assumes that the price of oil and petroleum products paid by consumers as well as
Fund is formed from a tax undoubtedly because a portion thereof is some tax revenues are inputted and from which amounts are drawn
taken from collections of ad valorem taxes and the increases thereon. 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
It thus appears that the challenge posed by the petitioner is premised which the domestic consumer prices of oil and petroleum products
primarily on the view that the powers granted to the ERB under P.D. are stabilized, instead of fluctuating every so often, and oil
1956, as amended, partake of the nature of the taxation power of the companies are allowed to recover those portions of their costs which
State. The Solicitor General observes that the "argument rests on the they would not otherwise recover given the level of domestic prices
assumption that the OPSF is a form of revenue measure drawing existing at any given time. To the extent that some tax revenues are
from a special tax to be expended for a special purpose." 13 The also put into it, the OPSF is in effect a device through which the
petitioner's perceptions are, in the Court's view, not quite correct. domestic prices of petroleum products are subsidized in part. It
appears to the Court that the establishment and maintenance of the
To address this critical misgiving in the position of the petitioner on OPSF is well within that pervasive and non-waivable power and
these issues, the Court recalls its holding in Valmonte v. Energy responsibility of the government to secure the physical and economic
Regulatory Board, et al. 14 — 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 What petitioner would wish is the fixing of some definite,
products and fuel oil — clearly critical in importance considering, quantitative restriction, or "a specific limit on how much to
among other things, the continuing high level of dependence of the tax." 19 The Court is cited to this requirement by the petitioner on the
country on imported crude oil — are appropriately regarded as public premise that what is involved here is the power of taxation; but as
purposes. 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
Also of relevance is this Court's ruling in relation to the sugar authorizing the ERB to impose additional amounts could be
stabilization fund the nature of which is not far different from the construed to refer to the power of taxation, it cannot be overlooked
OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the that the overriding consideration is to enable the delegate to act with
legality of the sugar stabilization fees and explained their nature and expediency in carrying out the objectives of the law which are
character, viz.: embraced by the police power of the State.

The stabilization fees collected are in the nature of a tax, which is The interplay and constant fluctuation of the various factors involved
within the power of the State to impose for the promotion of the in the determination of the price of oil and petroleum products, and
sugar industry (Lutz v. Araneta, 98 Phil. 148). . . . The tax collected is the frequently shifting need to either augment or exhaust the Fund, do
not in a pure exercise of the taxing power. It is levied with a not conveniently permit the setting of fixed or rigid parameters in the
regulatory purpose, to provide a means for the stabilization of the law as proposed by the petitioner. To do so would render the ERB
sugar industry. The levy is primarily in the exercise of the police unable to respond effectively so as to mitigate or avoid the
power of the State (Lutz v. Araneta, supra). 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
xxx xxx xxx is to be exercised.

The stabilization fees in question are levied by the State upon sugar For a valid delegation of power, it is essential that the law delegating
millers, planters and producers for a special purpose — that of the power must be (1) complete in itself, that is it must set forth the
"financing the growth and development of the sugar industry and all policy to be executed by the delegate and (2) it must fix a standard —
its components, stabilization of the domestic market including the limits of which
foreign market." The fact that the State has taken possession of are sufficiently determinate or determinable — to which the delegate
moneys pursuant to law is sufficient to constitute them state funds, must conform. 20
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 . . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful
revenues collected are to be treated as a special fund, to be, in the delegation, there must be a standard, which implies at the very least
language of the statute, "administered in trust" for the purpose that the legislature itself determines matters of principle and lays
intended. Once the purpose has been fulfilled or abandoned, the down fundamental policy. Otherwise, the charge of complete
balance if any, is to be transferred to the general funds of the abdication may be hard to repel. A standard thus defines legislative
Government. That is the essence of the trust intended (SEE 1987 policy, marks its limits, maps out its boundaries and specifies the
Constitution, Article VI, Sec. 29(3), lifted from the 1935 public agency to apply it. It indicates the circumstances under which
Constitution, Article VI, Sec. 23(1). 17 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
The character of the Stabilization Fund as a special kind of fund is guidelines promulgate supplemental rules and regulations. The
emphasized by the fact that the funds are deposited in the Philippine standard may either be express or implied. If the former, the non-
National Bank and not in the Philippine Treasury, moneys from delegation objection is easily met. The standard though does not have
which may be paid out only in pursuance of an appropriation made to be spelled out specifically. It could be implied from the policy and
by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the purpose of the act considered as a whole. 21
1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).
It would seem that from the above-quoted ruling, the petition for
Hence, it seems clear that while the funds collected may be referred prohibition should fail.
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 The standard, as the Court has already stated, may even be implied.
general fund; and while it is placed in what the law refers to as a In that light, there can be no ground upon which to sustain the
"trust liability account," the fund nonetheless remains subject to the petition, inasmuch as the challenged law sets forth a determinable
scrutiny and review of the COA. The Court is satisfied that these standard which guides the exercise of the power granted to the ERB.
measures comply with the constitutional description of a "special By the same token, the proper exercise of the delegated power may
fund." Indeed, the practice is not without precedent. 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
With regard to the alleged undue delegation of legislative power, the adverse consequences of pump rate fluctuations. "Where the
Court finds that the provision conferring the authority upon the ERB standards set up for the guidance of an administrative officer and the
to impose additional amounts on petroleum products provides a action taken are in fact recorded in the orders of such officer, so that
sufficient standard by which the authority must be exercised. In Congress, the courts and the public are assured that the orders in the
addition to the general policy of the law to protect the local consumer judgment of such officer conform to the legislative standard, there is
by stabilizing and subsidizing domestic pump rates, § 8(c) of P.D. no failure in the performance of the legislative functions." 22
1956 18 expressly authorizes the ERB to impose additional
amounts to augment the resources of the Fund.
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 Anent the overpayment refunds mentioned by the petitioner, no
which the delegation of power may be justified. substantive discussion has been presented to show how this is
prohibited by P.D. 1956. Nor has the Solicitor General taken any
In relation to the third question — respecting the illegality of the effort to defend the propriety of this refund. In fine, neither of the
reimbursements to oil companies, paid out of the Oil Price parties, beyond the mere mention of overpayment refunds, has at all
Stabilization Fund, because allegedly in contravention of § 8, bothered to discuss the arguments for or against the legality of the so-
paragraph 2 (2) of P.D. 1956, amended 23 — the Court finds for the called overpayment refunds. To be sure, the absence of any argument
petitioner. 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
The petition assails the payment of certain items or accounts in favor can be no basis upon which to nullify the same.
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 Finally, the Court finds no necessity to rule on the remaining issue,
embraced in the enumeration in § 8 of P.D. 1956 . . since none of the same having been rendered moot and academic. As of date
them was incurred 'as a result of the reduction of domestic prices of hereof, the pump rates of gasoline have been reduced to levels below
petroleum products,'" 24 and since these items are reimbursements for even those prayed for in the petition.
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 WHEREFORE, the petition is GRANTED insofar as it prays for the
is argued "that under the principle of ejusdem generis . . . the term nullification of the reimbursement of financing charges, paid
'other factors' (as used in § 8 of P.D. 1956) . . can only include such pursuant to E.O. 137, and DISMISSED in all other respects.
'other factors' which necessarily result in the reduction of domestic
prices of petroleum products." 26 SO ORDERED.

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

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
G.R. No. L-75697 industry-wide displacement and unemployment due to the
shutdown of numerous moviehouses and theaters;
VALENTIN TIO doing business under the name and style of
OMI ENTERPRISES, petitioner, 4. "WHEREAS, in order to ensure national economic
vs. recovery, it is imperative for the Government to create an
VIDEOGRAM REGULATORY BOARD, MINISTER OF environment conducive to growth and development of all
FINANCE, METRO MANILA COMMISSION, CITY MAYOR business industries, including the movie industry which has
and CITY TREASURER OF MANILA, respondents. an accumulated investment of about P3 Billion;

MELENCIO-HERRERA, J.: 5. WHEREAS, proper taxation of the activities of

videogram establishments will not only alleviate the dire
This petition was filed on September 1, 1986 by petitioner on his own financial condition of the movie industry upon which more
behalf and purportedly on behalf of other videogram operators than 75,000 families and 500,000 workers depend for their
adversely affected. It assails the constitutionality of Presidential livelihood, but also provide an additional source of revenue
Decree No. 1987 entitled "An Act Creating the Videogram for the Government, and at the same time rationalize the
Regulatory Board" with broad powers to regulate and supervise the heretofore uncontrolled distribution of videograms;
videogram industry (hereinafter briefly referred to as the BOARD).
The Decree was promulgated on October 5, 1985 and took effect on 6. WHEREAS, the rampant and unregulated showing of
April 10, 1986, fifteen (15) days after completion of its publication in obscene videogram features constitutes a clear and present
the Official Gazette. danger to the moral and spiritual well-being of the youth,
and impairs the mandate of the Constitution for the State to
On November 5, 1985, a month after the promulgation of the support the rearing of the youth for civic efficiency and the
abovementioned decree, Presidential Decree No. 1994 amended the development of moral character and promote their physical,
National Internal Revenue Code providing, inter alia: intellectual, and social well-being;

SEC. 134. Video Tapes. — There shall be collected on each 7. WHEREAS, civic-minded citizens and groups have
processed video-tape cassette, ready for playback, called for remedial measures to curb these blatant
regardless of length, an annual tax of five pesos; Provided, malpractices which have flaunted our censorship and
That locally manufactured or imported blank video tapes copyright laws;
shall be subject to sales tax.
8. WHEREAS, in the face of these grave emergencies
On October 23, 1986, the Greater Manila Theaters Association, corroding the moral values of the people and betraying the
Integrated Movie Producers, Importers and Distributors Association national economic recovery program, bold emergency
of the Philippines, and Philippine Motion Pictures Producers measures must be adopted with dispatch; ... (Numbering of
Association, hereinafter collectively referred to as the Intervenors, paragraphs supplied).
were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for Petitioner's attack on the constitutionality of the DECREE rests on
the complete protection of their rights and that their "survival and the following grounds:
very existence is threatened by the unregulated proliferation of film
piracy." The Intervenors were thereafter allowed to file their 1. Section 10 thereof, which imposes a tax of 30% on the
Comment in Intervention. gross receipts payable to the local government is a RIDER
and the same is not germane to the subject matter thereof;
The rationale behind the enactment of the DECREE, is set out in its
preambular clauses as follows: 2. The tax imposed is harsh, confiscatory, oppressive
and/or in unlawful restraint of trade in violation of the due
1. WHEREAS, the proliferation and unregulated circulation process clause of the Constitution;
of videograms including, among others, videotapes, discs,
cassettes or any technical improvement or variation thereof, 3. There is no factual nor legal basis for the exercise by the
have greatly prejudiced the operations of moviehouses and President of the vast powers conferred upon him by
theaters, and have caused a sharp decline in theatrical Amendment No. 6;
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 4. There is undue delegation of power and authority;
substantial losses estimated at P450 Million annually in
government revenues; 5. The Decree is an ex-post facto law; and

2. WHEREAS, videogram(s) establishments collectively 6. There is over regulation of the video industry as if it
earn around P600 Million per annum from rentals, sales were a nuisance, which it is not.
and disposition of videograms, and such earnings have not
been subjected to tax, thereby depriving the Government of We shall consider the foregoing objections in seriatim.
approximately P180 Million in taxes each year;

1. The Constitutional requirement that "every bill shall embrace only

3. WHEREAS, the unregulated activities of videogram one subject which shall be expressed in the title thereof" 1 is
establishments have also affected the viability of the movie sufficiently complied with if the title be comprehensive enough to
industry, particularly the more than 1,200 movie houses include the general purpose which a statute seeks to achieve. It is not
and theaters throughout the country, and occasioned
necessary that the title express each and every end that the statute videogram establishments of around P600 million per annum have
wishes to accomplish. The requirement is satisfied if all the parts of not been subjected to tax, thereby depriving the Government of an
the statute are related, and are germane to the subject matter additional source of revenue. It is an end-user tax, imposed on
expressed in the title, or as long as they are not inconsistent with or retailers for every videogram they make available for public viewing.
foreign to the general subject and title. 2An act having a single It is similar to the 30% amusement tax imposed or borne by the
general subject, indicated in the title, may contain any number of movie industry which the theater-owners pay to the government, but
provisions, no matter how diverse they may be, so long as they are which is passed on to the entire cost of the admission ticket, thus
not inconsistent with or foreign to the general subject, and may be shifting the tax burden on the buying or the viewing public. It is a tax
considered in furtherance of such subject by providing for the method that is imposed uniformly on all videogram operators.
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 The levy of the 30% tax is for a public purpose. It was imposed
narrowly construed as to cripple or impede the power of primarily to answer the need for regulating the video industry,
legislation. 4 It should be given practical rather than technical particularly because of the rampant film piracy, the flagrant violation
construction. 5 of intellectual property rights, and the proliferation of pornographic
video tapes. And while it was also an objective of the DECREE to
Tested by the foregoing criteria, petitioner's contention that the tax protect the movie industry, the tax remains a valid imposition.
provision of the DECREE is a rider is without merit. That section
reads, inter alia: The public purpose of a tax may legally exist even if the
motive which impelled the legislature to impose the tax
Section 10. Tax on Sale, Lease or Disposition of was to favor one industry over another. 11
Videograms. — Notwithstanding any provision of law to
the contrary, the province shall collect a tax of thirty It is inherent in the power to tax that a state be free to select
percent (30%) of the purchase price or rental rate, as the the subjects of taxation, and it has been repeatedly held that
case may be, for every sale, lease or disposition of a "inequities which result from a singling out of one
videogram containing a reproduction of any motion picture particular class for taxation or exemption infringe no
or audiovisual program. Fifty percent (50%) of the constitutional limitation". 12 Taxation has been made the
proceeds of the tax collected shall accrue to the province, implement of the state's police power.13
and the other fifty percent (50%) shall acrrue to the
municipality where the tax is collected; PROVIDED, That
in Metropolitan Manila, the tax shall be shared equally by At bottom, the rate of tax is a matter better addressed to the taxing
the City/Municipality and the Metropolitan Manila legislature.
3. Petitioner argues that there was no legal nor factual basis for the
xxx xxx xxx 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
The foregoing provision is allied and germane to, and is reasonably a threat or imminence thereof, or whenever the interim Batasang
necessary for the accomplishment of, the general object of the Pambansa or the regular National Assembly fails or is unable to act
DECREE, which is the regulation of the video industry through the adequately on any matter for any reason that in his judgment requires
Videogram Regulatory Board as expressed in its title. The tax immediate action, he may, in order to meet the exigency, issue the
provision is not inconsistent with, nor foreign to that general subject necessary decrees, orders, or letters of instructions, which shall form
and title. As a tool for regulation 6 it is simply one of the regulatory part of the law of the land."
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 In refutation, the Intervenors and the Solicitor General's Office aver
uncontrolled distribution of videograms is evident from Preambles 2 that the 8th "whereas" clause sufficiently summarizes the justification
and 5, supra. Those preambles explain the motives of the lawmaker in that grave emergencies corroding the moral values of the people
in presenting the measure. The title of the DECREE, which is the and betraying the national economic recovery program necessitated
creation of the Videogram Regulatory Board, is comprehensive bold emergency measures to be adopted with dispatch. Whatever the
enough to include the purposes expressed in its Preamble and reasons "in the judgment" of the then President, considering that the
reasonably covers all its provisions. It is unnecessary to express all issue of the validity of the exercise of legislative power under the said
those objectives in the title or that the latter be an index to the body Amendment still pends resolution in several other cases, we reserve
of the DECREE. 7 resolution of the question raised at the proper time.

2. Petitioner also submits that the thirty percent (30%) tax imposed is 4. Neither can it be successfully argued that the DECREE contains an
harsh and oppressive, confiscatory, and in restraint of trade. undue delegation of legislative power. The grant in Section 11 of the
However, it is beyond serious question that a tax does not cease to be DECREE of authority to the BOARD to "solicit the direct assistance
valid merely because it regulates, discourages, or even definitely of other agencies and units of the government and deputize, for a
deters the activities taxed. 8 The power to impose taxes is one so fixed and limited period, the heads or personnel of such agencies and
unlimited in force and so searching in extent, that the courts scarcely units to perform enforcement functions for the Board" is not a
venture to declare that it is subject to any restrictions whatever, delegation of the power to legislate but merely a conferment of
except such as rest in the discretion of the authority which exercises authority or discretion as to its execution, enforcement, and
it. 9 In imposing a tax, the legislature acts upon its constituents. This implementation. "The true distinction is between the delegation of
is, in general, a sufficient security against erroneous and oppressive power to make the law, which necessarily involves a discretion as to
taxation. 10 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
The tax imposed by the DECREE is not only a regulatory but also a made." 14 Besides, in the very language of the decree, the authority of
revenue measure prompted by the realization that earnings of the BOARD to solicit such assistance is for a "fixed and limited
period" with the deputized agencies concerned being "subject to the competition posed by rampant film piracy; the erosion of the moral
direction and control of the BOARD." That the grant of such fiber of the viewing public brought about by the availability of
authority might be the source of graft and corruption would not unclassified and unreviewed video tapes containing pornographic
stigmatize the DECREE as unconstitutional. Should the eventuality films and films with brutally violent sequences; and losses in
occur, the aggrieved parties will not be without adequate remedy in government revenues due to the drop in theatrical attendance, not to
law. mention the fact that the activities of video establishments are
virtually untaxed since mere payment of Mayor's permit and
5. The DECREE is not violative of the ex post facto principle. An ex municipal license fees are required to engage in business. 17
post facto law is, among other categories, one which "alters the legal
rules of evidence, and authorizes conviction upon less or different The enactment of the Decree since April 10, 1986 has not brought
testimony than the law required at the time of the commission of the about the "demise" of the video industry. On the contrary, video
offense." It is petitioner's position that Section 15 of the DECREE in establishments are seen to have proliferated in many places
providing that: notwithstanding the 30% tax imposed.

All videogram establishments in the Philippines are hereby given a In the last analysis, what petitioner basically questions is the
period of forty-five (45) days after the effectivity of this Decree necessity, wisdom and expediency of the DECREE. These
within which to register with and secure a permit from the BOARD considerations, however, are primarily and exclusively a matter of
to engage in the videogram business and to register with the BOARD legislative concern.
all their inventories of videograms, including videotapes, discs,
cassettes or other technical improvements or variations thereof, Only congressional power or competence, not the wisdom of the
before they could be sold, leased, or otherwise disposed of. action taken, may be the basis for declaring a statute invalid. This is
Thereafter any videogram found in the possession of any person as it ought to be. The principle of separation of powers has in the
engaged in the videogram business without the required proof of main wisely allocated the respective authority of each department and
registration by the BOARD, shall be prima facie evidence of confined its jurisdiction to such a sphere. There would then be
violation of the Decree, whether the possession of such videogram be intrusion not allowable under the Constitution if on a matter left to
for private showing and/or public exhibition. the discretion of a coordinate branch, the judiciary would substitute
its own. If there be adherence to the rule of law, as there ought to be,
raises immediately a prima facie evidence of violation of the the last offender should be courts of justice, to which rightly litigants
DECREE when the required proof of registration of any videogram submit their controversy precisely to maintain unimpaired the
cannot be presented and thus partakes of the nature of an ex post supremacy of legal norms and prescriptions. The attack on the
facto law. validity of the challenged provision likewise insofar as there may be
objections, even if valid and cogent on its wisdom cannot be
The argument is untenable. As this Court held in the recent case sustained. 18
of Vallarta vs. Court of Appeals, et al. 15
In fine, petitioner has not overcome the presumption of validity
... it is now well settled that "there is no constitutional which attaches to a challenged statute. We find no clear violation of
objection to the passage of a law providing that the the Constitution which would justify us in pronouncing Presidential
presumption of innocence may be overcome by a contrary Decree No. 1987 as unconstitutional and void.
presumption founded upon the experience of human
conduct, and enacting what evidence shall be sufficient to WHEREFORE, the instant Petition is hereby dismissed.
overcome such presumption of innocence" (People vs.
Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, No costs.
LIMITATIONS, 639-641). And the "legislature may enact
that when certain facts have been proved that they shall be SO ORDERED.
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

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
G.R. No. L-24607 January 29, 1968 salaries or wages the right to which has been duly acknowledged and
recognized, provided that the face value of such certificate of
TOMAS TRIA TIRONA, petitioner-appellee, vs. THE CITY indebtedness shall not exceed the amount that the applicant may need
TREASURER OF MANILA and/or CITY OF MANILA, for the payment of (1) obligations subsisting at the time of the
respondents-appellants. approval of this amendatory Act for which the applicant may directly
be liable to the Government or to any of its branches or
instrumentalities, or the corporations owned or controlled by the
Tirona and Tirona for petitioner-appellee. Government, or to any citizen of the Philippines, or to any
Olimpio R. Navarro for respondents-appellants. association or corporation organized under the laws of the
Philippines, who may be willing to accept the same for such
BENGZON, J.P., J.:chanrobles virtual law library settlement; (2) his taxes; (3) government hospital bills of the
applicant; (4) lands purchased or leased or to be purchased or leased
Tomas Tria Tirona is the legitimate original holder of a by him from the public domain; and (5) any amount received by the
P6,777.92-USAFFE Backpay Certificate No. A-23426 (1684) issued applicant as gratuity or pension which he has refund to the
by the Republic of the Philippines on May 30, 1955 under Republic Government or to any of its branches or instrumentalities; Provided,
Act 304, as amended. Tirona paid therewith his real estate taxes on further, That such settlement shall be effected by indorsement on the
his land in Sampaloc, Manila for the years 1957 to instrument: . . .
1959.chanroblesvirtualawlibrarychanrobles virtual law library
Appellants cite the case of De Borja v. Gella 3 where We held
On December 19, 1958, Mayor Arsenio Lacson prohibited the that the Cities of Pasay and Manila were not bound to accept payment
acceptance of backpay certificates in payment of taxes or obligations of real estate taxes through backpay certificates because first, the
due to the City of Manila. The matter was indorsed first to the obligations were not subsisting at the time Republic Act 304 took
National Treasurer, then to the Department of Finance, particularly effect on June 18, 1948, considering that the tax obligation in
the Undersecretary, and both opined 1 that the acceptance of the question accrued after 1948; secondly, because Section 2 of Republic
backpay certificates in payment of taxes is mandatory under Section Act 304, as amended, allows such payment only if the tax is owed by
2 of Republic Act 304, as amended. Inspite of these opinions, the original certificate holder himself, and lastly, that compensation
acceptance was refused Tirona when he tried to pay the City of cannot be had under Article 1278 of the Civil Code because the
Manila his real estate taxes for 1960-1963 through his backpay requisites for compensation were not
certificate.chanroblesvirtualawlibrarychanrobles virtual law library present.chanroblesvirtualawlibrarychanrobles virtual law library

On July 30, 1963, Tirona sought to compel the City Treasurer Although the Gella case was decided when Republic Act 800
and/or City Mayor of Manila to accept his backpay certificate in amended Republic Act 304 on June 21, 1952, there was no
payment of real estate taxes from 1960-1963 (later amended to cover substantial difference in development upon the effectivity of the
taxes for 1964) thru an action filed before the Court of First Instance latest amendment - Republic Act 897 - on June 20, 1953. Republic
of Manila.chanroblesvirtualawlibrarychanrobles virtual law library Act 304 effective June 18, 1948, originally provided for registration
of claims of all officers and employees of the Government of the
Commonwealth of the Philippines, its branches and instrumentalities
After hearing and presentation of evidence, the Court of First and the corporations owned or controlled by the Government and
Instance, on January 25, 1965, rendered a decision ordering the those of free local civil governments, provincial or municipal, duly
respondents to accept the backpay certificate on the ground that organized for purposes of resistance against the enemy, to salaries
Section 2 of Republic Act 306, as amended, expressly gives the and wages during the enemy or Japanese occupation. Republic Act
holder of a backpay certificate the right to give the certificate in 800 amended Republic Act 304 to include elective officials who held
payment of his taxes and other indebtedness, which right must be over in their positions, as recipients of the benefits of Republic Act
imposed on the Government, its branches, and 304, also authorizing the issuance and use of certificates of
instrumentalities.chanroblesvirtualawlibrarychanrobles virtual law indebtedness for purchase of public lands and authorized the limited
library negotiability of the certificates. The latest amendment, Republic Act
897, extended the benefits to the members of the Philippine Army
Respondents appealed directly to Us, alleging that receptance and recognized guerrilla forces and officers of the Philippine Scouts
of the certificates is discretionary on the part of the City and that its allowed certificates to be used in the purchase of public lands and
compulsory acceptance would constitute an impairment of the government properties and payment of the obligations subsisting at
obligation of contracts. 2 chanrobles virtual law library the time of approval of Republic Act 897. Except for these there is no
substantial change in the wording of the
provisions.chanroblesvirtualawlibrarychanrobles virtual law library
Section 2 of R.A. 304, as amended by Republic Acts 800 and
897, provides:
Lately, this Court speaking through Mr. Justice J.B.L. Reyes
in Tirona v. Cudiamat,4 required the acceptance of the certificates in
Sec. 2. The Treasurer of the Philippines shall, upon application
payment of real estate taxes, reversing the rule enunciated in
of all persons specified in section one hereof and within one year
the Gellacase with regard to the non-applicability of real estate taxes
from the approval of this amendatory Act, and under such rules and
on the ground that the debts were not subsisting at the time of the
regulations as may be promulgated by the Secretary of Finance,
approval of the Act. Quoting Section 2 of Republic Act 304, as
acknowledge and file requests for the recognition of the right to the
amended by Republic Act 897, this Court held in said Tirona case
salaries or wages as provided in section one hereof, and notice of
that while the applicability of the backpay certificates to the payment
such acknowledgment shall be issued to the applicant which shall
of the holder's obligation to the Government or any of its branches or
state the, total amount of such salaries or wages due the applicant,
instrumentalities, is limited to those subsisting at the time of the
and certify that it shall be redeemed by the Government of the
approval of the Act the statute also declares the applicability of such
Philippines within ten years from the date of their issuance without
certificates to the payment by the holder of "his taxes" - without any
interest: Provided, That upon regulations as may be approved by the
specific limitation. Had the Legislature intended also to limit the
Secretary of Finance a certificate of indebtedness may be issued by
the Treasurer of the Philippines covering the whole or part of the total
payment of taxes, it would have so expressed as it did with regard to G.R. No. L-23645 October 29, 1968
obligations.chanroblesvirtualawlibrarychanrobles virtual law library
BENJAMIN P. GOMEZ, petitioner-appellee,
It is also claimed that the respondents are not bound to accept vs.
the backpay certificates, arguing that according to Section 2 of the ENRICO PALOMAR, in his capacity as Postmaster General,
Act, as amended, certificates may be paid for "obligations subsisting HON. BRIGIDO R. VALENCIA, in his capacity as Secretary of
at the approval of this act for which the applicant may be directly Public Works and Communications, and DOMINGO GOPEZ, in
liable to the Government or to any of its branches or instrumentalities his capacity as Acting Postmaster of San Fernando,
or the corporations owned or controlled by the Government or to any Pampanga, respondent-appellants.
citizen of the Philippines or to any association or corporation
organized under the laws of the Philippines who may be willing to CASTRO, J.:
accept the same for such settlement." Contrary to their allegations of
discretion in acceptance, it has already been settled that the phrase
"who may be willing to accept the same for settlement" in Section 2 This appeal puts in issue the constitutionality of Republic Act
refers only to "any citizen of the Philippines or any association or 1635,1 as amended by Republic Act 2631,2 which provides as
corporation organized under the laws of the Philippines", and not to follows:
the Government government or any of its agencies. 5 chanrobles
virtual law library To help raise funds for the Philippine Tuberculosis Society,
the Director of Posts shall order for the period from August
Furthermore, Section 2 of Republic Act 304, as amended, nineteen to September thirty every year the printing and
states that the backpay certificates shall be redeemed by issue of semi-postal stamps of different denominations with
the Government of the Philippines. "Government of the Philippines" face value showing the regular postage charge plus the
refers to that governmental entity through which the functions of the additional amount of five centavos for the said purpose, and
government are exercised as an attribute of sovereignty, and in this during the said period, no mail matter shall be accepted in
are included those arms through which political authority is made the mails unless it bears such semi-postal stamps: Provided,
effective whether they be provincial, municipal or other form of local That no such additional charge of five centavos shall be
government. 6 Thus, the phrase includes even the City of imposed on newspapers. The additional proceeds realized
Manila.chanroblesvirtualawlibrarychanrobles virtual law library 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
Respondents fear disadvantageous effects of compulsory carrying out its noble work to prevent and eradicate
acceptance of the certificates on its treasury. As stated in tuberculosis.
the Tirona case, whatever unfavorable effects the acceptance of the
certificates may have on the City's finances, the effects must be
deemed to have been intended by the Legislature, which, after all, has The respondent Postmaster General, in implementation of the law,
full control over Cities and Municipalities in these thereafter issued four (4) administrative orders numbered 3 (June 20,
matters.chanroblesvirtualawlibrarychanrobles virtual law library 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15,
1960). All these administrative orders were issued with the approval
of the respondent Secretary of Public Works and Communications.
That the compulsory acceptance by the City of Manila of the
backpay certificates would be an impairment of obligations of
contracts is not tenable because the City of Manila cannot be The pertinent portions of Adm. Order 3 read as follows:
classified as falling under the phrase "any citizen, association, or
corporation" which are not Government entities or owned or Such semi-postal stamps could not be made available
controlled by the Government. 7 chanrobles virtual law library during the period from August 19 to September 30, 1957,
for lack of time. However, two denominations of such
WHEREFORE, the decision appealed from is hereby affirmed. stamps, one at "5 + 5" centavos and another at "10 + 5"
No costs. So ordered. 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

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.

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 such mails are presented at the post-office window, where
like those from the office of the President, members of the five-centavo extra charge for said society shall be
Congress, and other offices to which such privilege has collected on each piece of such mail matter. In such case,
been granted, shall each also bear one such semi-postal an official receipt shall be issued for the total sum thus
stamp if posted during the said period. collected, in the manner stated in subparagraph 1.

Mails posted during the said period starting in 1958, which Mail under permits, metered mails and franked mails not
are found in street or post-office mail boxes without the presented at the post-office window shall be affixed with
required semi-postal stamp, shall be returned to the sender, the necessary semi-postal stamps. If found in mail boxes
if known, with a notation calling for the affixing of such without such stamps, they shall be treated in the same way
stamp. If the sender is unknown, the mail matter shall be as herein provided for other mails.
treated as nonmailable and forwarded to the Dead Letter
Office for proper disposition. Adm. Order 9, amending Adm. Order 3, as amended, exempts
"Government and its Agencies and Instrumentalities Performing
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads Governmental Functions." Adm. Order 10, amending Adm. Order 3,
as follows: as amended, exempts "copies of periodical publications received for
mailing under any class of mail matter, including newspapers and
In the case of the following categories of mail matter and magazines admitted as second-class mail."
mails entitled to franking privilege which are not exempted
from the payment of the five centavos intended for the The FACTS. On September l5, 1963 the petitioner Benjamin P.
Philippine Tuberculosis Society, such extra charge may be Gomez mailed a letter at the post office in San Fernando, Pampanga.
collected in cash, for which official receipt (General Form Because this letter, addressed to a certain Agustin Aquino of 1014
No. 13, A) shall be issued, instead of affixing the semi- Dagohoy Street, Singalong, Manila did not bear the special anti-TB
postal stamp in the manner hereinafter indicated: stamp required by the statute, it was returned to the petitioner.

1. Second-class mail. — Aside from the postage at the In view of this development, the petitioner brough suit for declaratory
second-class rate, the extra charge of five centavos for the relief in the Court of First Instance of Pampanga, to test the
Philippine Tuberculosis Society shall be collected on each constitutionality of the statute, as well as the implementing
separately-addressed piece of second-class mail matter, and administrative orders issued, contending that it violates the equal
the total sum thus collected shall be entered in the same protection clause of the Constitution as well as the rule of uniformity
official receipt to be issued for the postage at the second- and equality of taxation. The lower court declared the statute and the
class rate. In making such entry, the total number of pieces orders unconstitutional; hence this appeal by the respondent postal
of second-class mail posted shall be stated, thus: "Total authorities.
charge for TB Fund on 100 pieces . .. P5.00." The extra
charge shall be entered separate from the postage in both of For the reasons set out in this opinion, the judgment appealed from
the official receipt and the Record of Collections. must be reversed.

2. First-class and third-class mail permits. — Mails to be I.

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. Before reaching the merits, we deem it necessary to dispose of the
The total extra charge thus received shall be entered in the respondents' contention that declaratory relief is unavailing because
same official receipt to be issued for the postage collected, this suit was filed after the petitioner had committed a breach of the
as in subparagraph 1. 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
3. Metered mail. — For each piece of mail matter action on the ground that under section 6 of Rule 64 of the Rules of
impressed by postage meter under metered mail permit Court, "If before the final termination of the case a breach or
issued by this Bureau, the extra charge of five centavos for violation of ... a statute ... should take place, the action may
said society shall be collected in cash and an official receipt thereupon be converted into an ordinary action."
issued for the total sum thus received, in the manner
indicated in subparagraph 1.
The prime specification of an action for declaratory relief is that it
must be brought "before breach or violation" of the statute has been
4. Business reply cards and envelopes. — Upon delivery of committed. Rule 64, section 1 so provides. Section 6 of the same rule,
business reply cards and envelopes to holders of business which allows the court to treat an action for declaratory relief as an
reply permits, the five-centavo charge intended for said ordinary action, applies only if the breach or violation occurs after the
society shall be collected in cash on each reply card or filing of the action but before the termination thereof.3
envelope delivered, in addition to the required postage
which may also be paid in cash. An official receipt shall be
issued for the total postage and total extra charge received, Hence, if, as the trial court itself admitted, there had been a breach of
in the manner shown in subparagraph 1. 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.
5. Mails entitled to franking privilege. — Government
agencies, officials, and other persons entitled to the
franking privilege under existing laws may pay in cash Nor is there merit in the petitioner's argument that the mailing of the
such extra charge intended for said society, instead of letter in question did not constitute a breach of the statute because the
affixing the semi-postal stamps to their mails, provided that 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, no application to a measure whose sole purpose is to raise
however, that only postal authorities can be guilty of violating it by revenue ... So long as the classification imposed is based
accepting mails without the payment of the anti-TB stamp. It is upon some standard capable of reasonable comprehension,
obvious that they can be guilty of violating the statute only if there be that standard based upon ability to produce revenue or
are people who use the mails without paying for the additional anti- some other legitimate distinction, equal protection of the
TB stamp. Just as in bribery the mere offer constitutes a breach of the law has been afforded. See Allied Stores of Ohio, Inc. v.
law, so in the matter of the anti-TB stamp the mere attempt to use the Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown
mails without the stamp constitutes a violation of the statute. It is not Forman Co. v. Commonwealth of Kentucky, 2d U.S. 56,
required that the mail be accepted by postal authorities. That 573, 80 S. Ct. 578, 580 (1910).
requirement is relevant only for the purpose of fixing the liability of
postal officials. We are not wont to invalidate legislation on equal protection grounds
except by the clearest demonstration that it sanctions invidious
Nevertheless, we are of the view that the petitioner's choice of discrimination, which is all that the Constitution forbids. The remedy
remedy is correct because this suit was filed not only with respect to for unwise legislation must be sought in the legislature. Now, the
the letter which he mailed on September 15, 1963, but also with classification of mail users is not without any reason. It is based on
regard to any other mail that he might send in the future. Thus, in his ability to pay, let alone the enjoyment of a privilege, and on
complaint, the petitioner prayed that due course be given to "other administrative convinience. In the allocation of the tax burden,
mails without the semi-postal stamps which he may deliver for Congress must have concluded that the contribution to the anti-TB
mailing ... if any, during the period covered by Republic Act 1635, as fund can be assured by those whose who can afford the use of the
amended, as well as other mails hereafter to be sent by or to other mails.
mailers which bear the required postage, without collection of
additional charge of five centavos prescribed by the same Republic The classification is likewise based on considerations of
Act." As one whose mail was returned, the petitioner is certainly administrative convenience. For it is now a settled principle of law
interested in a ruling on the validity of the statute requiring the use of that "consideration of practical administrative convenience and cost
additional stamps. 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-
II. TB stamps, undoubtedly, the single most important and influential
consideration that led the legislature to select mail users as subjects
We now consider the constitutional objections raised against the of the tax is the relative ease and convenienceof collecting the tax
statute and the implementing orders. 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
1. It is said that the statute is violative of the equal protection clause collection on postal authorities the tax was made almost self-
of the Constitution. More specifically the claim is made that it enforcing, with as little cost and as little inconvenience as possible.
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 And then of course it is not accurate to say that the statute constituted
while Administrative Order 9 of the respondent Postmaster General mail users into a class. Mail users were already a class by themselves
grants a similar exemption to offices performing governmental even before the enactment of the statue and all that the legislature did
functions. . 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
The five centavo charge levied by Republic Act 1635, as amended, is differences that exist in fact is living law; to disregard [them] and
in the nature of an excise tax, laid upon the exercise of a privilege, concentrate on some abstract identities is lifeless logic."10
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. 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
To begin with, it is settled that the legislature has the inherent power never been thought of as raising issues under the equal protection
to select the subjects of taxation and to grant exemptions.4 This clause.
power has aptly been described as "of wide range and
flexibility."5 Indeed, it is said that in the field of taxation, more than
in other areas, the legislature possesses the greatest freedom in It is thus erroneous for the trial court to hold that because certain mail
classification.6 The reason for this is that traditionally, classification users are exempted from the levy the law and administrative officials
has been a device for fitting tax programs to local needs and usages have sanctioned an invidious discrimination offensive to the
in order to achieve an equitable distribution of the tax burden. 7 Constitution. The application of the lower courts theory would
require all mail users to be taxed, a conclusion that is hardly tenable
in the light of differences in status of mail users. The Constitution
That legislative classifications must be reasonable is of course does not require this kind of equality.
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 As the United States Supreme Court has said, the legislature may
selection of mail users is constitutionally impermissible. This is withhold the burden of the tax in order to foster what it conceives to
altogether a different proposition. As explained in Commonwealth v. be a beneficent enterprise.11 This is the case of newspapers which,
Life Assurance Co.:8 under the amendment introduced by Republic Act 2631, are exempt
from the payment of the additional stamp.
While the principle that there must be a reasonable
relationship between classification made by the legislation As for the Government and its instrumentalities, their exemption rests
and its purpose is undoubtedly true in some contexts, it has 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 3. Finally, the claim is made that the statute is so broadly drawn that
the respondent Postmaster General, which lists the various offices to execute it the respondents had to issue administrative orders far
and instrumentalities of the Government exempt from the payment of beyond their powers. Indeed, this is one of the grounds on which the
the anti-TB stamp, is but a restatement of this well-known principle lower court invalidated Republic Act 1631, as amended, namely, that
of constitutional law. it constitutes an undue delegation of legislative power.

The trial court likewise held the law invalid on the ground that it Administrative Order 3, as amended by Administrative Orders 7 and
singles out tuberculosis to the exclusion of other diseases which, it is 10, provides that for certain classes of mail matters (such as mail
said, are equally a menace to public health. But it is never a permits, metered mails, business reply cards, etc.), the five-centavo
requirement of equal protection that all evils of the same genus be charge may be paid in cash instead of the purchase of the anti-TB
eradicated or none at all.13 As this Court has had occasion to say, "if stamp. It further states that mails deposited during the period August
the law presumably hits the evil where it is most felt, it is not to be 19 to September 30 of each year in mail boxes without the stamp
overthrown because there are other instances to which it might have should be returned to the sender, if known, otherwise they should be
been applied."14 treated as nonmailable.

2. The petitioner further argues that the tax in question is invalid, It is true that the law does not expressly authorize the collection of
first, because it is not levied for a public purpose as no special five centavos except through the sale of anti-TB stamps, but such
benefits accrue to mail users as taxpayers, and second, because it authority may be implied in so far as it may be necessary to prevent a
violates the rule of uniformity in taxation. failure of the undertaking. The authority given to the Postmaster
General to raise funds through the mails must be liberally construed,
The eradication of a dreaded disease is a public purpose, but if by consistent with the principle that where the end is required the
public purpose the petitioner means benefit to a taxpayer as a return appropriate means are given.19
for what he pays, then it is sufficient answer to say that the only
benefit to which the taxpayer is constitutionally entitled is that The anti-TB stamp is a distinctive stamp which shows on its face not
derived from his enjoyment of the privileges of living in an organized only the amount of the additional charge but also that of the regular
society, established and safeguarded by the devotion of taxes to postage. In the case of business reply cards, for instance, it is obvious
public purposes. Any other view would preclude the levying of taxes that to require mailers to affix the anti-TB stamp on their cards would
except as they are used to compensate for the burden on those who be to make them pay much more because the cards likewise bear the
pay them and would involve the abandonment of the most amount of the regular postage.
fundamental principle of government — that it exists primarily to
provide for the common good.15 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
Nor is the rule of uniformity and equality of taxation infringed by the therein that "no mail matter shall be accepted in the mails unless it
imposition of a flat rate rather than a graduated tax. A tax need not be bears such semi-postal stamp" is a declaration that such mail matter is
measured by the weight of the mail or the extent of the service nonmailable within the meaning of section 1952 of the
rendered. We have said that considerations of administrative Administrative Code. Administrative Order 7 of the Postmaster
convenience and cost afford an adequate ground for classification. General is but a restatement of the law for the guidance of postal
The same considerations may induce the legislature to impose a flat officials and employees. As for Administrative Order 9, we have
tax which in effect is a charge for the transaction, operating equally already said that in listing the offices and entities of the Government
on all persons within the class regardless of the amount exempt from the payment of the stamp, the respondent Postmaster
involved.16 As Mr. Justice Holmes said in sustaining the validity of a General merely observed an established principle, namely, that the
stamp act which imposed a flat rate of two cents on every $100 face Government is exempt from taxation.
value of stock transferred:
ACCORDINGLY, the judgment a quo is reversed, and the complaint
One of the stocks was worth $30.75 a share of the face is dismissed, without pronouncement as to costs.
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 G.R. No. L-23771 August 4, 1988
case; that is to say, the same privilege is used to the same
extent. Valuation is not the only thing to be considered. As THE COMMISSIONER OF INTERNAL REVENUE, petitioner,
was pointed out by the court of appeals, the familiar stamp vs.
tax of 2 cents on checks, irrespective of income or earning LINGAYEN GULF ELECTRIC POWER CO., INC. and THE
capacity, and many others, illustrate the necessity and COURT OF TAX APPEALS, respondents.
practice of sometimes substituting count for weight ...17
Angel Sanchez for Lingayen Electric Power Co., Inc.
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 SARMIENTO, J.:
carrying out what is essentially a public function. The money is
treated as a special fund and as such need not be appropriated by This is an appeal from the decision * of the Court of Tax Appeals
law.18 (C.T.A., for brevity) dated September 15, 1964 in C.T.A. Cases Nos.
581 and 1302, which were jointly heard upon agreement of the and all taxes and/or licenses of any kind, nature or description levied,
parties, absolving the respondent taxpayer from liability for the established, or collected by any authority whatsoever, municipal,
deficiency percentage, franchise, and fixed taxes and surcharge provincial or national, now or in the future, on its poles, wires,
assessed against it in the sums of P19,293.41 and P3,616.86 for the insulator ... and on its franchise, rights, privileges, receipts, revenues
years 1946 to 1954 and 1959 to 1961, respectively. and profits, from which taxes and/or licenses, the grantee is hereby
expressly exempted and effective further upon the date the original
The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., franchise was granted, no other tax and/or licenses other than the
operates an electric power plant serving the adjoining municipalities franchise tax of two per centum on the gross receipts as provided for
of Lingayen and Binmaley, both in the province of Pangasinan, in the original franchise shall be collected, any provision of law to the
pursuant to the municipal franchise granted it by their respective contrary notwithstanding.
municipal councils, under Resolution Nos. 14 and 25 of June 29 and
July 2, 1946, respectively. Section 10 of these franchises provide On September 15, 1964, the respondent court ruled that the
that: provisions of R.A. No. 3843 should apply and accordingly dismissed
the claim of the Commissioner of Internal Revenue. The said ruling is
...The said grantee in consideration of the franchise hereby granted, now the subject of the petition at bar.
shall pay quarterly into the Provincial Treasury of Pangasinan, one
per centum of the gross earnings obtained thru this privilege during The issues raised for resolution are:
the first twenty years and two per centum during the remaining
fifteen years of the life of said franchise. 1. Whether or not the 5% franchise tax prescribed in Section 259 of
the National Internal Revenue Code assessed against the private
On February 24, 1948, the President of the Philippines approved the respondent on its gross receipts realized before the effectivity of R.A-
franchises granted to the private respondent. No. 3843 is collectible.

On November 21, 1955, the Bureau of Internal Revenue (BIR) 2. Whether or not Section 4 of R.A. No. 3843 is unconstitutional for
assessed against and demanded from the private respondent the total being violative of the "uniformity and equality of taxation" clause of
amount of P19,293.41 representing deficiency franchise taxes and the Constitution.
surcharges for the years 1946 to 1954 applying the franchise tax rate
of 5% on gross receipts from March 1, 1948 to December 31, 1954 as 3. If the abovementioned Section 4 of R.A. No. 3843 is valid,
prescribed in Section 259 of the National Internal Revenue Code, whether or not it could be given retroactive effect so as to render
instead of the lower rates as provided in the municipal franchises. On uncollectible the taxes in question which were assessed before its
September 29, 1956, the private respondent requested for a enactment.
reinvestigation of the case on the ground that instead of incurring a
deficiency liability, it made an overpayment of the franchise tax. On
April 30, 1957, the BIR through its regional director, denied the 4. Whether or not the respondent taxpayer is liable for the fixed and
private respondent's request for reinvestigation and reiterated the deficiency percentage taxes in the amount of P3,025.96 for the period
demand for payment of the same. In its letters dated July 2, and from January 1, 1946 to February 29, 1948, the period before the
August 9, 1958 to the petitioner Commissioner, the private approval of its municipal franchises.
respondent protested the said assessment and requested for a
conference with a view to settling the liability amicably. In his letters The first issue raised by the petitioner before us is whether or not the
dated July 25 and August 28, 1958, the Commissioner denied the five percent (5%) franchise tax prescribed in Section 259 of the
request of the private respondent. Thus, the appeal to the respondent National Internal Revenue Code (Commonwealth Act No. 466 as
Court of Tax Appeals on September 19, 1958, docketed as C.T.A. amended by R.A. No. 39) assessed against the private respondent on
Case No. 581. its gross receipts realized before the effectivity of R.A- No. 3843 is
collectible. It is the contention of the petitioner Commissioner of
In a letter dated August 21, 1962, the Commissioner demanded from Internal Revenue that the private respondent should have been held
the private respondent the payment of P3,616.86 representing liable for the 5% franchise tax on gross receipts prescribed in Section
deficiency franchise tax and surcharges for the years 1959 to 1961 259 of the Tax Code, instead of the lower franchise tax rates provided
again applying the franchise tax rate of 5% on gross receipts as in the municipal franchises (1% of gross earnings for the first twenty
prescribed in Section 259 of the National Internal Revenue Code. In a years and 2% for the remaining fifteen years of the life of the
letter dated October 5, 1962, the private respondent protested the franchises) because Section 259 of the Tax Code, as amended by RA
assessment and requested reconsideration thereof The same was No. 39 of October 1, 1946, applied to existing and future franchises.
denied on November 9, 1962. Thus, the appeal to the respondent The franchises of the private respondent were already in existence at
Court of Appeals on November 29, 1962, docketed as C.T.A. No. the time of the adoption of the said amendment, since the franchises
1302. were accepted on March 1, 1948 after approval by the President of
the Philippines on February 24, 1948. The private respondent's
original franchises did not contain the proviso that the tax provided
Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 therein "shall be in lieu of all taxes;" moreover, the franchises
was passed on June 22, 1 963, granting to the private respondent a contained a reservation clause that they shag be subject to
legislative franchise for the operation of the electric light, heat, and amendment, alteration, or repeal, but even in the absence of such
power system in the same municipalities of Pangasinan. Section 4 cause, the power of the Legislature to alter, amend, or repeal any
thereof provides that: franchise is always deemed reserved. The franchise of the private
respondent have been modified or amended by Section 259 of the
In consideration of the franchise and rights hereby granted, the Tax Code, the petitioner submits.
grantee shall pay into the Internal Revenue office of each
Municipality in which it is supplying electric current to the public We find no merit in petitioner's contention. R.A. No. 3843 granted
under this franchise, a tax equal to two per centum of the gross the private respondent a legislative franchise in June, 1963,
receipts from electric current sold or supplied under this franchise. amending, altering, or even repealing the original municipal
Said tax shall be due and payable quarterly and shall be in lieu of any
franchises, and providing that the private respondent should pay only Given its validity, should the said law be applied retroactively so as
a 2% franchise tax on its gross receipts, "in lieu of any and all taxes to render uncollectible the taxes in question which were assessed
and/or licenses of any kind, nature or description levied, established, before its enactment? The question of whether a statute operates
or collected by any authority whatsoever, municipal, provincial, or retrospectively or only prospectively depends on the legislative
national, now or in the future ... and effective further upon the date intent. In the instant case, Act No. 3843 provides that "effective ...
the original franchise was granted, no other tax and/or licenses other upon the date the original franchise was granted, no other tax and/or
than the franchise tax of two per centum on the gross receipts ... shall licenses other than the franchise tax of two per centum on the gross
be collected, any provision of law to the contrary notwithstanding." receipts ... shall be collected, any provision to the contrary
Thus, by virtue of R.A- No. 3843, the private respondent was liable notwithstanding." Republic Act No. 3843 therefore specifically
to pay only the 2% franchise tax, effective from the date the original provided for the retroactive effect of the law.
municipal franchise was granted.
The last issue to be resolved is whether or not the private respondent
On the question as to whether or not Section 4 of R.A. No. 3843 is is liable for the fixed and deficiency percentage taxes in the amount
unconstitutional for being violative of the "uniformity and equality of of P3,025.96 (i.e. for the period from January 1, 1946 to February 29,
taxation" clause of the Constitution, and, if adjudged valid, whether 1948) before the approval of its municipal franchises. As aforestated,
or not it should be given retroactive effect, the petitioner submits that the franchises were approved by the President only on February 24,
the said law is unconstitutional insofar as it provides for the payment 1948. Therefore, before the said date, the private respondent was
by the private respondent of a franchise tax of 2% of its gross liable for the payment of percentage and fixed taxes as seller of light,
receipts, while other taxpayers similarly situated were subject to the heat, and power — which as the petitioner claims, amounted to
5% franchise tax imposed in Section 259 of the Tax Code, thereby P3,025.96. The legislative franchise (R.A. No. 3843) exempted the
discriminatory and violative of the rule on uniformity and equality of grantee from all kinds of taxes other than the 2% tax from the date
taxation. the original franchise was granted. The exemption, therefore, did not
cover the period before the franchise was granted, i.e. before
A tax is uniform when it operates with the same force and effect in February 24, 1948. However, as pointed out by the respondent court
every place where the subject of it is found. Uniformity means that in its findings, during the period covered by the instant case, that is
all property belonging to the same class shall be taxed alike The from January 1, 1946 to December 31, 1961, the private respondent
Legislature has the inherent power not only to select the subjects of paid the amount of P34,184.36, which was very much more than the
taxation but to grant exemptions. Tax exemptions have never been amount rightfully due from it. Hence, the private respondent should
deemed violative of the equal protection clause. 1 It is true that the no longer be made to pay for the deficiency tax in the amount of
private respondents municipal franchises were obtained under Act P3,025.98 for the period from January 1, 1946 to February 29, 1948.
No. 667 2 of the Philippine Commission, but these original franchises
have been replaced by a new legislative franchise, i.e. R.A. No. 3843. WHEREFORE, the appealed decision of the respondent Court of Tax
As correctly held by the respondent court, the latter was granted Appeals is hereby AFFIRMED. No pronouncement as to costs. SO
subject to the terms and conditions established in Act No. 3636, 3 as ORDERED.
amended by C.A. No. 132. These conditions Identify the private
respondent's power plant as falling within that class of power plants
created by Act No. 3636, as amended. The benefits of the tax
reduction provided by law (Act No. 3636 as amended by C.A. No.
132 and R.A. No. 3843) apply to the respondent's power plant and
others circumscribed within this class. R.A-No. 3843 merely
transferred the petitioner's power plant from that class provided for in G.R. No. L- 41383 August 15, 1988
Act No. 667, as amended, to which it belonged until the approval of
R.A- No. 3843, and placed it within the class falling under Act No. PHILIPPINE AIRLINES, INC., plaintiff-appellant,
3636, as amended. Thus, it only effected the transfer of a taxable vs.
property from one class to another. ROMEO F. EDU in his capacity as Land Transportation
Commissioner, and UBALDO CARBONELL, in his capacity as
We do not have the authority to inquire into the wisdom of such act. National Treasurer, defendants-appellants.
Furthermore, the 5% franchise tax rate provided in Section 259 of the
Tax Code was never intended to have a universal application. 4 We Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.
note that the said Section 259 of the Tax Code expressly allows the
payment of taxes at rates lower than 5% when the charter granting the
franchise of a grantee, like the one granted to the private respondent
under Section 4 of R.A. No. 3843, precludes the imposition of a
higher tax. R.A. No. 3843 did not only fix and specify a franchise tax GUTIERREZ, JR., J.:
of 2% on its gross receipts, but made it "in lieu of any and all taxes,
all laws to the contrary notwithstanding," thus, leaving no room for What is the nature of motor vehicle registration fees? Are they taxes
doubt regarding the legislative intent. "Charters or special laws or regulatory fees?
granted and enacted by the Legislature are in the nature of private
contracts. They do not constitute a part of the machinery of the This question has been brought before this Court in the past. The
general government. They are usually adopted after careful parties are, in effect, asking for a re-examination of the latest decision
consideration of the private rights in relation with resultant benefits to on this issue.
the State ... in passing a special charter the attention of the
Legislature is directed to the facts and circumstances which the act or
charter is intended to meet. The Legislature consider (sic) and make This appeal was certified to us as one involving a pure question of
(sic) provision for all the circumstances of a particular case." 5 In law by the Court of Appeals in a case where the then Court of First
view of the foregoing, we find no reason to disturb the respondent Instance of Rizal dismissed the portion-about complaint for refund of
court's ruling upholding the constitutionality of the law in question. registration fees paid under protest.
The disputed registration fees were imposed by the appellee, motion to dismiss was deferred by the Court until after trial on the
Commissioner Romeo F. Elevate pursuant to Section 8, Republic Act merits.
No. 4136, otherwise known as the Land Transportation and Traffic
Code. On April 24, 1973, the trial court rendered a decision dismissing the
appellant's complaint "moved by the later ruling laid down by the
The Philippine Airlines (PAL) is a corporation organized and existing Supreme Court in the case or Republic v. Philippine Rabbit Bus
under the laws of the Philippines and engaged in the air Lines, Inc., (supra)." From this judgment, PAL appealed to the Court
transportation business under a legislative franchise, Act No. 42739, of Appeals which certified the case to us.
as amended by Republic Act Nos. 25). and 269.1 Under its franchise,
PAL is exempt from the payment of taxes. The pertinent provision of Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus
the franchise provides as follows: Lines, Inc. (supra) cited by PAL and Commissioner Romeo F. Edu
respectively, discuss the main points of contention in the case at bar.
Section 13. In consideration of the franchise and rights hereby
granted, the grantee shall pay to the National Government during the Resolving the issue in the Philippine Rabbit case, this Court held:
life of this franchise a tax of two per cent of the gross revenue or
gross earning derived by the grantee from its operations under this
franchise. Such tax shall be due and payable quarterly and shall be in "The registration fee which defendant-appellee had to pay was
lieu of all taxes of any kind, nature or description, levied, established imposed by Section 8 of the Revised Motor Vehicle Law (Republic
or collected by any municipal, provincial or national automobiles, Act No. 587 [1950]). Its heading speaks of "registration fees." The
Provided, that if, after the audit of the accounts of the grantee by the term is repeated four times in the body thereof. Equally so, mention is
Commissioner of Internal Revenue, a deficiency tax is shown to be made of the "fee for registration." (Ibid., Subsection G) A subsection
due, the deficiency tax shall be payable within the ten days from the starts with a categorical statement "No fees shall be charged."
receipt of the assessment. The grantee shall pay the tax on its real (lbid.,Subsection H) The conclusion is difficult to resist therefore that
property in conformity with existing law. the Motor Vehicle Act requires the payment not of a tax but of a
registration fee under the police power. Hence the incipient, of the
section relied upon by defendant-appellee under the Back Pay Law, It
On the strength of an opinion of the Secretary of Justice (Op. No. is not held liable for a tax but for a registration fee. It therefore
307, series of 1956) PAL has, since 1956, not been paying motor cannot make use of a backpay certificate to meet such an obligation.
vehicle registration fees.
Any vestige of any doubt as to the correctness of the above
Sometime in 1971, however, appellee Commissioner Romeo F. conclusion should be dissipated by Republic Act No. 5448. ([1968].
Elevate issued a regulation requiring all tax exempt entities, among Section 3 thereof as to the imposition of additional tax on privately-
them PAL to pay motor vehicle registration fees. owned passenger automobiles, motorcycles and scooters was
amended by Republic Act No. 5470 which is (sic) approved on May
Despite PAL's protestations, the appellee refused to register the 30, 1969.) A special science fund was thereby created and its title
appellant's motor vehicles unless the amounts imposed under expressly sets forth that a tax on privately-owned passenger
Republic Act 4136 were paid. The appellant thus paid, under protest, automobiles, motorcycles and scooters was imposed. The rates
the amount of P19,529.75 as registration fees of its motor vehicles. thereof were provided for in its Section 3 which clearly specifies the"
Philippine tax."(Cooley to be paid as distinguished from the
After paying under protest, PAL through counsel, wrote a letter dated registration fee under the Motor Vehicle Act. There cannot be any
May 19,1971, to Commissioner Edu demanding a refund of the clearer expression therefore of the legislative will, even on the
amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. assumption that the earlier legislation could by subdivision the point
212 [1951]) where it was held that motor vehicle registration fees are be susceptible of the interpretation that a tax rather than a fee was
in reality taxes from the payment of which PAL is exempt by virtue levied. What is thus most apparent is that where the legislative body
of its legislative franchise. relies on its authority to tax it expressly so states, and where it is
enacting a regulatory measure, it is equally exploded (at p. 22,1969
Appellee Edu denied the request for refund basing his action on the
decision in Republic v. Philippine Rabbit Bus Lines, Inc., (32 SCRA In direct refutation is the ruling in Calalang v. Lorenzo (supra),
211, March 30, 1970) to the effect that motor vehicle registration fees where the Court, on the other hand, held:
are regulatory exceptional. and not revenue measures and, therefore,
do not come within the exemption granted to PAL? under its The charges prescribed by the Revised Motor Vehicle Law for the
franchise. Hence, PAL filed the complaint against Land registration of motor vehicles are in section 8 of that law called
Transportation Commissioner Romeo F. Edu and National Treasurer "fees". But the appellation is no impediment to their being considered
Ubaldo Carbonell with the Court of First Instance of Rizal, Branch 18 taxes if taxes they really are. For not the name but the object of the
where it was docketed as Civil Case No. Q-15862. charge determines whether it is a tax or a fee. Geveia speaking, taxes
are for revenue, whereas fees are exceptional. for purposes of
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, regulation and inspection and are for that reason limited in amount to
and LOI Carbonell in his capacity as National Treasurer, filed a what is necessary to cover the cost of the services rendered in that
motion to dismiss alleging that the complaint states no cause of connection. Hence, a charge fixed by statute for the service to be
action. In support of the motion to dismiss, defendants repatriation person,-When by an officer, where the charge has no relation to the
the ruling in Republic v. Philippine Rabbit Bus Lines, Inc., value of the services performed and where the amount collected
(supra) that registration fees of motor vehicles are not taxes, but eventually finds its way into the treasury of the branch of the
regulatory fees imposed as an incident of the exercise of the police government whose officer or officers collected the chauffeur, is not a
power of the state. They contended that while Act 4271 exempts PAL fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)
from the payment of any tax except two per cent on its gross revenue
or earnings, it does not exempt the plaintiff from paying regulatory From the data submitted in the court below, it appears that the
fees, such as motor vehicle registration fees. The resolution of the expenditures of the Motor Vehicle Office are but a small portion—
about 5 per centum—of the total collections from motor vehicle Sec. 61. Disposal of Mortgage. Collected—Monies collected under
registration fees. And as proof that the money collected is not the provisions of this Act shall be deposited in a special trust account
intended for the expenditures of that office, the law itself provides in the National Treasury to constitute the Highway Special Fund,
that all such money shall accrue to the funds for the construction and which shall be apportioned and expended in accordance with the
maintenance of public roads, streets and bridges. It is thus obvious provisions of the" Philippine Highway Act of 1935. "Provided,
that the fees are not collected for regulatory purposes, that is to say, however, That the amount necessary to maintain and equip the Land
as an incident to the enforcement of regulations governing the Transportation Commission but not to exceed twenty per cent of the
operation of motor vehicles on public highways, for their express total collection during one year, shall be set aside for the purpose. (As
object is to provide revenue with which the Government is to amended by RA 64-67, approved August 6, 1971).
discharge one of its principal functions—the construction and
maintenance of public highways for everybody's use. They are It appears clear from the above provisions that the legislative intent
veritable taxes, not merely fees. and purpose behind the law requiring owners of vehicles to pay for
their registration is mainly to raise funds for the construction and
As a matter of fact, the Revised Motor Vehicle Law itself now maintenance of highways and to a much lesser degree, pay for the
regards those fees as taxes, for it provides that "no other taxes or fees operating expenses of the administering agency. On the other hand,
than those prescribed in this Act shall be imposed," thus implying the Philippine Rabbit case mentions a presumption arising from the
that the charges therein imposed—though called fees—are of the use of the term "fees," which appears to have been favored by the
category of taxes. The provision is contained in section 70, of legislature to distinguish fees from other taxes such as those
subsection (b), of the law, as amended by section 17 of Republic Act mentioned in Section 13 of Rep. Act 4136 which reads:
587, which reads:
Sec. 13. Payment of taxes upon registration.—No original
Sec. 70(b) No other taxes or fees than those prescribed in this Act registration of motor vehicles subject to payment of taxes, customs s
shall be imposed for the registration or operation or on the ownership duties or other charges shall be accepted unless proof of payment of
of any motor vehicle, or for the exercise of the profession of the taxes due thereon has been presented to the Commission.
chauffeur, by any municipal corporation, the provisions of any city
charter to the contrary notwithstanding: Provided, however, That any referring to taxes other than those imposed on the registration,
provincial board, city or municipal council or board, or other operation or ownership of a motor vehicle (Sec. 59, b, Rep. Act 4136,
competent authority may exact and collect such reasonable and as amended).
equitable toll fees for the use of such bridges and ferries, within their
respective jurisdiction, as may be authorized and approved by the
Secretary of Public Works and Communications, and also for the use Fees may be properly regarded as taxes even though they also serve
of such public roads, as may be authorized by the President of the as an instrument of regulation, As stated by a former presiding judge
Philippines upon the recommendation of the Secretary of Public of the Court of Tax Appeals and writer on various aspects of
Works and Communications, but in none of these cases, shall any toll taxpayers
fee." be charged or collected until and unless the approved schedule
of tolls shall have been posted levied, in a conspicuous place at such It is possible for an exaction to be both tax arose. regulation. License
toll station. (at pp. 213-214) fees are changes. looked to as a source of revenue as well as a means
of regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for
Motor vehicle registration fees were matters originally governed by example, of automobile license fees. Isabela such case, the fees may
the Revised Motor Vehicle Law (Act 3992 [19511) as amended by properly be regarded as taxes even though they also serve as an
Commonwealth Act 123 and Republic Acts Nos. 587 and 1621. instrument of regulation. If the purpose is primarily revenue, or if
revenue is at least one of the real and substantial purposes, then the
exaction is properly called a tax. (1955 CCH Fed. tax Course, Par.
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise 3101, citing Cooley on Taxation (2nd Ed.) 592, 593; Calalang v.
known as the Land Transportation Code, (as amended by Rep. Acts Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These
Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43, exactions are sometimes called regulatory taxes. (See Secs. 4701,
74 and 398). 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code
of 1954, which classify taxes on tobacco and alcohol as regulatory
Section 73 of Commonwealth Act 123 (which amended Sec. 73 of taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley
Act 3992 and remained unsegregated, by Rep. Act Nos. 587 and on Taxation, 2nd Edition, 591-593).
1603) states:
Indeed, taxation may be made the implement of the state's police
Section 73. Disposal of moneys collected.—Twenty per centum of power (Lutz v. Araneta, 98 Phil. 148).
the money collected under the provisions of this Act shall accrue to
the road and bridge funds of the different provinces and chartered If the purpose is primarily revenue, or if revenue is, at least, one of
cities in proportion to the centum shall during the next previous year the real and substantial purposes, then the exaction is properly called
and the remaining eighty per centum shall be deposited in the a tax (Umali, Id.) Such is the case of motor vehicle registration fees.
Philippine Treasury to create a special fund for the construction and The conclusions become inescapable in view of Section 70(b) of Rep.
maintenance of national and provincial roads and bridges. as well as Act 587 quoted in the Calalang case. The same provision appears as
the streets and bridges in the chartered cities to be alloted by the Section 591-593). in the Land Transportation code. It is patent
Secretary of Public Works and Communications for projects therefrom that the legislators had in mind a regulatory tax as the law
recommended by the Director of Public Works in the different refers to the imposition on the registration, operation or ownership of
provinces and chartered cities. .... a motor vehicle as a "tax or fee." Though nowhere in Rep. Act 4136
does the law specifically state that the imposition is a tax, Section
Presently, Sec. 61 of the Land Transportation and Traffic Code 591-593). speaks of "taxes." or fees ... for the registration or
provides: operation or on the ownership of any motor vehicle, or for the
exercise of the profession of chauffeur ..." making the intent to
impose a tax more apparent. Thus, even Rep. Act 5448 cited by the
respondents, speak of an "additional" tax," where the law could have Insurance System and the Social Security System but excluding
referred to an original tax and not one in addition to the tax already educational institutions, shall pay such rate of tax upon their taxable
imposed on the registration, operation, or ownership of a motor net income as are imposed by this section upon associations or
vehicle under Rep. Act 41383. Simply put, if the exaction under Rep. corporations engaged in a similar business or industry. "
Act 4136 were merely a regulatory fee, the imposition in Rep. Act
5448 need not be an "additional" tax. Rep. Act 4136 also speaks of An examination of Section 24 of the Tax Code as amended shows
other "fees," such as the special permit fees for certain types of motor clearly that the law intended all corporate taxpayers to pay income
vehicles (Sec. 10) and additional fees for change of registration (Sec. tax as provided by the statute. There can be no doubt as to the power
11). These are not to be understood as taxes because such fees are of Congress to repeal the earlier exemption it granted. Article XIV,
very minimal to be revenue-raising. Thus, they are not mentioned by Section 8 of the 1935 Constitution and Article XIV, Section 5 of the
Sec. 591-593). of the Code as taxes like the motor vehicle registration Constitution as amended in 1973 expressly provide that no franchise
fee and chauffers' license fee. Such fees are to go into the shall be granted to any individual, firm, or corporation except under
expenditures of the Land Transportation Commission as provided for the condition that it shall be subject to amendment, alteration, or
in the last proviso of see. 61, aforequoted. repeal by the legislature when the public interest so requires. There is
no question as to the public interest involved. The country needs
It is quite apparent that vehicle registration fees were originally increased revenues. The repealing clause is clear and unambiguous.
simple exceptional. intended only for rigidly purposes in the exercise There is a listing of entities entitled to tax exemption. The petitioner
of the State's police powers. Over the years, however, as vehicular is not covered by the provision. Considering the foregoing, the Court
traffic exploded in number and motor vehicles became absolute Resolved to DENY the petition for lack of merit. The decision of the
necessities without which modem life as we know it would stand still, respondent court is affirmed.
Congress found the registration of vehicles a very convenient way of
raising much needed revenues. Without changing the earlier deputy. Any registration fees collected between June 27, 1968 and April 9,
of registration payments as "fees," their nature has become that of 1979, were correctly imposed because the tax exemption in the
"taxes." franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of
In view of the foregoing, we rule that motor vehicle registration fees Presidential Decree No. 1590, now provides:
as at present exacted pursuant to the Land Transportation and Traffic
Code are actually taxes intended for additional revenues. of In consideration of the franchise and rights hereby granted, the
government even if one fifth or less of the amount collected is set grantee shall pay to the Philippine Government during the lifetime of
aside for the operating expenses of the agency administering the this franchise whichever of subsections (a) and (b) hereunder will
program. result in a lower taxes.)

May the respondent administrative agency be required to refund the (a) The basic corporate income tax based on the grantee's annual net
amounts stated in the complaint of PAL? taxable income computed in accordance with the provisions of the
Internal Revenue Code; or
The answer is NO.
(b) A franchise tax of two per cent (2%) of the gross revenues.
The claim for refund is made for payments given in 1971. It is not derived by the grantees from all specific. without distinction as to
clear from the records as to what payments were made in succeeding transport or nontransport corporations; provided that with respect to
years. We have ruled that Section 24 of Rep. Act No. 5448 dated international airtransport service, only the gross passengers, mail, and
June 27, 1968, repealed all earlier tax exemptions Of corporate freight revenues. from its outgoing flights shall be subject to this law.
taxpayers found in legislative franchises similar to that invoked by
PAL in this case. The tax paid by the grantee under either of the above alternatives
shall be in lieu of all other taxes, duties, royalties, registration, license
In Radio Communications of the Philippines, Inc. v. Court of Tax and other fees and charges of any kind, nature or description
Appeals, et al. (G.R. No. 615)." July 11, 1985), this Court ruled: imposed, levied, established, assessed, or collected by any municipal,
city, provincial, or national authority or government, agency, now or
Under its original franchise, Republic Act No. 21); enacted in 1957, in the future, including but not limited to the following:
petitioner Radio Communications of the Philippines, Inc., was
subject to both the franchise tax and income tax. In 1964, however, xxx xxx xxx
petitioner's franchise was amended by Republic Act No. 41-42). to
the effect that its franchise tax of one and one-half percentum (1- (5) All taxes, fees and other charges on the registration, license,
1/2%) of all gross receipts was provided as "in lieu of any and all acquisition, and transfer of airtransport equipment, motor vehicles,
taxes of any kind, nature, or description levied, established, or and all other personal or real property of the gravitates (Pres. Decree
collected by any authority whatsoever, municipal, provincial, or 1590, 75 OG No. 15, 3259, April 9, 1979).
national from which taxes the grantee is hereby expressly exempted."
The issue raised to this Court now is the validity of the respondent
court's decision which ruled that the exemption under Republic Act PAL's current franchise is clear and specific. It has removed the
No. 41-42). was repealed by Section 24 of Republic Act No. 5448 ambiguity found in the earlier law. PAL is now exempt from the
dated June 27, 1968 which reads: payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in
the basic tax or franchise tax provided in Subsections (a) and (b) of
"(d) The provisions of existing special or general laws to the contrary Section 13, P.D. 1590, and may no longer be exacted.
notwithstanding, all corporate taxpayers not specifically exempt
under Sections 24 (c) (1) of this Code shall pay the rates provided in
this section. All corporations, agencies, or instrumentalities owned or WHEREFORE, the petition is hereby partially GRANTED. The
controlled by the government, including the Government Service prayed for refund of registration fees paid in 1971 is DENIED. The
Land Transportation Franchising and Regulatory Board (LTFRB) is
enjoined functions-the collecting any tax, fee, or other charge on the G.R. No. L-17725 February 28, 1962
registration and licensing of the petitioner's motor vehicles from
April 9, 1979 as provided in Presidential Decree No. 1590. REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

Office of the Solicitor General for plaintiff-appellee.

Arthur Tordesillas for defendants-appellants.


From the decision of the Court of First Instance of Manila (in Civil
Case No. 34100) ordering it to pay to plaintiff Republic of the
Philippines the sum of P4,802.37 with 6% interest thereon from the
date of the filing of the complaint until fully paid, plus costs,
defendant Mambulao Lumber Company interposed the present

The facts of the case are briefly stated in the decision of the trial
court, to wit: .

The facts of this case are not contested and may be briefly
summarized as follows: (a) under the first cause of action, for forest
charges covering the period from September 10, 1952 to May 24,
1953, defendants admitted that they have a liability of P587.37,
which liability is covered by a bond executed by defendant General
Insurance & Surety Corporation for Mambulao Lumber Company,
jointly and severally in character, on July 29, 1953, in favor of herein
plaintiff; (b) under the second cause of action, both defendants
admitted a joint and several liability in favor of plaintiff in the sum of
P296.70, also covered by a bond dated November 27, 1953; and (c)
under the third cause of action, both defendants admitted a joint and
several liability in favor of plaintiff for P3,928.30, also covered by a
bond dated July 20, 1954. These three liabilities aggregate to
P4,802.37. If the liability of defendants in favor of plaintiff in the
amount already mentioned is admitted, then what is the defense
interposed by the defendants? The defense presented by the
defendants is quite unusual in more ways than one. It appears from
Exh. 3 that from July 31, 1948 to December 29, 1956, defendant
Mambulao Lumber Company paid to the Republic of the Philippines
P8,200.52 for 'reforestation charges' and for the period commencing
from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to
the Republic of the Philippines for 'reforestation charges'. These
reforestation were paid to the plaintiff in pursuance of Section 1 of
Republic Act 115 which provides that there shall be collected, in
addition to the regular forest charges provided under Section 264 of
Commonwealth Act 466 known as the National Internal Revenue
Code, the amount of P0.50 on each cubic meter of timber... cut out
and removed from any public forest for commercial purposes. The
amount collected shall be expended by the director of forestry, with
the approval of the secretary of agriculture and commerce, for
reforestation and afforestation of watersheds, denuded areas ... and
other public forest lands, which upon investigation, are found
needing reforestation or afforestation .... The total amount of the
reforestation charges paid by Mambulao Lumber Company is
P9,127.50, and it is the contention of the defendant Mambulao
Lumber Company that since the Republic of the Philippines has not
made use of those reforestation charges collected from it for
reforesting the denuded area of the land covered by its license, the
Republic of the Philippines should refund said amount, or, if it cannot
be refunded, at least it should be compensated with what Mambulao
Lumber Company owed the Republic of the Philippines for
reforestation charges. In line with this thought, defendant Mambulao
Lumber Company wrote the director of forestry, on February 21,
1957 letter Exh. 1, in paragraph 4 of which said defendant requested
"that our account with your bureau be credited with all the
reforestation charges that you have imposed on us from July 1, 1947 reforestation. The conclusion seems to be that the amount paid by a
to June 14, 1956, amounting to around P2,988.62 ...". This letter of licensee as reforestation charges is in the nature of a tax which forms
defendant Mambulao Lumber Company was answered by the director a part of the Reforestation Fund, payable by him irrespective of
of forestry on March 12, 1957, marked Exh. 2, in which the director whether the area covered by his license is reforested or not. Said
of forestry quoted an opinion of the secretary of justice, to the effect fund, as the law expressly provides, shall be expended in carrying out
that he has no discretion to extend the time for paying the the purposes provided for thereunder, namely, the reforestation or
reforestation charges and also explained why not all denuded areas afforestation, among others, of denuded areas needing reforestation
are being reforested. or afforestation.

The only issue to be resolved in this appeal is whether the sum of Appellant maintains that the principle of a compensation in Article
P9,127.50 paid by defendant-appellant company to plaintiff-appellee 1278 of the new Civil Code2 is applicable, such that the sum of
as reforestation charges from 1947 to 1956 may be set off or applied P9,127.50 paid by it as reforestation charges may compensate its
to the payment of the sum of P4,802.37 as forest charges due and indebtedness to appellee in the sum of P4,802.37 as forest charges.
owing from appellant to appellee. It is appellant's contention that said But in the view we take of this case, appellant and appellee are not
sum of P9,127.50, not having been used in the reforestation of the mutually creditors and debtors of each other. Consequently, the law
area covered by its license, the same is refundable to it or may be on compensation is inapplicable. On this point, the trial court
applied in compensation of said sum of P4,802.37 due from it as correctly observed: .
forest charges.1äwphï1.ñët
Under Article 1278, NCC, compensation should take place when two
We find appellant's claim devoid of any merit. Section 1 of Republic persons in their own right are creditors and debtors of each other.
Act No. 115, provides: With respect to the forest charges which the defendant Mambulao
Lumber Company has paid to the government, they are in the coffers
SECTION 1. There shall be collected, in addition to the regular forest of the government as taxes collected, and the government does not
charges provided for under Section two hundred and sixty-four of owe anything, crystal clear that the Republic of the Philippines and
Commonwealth Act Numbered Four Hundred Sixty-six, known as the Mambulao Lumber Company are not creditors and debtors of
the National Internal Revenue Code, the amount of fifty centavos on each other, because compensation refers to mutual debts. ..
each cubic meter of timber for the first and second groups and forty
centavos for the third and fourth groups cut out and removed from And the weight of authority is to the effect that internal revenue
any public forest for commercial purposes. The amount collected taxes, such as the forest charges in question, can be the subject of set-
shall be expended by the Director of Forestry, with the approval of off or compensation.
the Secretary of Agriculture and Natural Resources (commerce), for
reforestation and afforestation of watersheds, denuded areas and A claim for taxes is not such a debt, demand, contract or judgment as
cogon and open lands within forest reserves, communal forest, is allowed to be set-off under the statutes of set-off, which are
national parks, timber lands, sand dunes, and other public forest construed uniformly, in the light of public policy, to exclude the
lands, which upon investigation, are found needing reforestation or remedy in an action or any indebtedness of the state or municipality
afforestation, or needing to be under forest cover for the growing of to one who is liable to the state or municipality for taxes. Neither are
economic trees for timber, tanning, oils, gums, and other minor forest they a proper subject of recoupment since they do not arise out of the
products or medicinal plants, or for watersheds protection, or for contract or transaction sued on. ... (80 C.J.S. 73-74. ) .
prevention of erosion and floods and preparation of necessary plans
and estimate of costs and for reconnaisance survey of public forest
lands and for such other expenses as may be deemed necessary for The general rule, based on grounds of public policy is well-settled
the proper carrying out of the purposes of this Act. that no set-off is 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
All revenues collected by virtue of, and pursuant to, the provisions of between the party and party but grow out of a duty to, and are the
the preceding paragraph and from the sale of barks, medical plants positive acts of the government, to the making and enforcing of
and other products derived from plantations as herein provided shall which, the personal consent of individual taxpayers is not required. ...
constitute a fund to be known as Reforestation Fund, to be expended If the taxpayer can properly refuse to pay his tax when called upon by
exclusively in carrying out the purposes provided for under this Act. the Collector, because he has a claim against the governmental body
All provincial or city treasurers and their deputies shall act as agents which is not included in the tax levy, it is plain that some legitimate
of the Director of Forestry for the collection of the revenues or and necessary expenditure must be curtailed. If the taxpayer's claim is
incomes derived from the provisions of this Act. (Emphasis disputed, the collection of the tax must await and abide the result of a
supplied.) lawsuit, and meanwhile the financial affairs of the government will
be thrown into great confusion. (47 Am. Jur. 766-767.)
Under this provision, it seems quite clear that the amount collected as
reforestation charges from a timber licenses or concessionaire shall WHEREFORE, the judgment of the trial court appealed from is
constitute a fund to be known as the Reforestation Fund, and that the hereby affirmed in all respects, with costs against the defendant-
same shall be expended by the Director of Forestry, with the approval appellant. So ordered.
of the Secretary of Agriculture and Natural Resources for the
reforestation or afforestation, among others, of denuded areas which,
upon investigation, are found to be needing reforestation or
afforestation. Note that there is nothing in the law which requires that
the amount collected as reforestation charges should be used
exclusively for the reforestation of the area covered by the license of
a licensee or concessionaire, and that if not so used, the same should
be refunded to him. Observe too, that the licensee's area may or may
not be reforested at all, depending on whether the investigation
thereof by the Director of Forestry shows that said area needs
G.R. No. L-67649 June 28, 1988 whatever encumbrances appearing at the back of TCT No. 4739
(37795) and ordering the same TCT No. 4739 (37795) cancelled.
vs. (b) The plaintiff to pay defendant Ho Fernandez the sum of
INTERMEDIATE APPELLATE COURT and HO P1,000.00 as attorney's fees. (p. 30, Record on Appeal)
FERNANDEZ, respondents.
The Intermediate Appellate Court affirmed the decision of the lower
court in toto.

GUTIERREZ, JR., J.: Hence, this petition for review.

The petitioner invokes legal and equitable grounds to reverse the Francia prefaced his arguments with the following assignments of
questioned decision of the Intermediate Appellate Court, to set aside grave errors of law:
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, I
sold at public auction to Ho Fernandez and ordered titled in the
latter's name.
The antecedent facts are as follows: PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR
Engracio Francia is the registered owner of a residential lot and a AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS
two-story house built upon it situated at Barrio San Isidro, now INDEBTED TO THE FORMER.
District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area
of about 328 square meters, is described and covered by Transfer II
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 HOLDING THAT PETITIONER WAS NOT PROPERLY AND
property was expropriated by the Republic of the Philippines for the DULY NOTIFIED THAT AN AUCTION SALE OF HIS
sum of P4,116.00 representing the estimated amount equivalent to the PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO
assessed value of the aforesaid portion. SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate III
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 RESPONDENT INTERMEDIATE APPELLATE COURT
order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was FURTHER COMMITTED A SERIOUS ERROR AND GRAVE
the highest bidder for the property. ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE
Francia was not present during the auction sale since he was in Iligan AMOUNTING TO FRAUD AND A DEPRIVATION OF
City at that time helping his uncle ship bananas. PROPERTY WITHOUT DUE PROCESS OF LAW, AND
On March 3, 1979, Francia received a notice of hearing of LRC Case VOID. (pp. 10, 17, 20-21, Rollo)
No. 1593-P "In re: Petition for Entry of New Certificate of Title"
filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 We gave due course to the petition for a more thorough inquiry into
(37795) and the issuance in his name of a new certificate of title. the petitioner's allegations that his property was sold at public auction
Upon verification through his lawyer, Francia discovered that a Final without notice to him and that the price paid for the property was
Bill of Sale had been issued in favor of Ho Fernandez by the City shockingly inadequate, amounting to fraud and deprivation without
Treasurer on December 11, 1978. The auction sale and the final bill due process of law.
of sale were both annotated at the back of TCT No. 4739 (37795) by
the Register of Deeds.
A careful review of the case, however, discloses that Mr. Francia
brought the problems raised in his petition upon himself. While we
On March 20, 1979, Francia filed a complaint to annul the auction commiserate with him at the loss of his property, the law and the
sale. He later amended his complaint on January 24, 1980. facts militate against the grant of his petition. We are constrained to
dismiss it.
On April 23, 1981, the lower court rendered a decision, the
dispositive portion of which reads: Francia contends that his tax delinquency of P2,400.00 has been
extinguished by legal compensation. He claims that the government
WHEREFORE, in view of the foregoing, judgment is hereby owed him P4,116.00 when a portion of his land was expropriated on
rendered dismissing the amended complaint and ordering: October 15, 1977. Hence, his tax obligation had been set-off by
operation of law as of October 15, 1977.
(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 There is no legal basis for the contention. By legal compensation,
parcel of land including the improvements thereon, subject to obligations of persons, who in their own right are reciprocally debtors
and creditors of each other, are extinguished (Art. 1278, Civil Code). Petitioner had one year within which to redeem his property
The circumstances of the case do not satisfy the requirements although, as well be shown later, he claimed that he pocketed the
provided by Article 1279, to wit: notice of the auction sale without reading it.

(1) that each one of the obligors be bound principally and that he be Petitioner contends that "the auction sale in question was made
at the same time a principal creditor of the other; without complying with the mandatory provisions of the statute
governing tax sale. No evidence, oral or otherwise, was presented
xxx xxx xxx 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
(3) that the two debts be due. to show that plaintiff was duly and properly notified ... .(Petition for
Review, Rollo p. 18; emphasis supplied)
xxx xxx xxx
We agree with the petitioner's claim that Ho Fernandez, the purchaser
This principal contention of the petitioner has no merit. We have at the auction sale, has the burden of proof to show that there was
consistently ruled that there can be no off-setting of taxes against the compliance with all the prescribed requisites for a tax sale.
claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine
him an amount equal to or greater than the tax being collected. The that:
collection of a tax cannot await the results of a lawsuit against the
xxx xxx xxx
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- ... [D]ue process of law to be followed in tax proceedings must be
off or compensation. We stated that: 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
A claim for taxes is not such a debt, demand, contract or judgment as supplied)
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 There is no presumption of the regularity of any administrative action
to one who is liable to the state or municipality for taxes. Neither are which results in depriving a taxpayer of his property through a tax
they a proper subject of recoupment since they do not arise out of the sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular
contract or transaction sued on. ... (80 C.J.S., 7374). "The general Government, 19 Phil. 261). This is actually an exception to the rule
rule based on grounds of public policy is well-settled that no set-off that administrative proceedings are presumed to be regular.
admissible against demands for taxes levied for general or local
governmental purposes. The reason on which the general rule is But even if the burden of proof lies with the purchaser to show that
based, is that taxes are not in the nature of contracts between the all legal prerequisites have been complied with, the petitioner can
party and party but grow out of duty to, and are the positive acts of not, however, deny that he did receive the notice for the auction sale.
the government to the making and enforcing of which, the personal The records sustain the lower court's finding that:
consent of individual taxpayers is not required. ..."
[T]he plaintiff claimed that it was illegal and irregular. He insisted
We stated that a taxpayer cannot refuse to pay his tax when called that he was not properly notified of the auction sale. Surprisingly,
upon by the collector because he has a claim against the however, he admitted in his testimony that he received the letter
governmental body not included in the tax levy. dated November 21, 1977 (Exhibit "I") as shown by his signature
(Exhibit "I-A") thereof. He claimed further that he was not present on
This rule was reiterated in the case of Corders v. Gonda (18 SCRA December 5, 1977 the date of the auction sale because he went to
331) where we stated that: "... internal revenue taxes can not be the Iligan City. As long as there was substantial compliance with the
subject of compensation: Reason: government and taxpayer are not requirements of the notice, the validity of the auction sale can not be
mutually creditors and debtors of each other' under Article 1278 of assailed ... .
the Civil Code and a "claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off." We quote the following testimony of the petitioner on cross-
examination, to wit:
There are other factors which compel us to rule against the petitioner.
The tax was due to the city government while the expropriation was Q. My question to you is this letter marked as Exhibit I for Ho
effected by the national government. Moreover, the amount of Fernandez notified you that the property in question shall be sold at
P4,116.00 paid by the national government for the 125 square meter public auction to the highest bidder on December 5, 1977 pursuant to
portion of his lot was deposited with the Philippine National Bank Sec. 74 of PD 464. Will you tell the Court whether you received the
long before the sale at public auction of his remaining property. original of this letter?
Notice of the deposit dated September 28, 1977 was received by the
petitioner on September 30, 1977. The petitioner admitted in his A. I just signed it because I was not able to read the same. It was just
testimony that he knew about the P4,116.00 deposited with the bank sent by mail carrier.
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. 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. the area. However, the price quoted by the petitioner for a 203 square
meter lot appears quite exaggerated. At any rate, the foregoing
Q. After you received that original where did you place it? reasons which answer the petitioner's claims lead us to deny the
A. I placed it in the usual place where I place my mails.
And finally, even if we are inclined to give relief to the petitioner on
equitable grounds, there are no strong considerations of substantial
Petitioner, therefore, was notified about the auction sale. It was justice in his favor. Mr. Francia failed to pay his taxes for 14 years
negligence on his part when he ignored such notice. By his very own from 1963 up to the date of the auction sale. He claims to have
admission that he received the notice, his now coming to court pocketed the notice of sale without reading it which, if true, is still an
assailing the validity of the auction sale loses its force. act of inexplicable negligence. He did not withdraw from the
expropriation payment deposited with the Philippine National Bank
Petitioner's third assignment of grave error likewise lacks merit. As a an amount sufficient to pay for the back taxes. The petitioner did not
general rule, gross inadequacy of price is not material (De Leon v. pay attention to another notice sent by the City Treasurer on
Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance November 3, 1978, during the period of redemption, regarding his tax
Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 delinquency. There is furthermore no showing of bad faith or
Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 collusion in the purchase of the property by Mr. Fernandez. The
SCRA 388) we held that "alleged gross inadequacy of price is not petitioner has no standing to invoke equity in his attempt to regain the
material when the law gives the owner the right to redeem as when a property by belatedly asking for the annulment of the sale.
sale is made at public auction, upon the theory that the lesser the
price, the easier it is for the owner to effect redemption." WHEREFORE, IN VIEW OF THE FOREGOING, the petition for
In Velasquez v. Coronel (5 SCRA 985), this Court held: review is DISMISSED. The decision of the respondent court is
... [R]espondent treasurer now claims that the prices for which the
lands were sold are unconscionable considering the wide divergence SO ORDERED.
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 G.R. No. 125704 August 28, 1998
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 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
PHILEX MINING CORPORATION, petitioner, ========= =========
vs. ========= =========
APPEALS, and THE COURT OF TAX APPEALS, respondents. 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
ROMERO, J.: liabilities, citing our ruling in Commissioner of Internal Revenue v.
Itogon-Suyoc Mines, Inc. 5
Petitioner Philex Mining Corp. assails the decision of the Court of
Appeals promulgated on April 8, 1996 in CA-G.R. SP No. In reply, the BIR, in a letter dated September 7, 1992, 6 found no
36975 1 affirming the Court of Tax Appeals decision in CTA Case merit in Philex's position. Since these pending claims have not yet
No. 4872 dated March 16, 1995 2 ordering it to pay the amount of been established or determined with certainty, it follows that no legal
P110,677,668.52 as excise tax liability for the period from the 2nd compensation can take place. Hence, the BIR reiterated its demand
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest that Philex settle the amount plus interest within 30 days from the
from August 6, 1994 until fully paid pursuant to Sections 248 and receipt of the letter.
249 of the Tax Code of 1977.
In view of the BIR's denial of the offsetting of Philex's claim for
The facts show that on August 5, 1992, the BIR sent a letter to Philex VAT input credit/refund against its excise tax obligation, Philex
asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of raised the issue to the Court of Tax Appeals on November 6,
1991 as well as the 1st and 2nd quarter of 1992 in the total amount of 1992. 7 In the course of the proceedings, the BIR issued Tax Credit
P123,821.982.52 computed as follows: 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,
TAX DUE elucidating its reason, to wit:

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 Thus, for legal compensation to take place, both obligations must
19,517,021.91 be liquidated and demandable. "Liquidated" debts are those where
the exact amount has already been determined (PARAS, Civil Code
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 of the Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the
21,721,845.60 instant case, the claims of the Petitioner for VAT refund is still
pending litigation, and still has to be determined by this Court
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 (C.T.A. Case No. 4707). A fortiori, the liquidated debt of the
26,889,937.88 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

47,312,353.94 11,828,088.48 Moreover, the Court of Tax Appeals ruled that "taxes cannot be
8,988,362.97 68,128,805.39 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:

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 In all the foregoing, this Petition for Review is hereby DENIED for
30,887,982.25 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
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18
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.
43,013,541.70 10,753,385.43 36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a
1,926,250.00 55,693,177.13 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
90,325,895.64 22,581,473.91 DISMISSED and the decision dated March 16, 1995 is AFFIRMED.
123,821,982.52 3 Philex filed a motion for reconsideration which was, nevertheless,
denied in a Resolution dated July 11, 1996. 13
However, a few days after the denial of its motion for refund has not yet been approved by the Commissioner, 21 is no
reconsideration, Philex was able to obtain its VAT input credit/refund longer without any support in statutory law.
not only for the taxable year 1989 to 1991 but also for 1992 and
1994, computed as follows: 14 It is important to note, that the premise of our ruling in the
aforementioned case was anchored on Section 51 (d) of the National
Period Covered Tax Credit Date Revenue Code of 1939. However, when the National Internal
Revenue Code of 1977 was enacted, the same provision upon which
By Claims For Certificate of the Itogon-Suyoc pronouncement was based was
omitted. 22 Accordingly, the doctrine enunciated in Itogon-
Suyoc cannot be invoked by Philex.
VAT refund/credit Number Issue Amount
Despite the foregoing rulings clearly adverse to Philex's position, it
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01 asserts that the imposition of surcharge and interest for the non-
payment of the excise taxes within the time prescribed was
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61 unjustified. Philex posits the theory that it had no obligation to pay
the excise tax liabilities within the prescribed period since, after all, it
1989 007732 11 July 1996 P37,322,799.19 still has pending claims for VAT input credit/refund with BIR. 23

1990-1991 007751 16 July 1996 P84,662,787.46 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
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95 hindrance. 24 Evidently, to countenance Philex's whimsical reason
would render ineffective our tax collection system. Too simplistic, it
In view of the grant of its VAT input credit/refund, Philex now finds no support in law or in jurisprudence.
contends that the same should, ipso jure, off-set its excise tax
liabilities 15 since both had already become "due and demandable, as To be sure, we cannot allow Philex to refuse the payment of its tax
well as fully liquidated;" 16 hence, legal compensation can properly liabilities on the ground that it has a pending tax claim for refund or
take place. 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
We see no merit in this contention. 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
In several instances prior to the instant case, we have already made
refund or credit, this would adversely affect the government revenue
the pronouncement that taxes cannot be subject to compensation for
system. A taxpayer cannot refuse to pay his taxes when they fall due
the simple reason that the government and the taxpayer are not
simply because he has a claim against the government or that the
creditors and debtors of each other. 17 There is a material distinction
collection of the tax is contingent on the result of the lawsuit it filed
between a tax and debt. Debts are due to the Government in its
against the government. 27 Moreover, Philex's theory that would
corporate capacity, while taxes are due to the Government in its
automatically apply its VAT input credit/refund against its tax
sovereign capacity. 18 We find no cogent reason to deviate from the
liabilities can easily give rise to confusion and abuse, depriving the
aforementioned distinction.
government of authority over the manner by which taxpayers credit
and offset their tax liabilities.
Prescinding from this premise, in Francia v. Intermediate Appellate
Court, 19 we categorically held that taxes cannot be subject to set-off
Corollarily, the fact that Philex has pending claims for VAT input
or compensation, thus:
claim/refund with the government is immaterial for the imposition of
charges and penalties prescribed under Section 248 and 249 of the
We have consistently ruled that there can be no off-setting of taxes Tax Code of 1977. The payment of the surcharge is mandatory and
against the claims that the taxpayer may have against the the BIR is not vested with any authority to waive the collection
government. A person cannot refuse to pay a tax on the ground that thereof. 28 The same cannot be condoned for flimsy
the government owes him an amount equal to or greater than the tax reasons, 29 similar to the one advanced by Philex in justifying its non-
being collected. The collection of a tax cannot await the results of a payment of its tax liabilities.
lawsuit against the government.
Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the
The ruling in Francia has been applied to the subsequent case National Internal Revenue Code of 1977, which requires the refund
of Caltex Philippines, Inc. v. Commission on Audit, 20which reiterated of input taxes within 60 days, 31 when it took five years for the latter
that: to grant its tax claim for VAT input credit/refund. 32

. . . a taxpayer may not offset taxes due from the claims that he may In this regard, we agree with Philex. While there is no dispute that a
have against the government. Taxes cannot be the subject of claimant has the burden of proof to establish the factual basis of his
compensation because the government and taxpayer are not mutually or her claim for tax credit or refund, 33 however, once the claimant
creditors and debtors of each other and a claim for taxes is not such a has submitted all the required documents it is the function of the BIR
debt, demand, contract or judgment as is allowed to be set-off. to assess these documents with purposeful dispatch. After all, since
taxpayers owe honestly to government it is but just that government
Further, Philex's reliance on our holding in Commissioner of Internal render fair service to the taxpayers. 34
Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that a pending
refund may be set off against an existing tax liability even though the 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 WHEREFORE, in view of the foregoing, the instant petition is
with their duty, it could have granted the refund earlier. We need not hereby DISMISSED. The assailed decision of the Court of Appeals
remind the BIR that simple justice requires the speedy refund of dated April 8, 1996 is hereby AFFIRMED.
wrongly-held taxes. 35 Fair dealing and nothing less, is expected by
the taxpayer from the BIR in the latter's discharge of its function. As SO ORDERED.
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

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.