Tax 1

G.R. No.
L-29059 December 15, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
CEBU PORTLAND CEMENT COMPANY and COURT OF TAX
APPEALS, respondents.

CRUZ, J .:
By virtue of a decision of the Court of Tax Appeals rendered on
June 21, 1961, as modified on appeal by the Supreme Court on
February 27, 1965, the Commissioner of Internal Revenue was
ordered to refund to the Cebu Portland Cement Company the
amount of P 359,408.98, representing overpayments of ad
valorem taxes on cement produced and sold by it after October
1957. 1
On March 28, 1968, following denial of motions for
reconsideration filed by both the petitioner and the private
respondent, the latter moved for a writ of execution to enforce the
said judgment .
2

The motion was opposed by the petitioner on the ground that the
private respondent had an outstanding sales tax liability to which
the judgment debt had already been credited. In fact, it was
stressed, there was still a balance owing on the sales taxes in the
amount of P 4,789,279.85 plus 28% surcharge.
3

On April 22, 1968, the Court of Tax Appeals * granted the motion,
holding that the alleged sales tax liability of the private respondent
was still being questioned and therefore could not be set-off
against the refund.
4

In his petition to review the said resolution, the Commissioner of
Internal Revenue claims that the refund should be charged
against the tax deficiency of the private respondent on the sales
of cement under Section 186 of the Tax Code. His position is that
cement is a manufactured and not a mineral product and
therefore not exempt from sales taxes. He adds that enforcement
of the said tax deficiency was properly effected through his power
of distraint of personal property under Sections 316 and 318
5
of
the said Code and, moreover, the collection of any national
internal revenue tax may not be enjoined under Section
305,
6
subject only to the exception prescribed in Rep. Act No.
1125.
7
This is not applicable to the instant case. The petitioner
also denies that the sales tax assessments have already
prescribed because the prescriptive period should be counted
from the filing of the sales tax returns, which had not yet been
done by the private respondent.
For its part, the private respondent disclaims liability for the sales
taxes, on the ground that cement is not a manufactured product
but a mineral product.
8
As such, it was exempted from sales
taxes under Section 188 of the Tax Code after the effectivity of
Rep. Act No. 1299 on June 16, 1955, in accordance with Cebu
Portland Cement Co. v. Collector of Internal Revenue,
9
decided
in 1968. Here Justice Eugenio Angeles declared that "before the
effectivity of Rep. Act No. 1299, amending Section 246 of the
National Internal Revenue Code, cement was taxable as a
manufactured product under Section 186, in connection with
Section 194(4) of the said Code," thereby implying that it was not
considered a manufactured product afterwards. Also, the alleged
sales tax deficiency could not as yet be enforced against it
because the tax assessment was not yet final, the same being still
under protest and still to be definitely resolved on the merits.
Besides, the assessment had already prescribed, not having been
made within the reglementary five-year period from the filing of
the tax returns. 10
Our ruling is that the sales tax was properly imposed upon the
private respondent for the reason that cement has always been
considered a manufactured product and not a mineral product.
This matter was extensively discussed and categorically resolved
in Commissioner of Internal Revenue v. Republic Cement
Corporation, 11 decided on August 10, 1983, where Justice Efren
L. Plana, after an exhaustive review of the pertinent cases,
declared for a unanimous Court:
From all the foregoing cases, it is clear that
cement qua cement was never considered as a mineral
product within the meaning of Section 246 of the Tax
Code, notwithstanding that at least 80% of its
components are minerals, for the simple reason that
cement is the product of a manufacturingprocess and is
no longer the mineral product contemplated in the Tax
Code (i.e.; minerals subjected to simple treatments) for
the purpose of imposing the ad valorem tax.
What has apparently encouraged the herein
respondents to maintain their present posture is the
case of Cebu Portland Cement Co. v. Collector of
Internal Revenue, L-20563, Oct. 29, 1968 (28 SCRA
789) penned by Justice Eugenio Angeles. For some
portions of that decision give the impression that
Republic Act No. 1299, which amended Section 246,
reclassified cement as a mineral product that was not
subject to sales tax. ...
xxx xxx xxx
After a careful study of the foregoing, we conclude that
reliance on the decision penned by Justice Angeles is
misplaced. The said decision is no authority for the
proposition that after the enactment of Republic Act No.
1299 in 1955 (defining mineral product as things with at
least 80% mineral content), cement became a 'mineral
product," as distinguished from a "manufactured
product," and therefore ceased to be subject to sales
tax. It was not necessary for the Court to so rule. It was
enough for the Court to say in effect that even
assuming Republic Act No. 1299 had reclassified
cement was a mineral product, the reclassification
could not be given retrospective application (so as to
justify the refund of sales taxes paid before Republic
Act 1299 was adopted) because laws operate
prospectively only, unless the legislative intent to the
contrary is manifest, which was not so in the case of
Republic Act 1266. [The situation would have been
different if the Court instead had ruled in favor of
refund, in which case it would have been absolutely
necessary (1) to make an unconditional ruling that
Republic Act 1299 re-classified cement as a mineral
product (not subject to sales tax), and (2) to declare the
law retroactive, as a basis for granting refund of sales
tax paid before Republic Act 1299.]
In any event, we overrule the CEPOC decision of
October 29, 1968 (G.R. No. L-20563) insofar as its
pronouncements or any implication therefrom conflict
with the instant decision.
The above views were reiterated in the resolution 12 denying
reconsideration of the said decision, thus:
The nature of cement as a "manufactured product"
(rather than a "mineral product") is well-settled. The
issue has repeatedly presented itself as a threshold
question for determining the basis for computing the ad
valorem mining tax to be paid by cement Companies.
No pronouncement was made in these cases that as a
"manufactured product" cement is subject to sales tax
because this was not at issue.
The decision sought to be reconsidered here referred to
the legislative history of Republic Act No. 1299 which
introduced a definition of the terms "mineral" and
"mineral products" in Sec. 246 of the Tax Code. Given
the legislative intent, the holding in the CEPOC case
(G.R. No. L-20563) that cement was subject to sales
tax prior to the effectivity f Republic Act No. 1299
cannot be construed to mean that, after the law took
effect, cement ceased to be so subject to the tax. To
erase any and all misconceptions that may have been
spawned by reliance on the case of Cebu Portland
Cement Co. v. Collector of Internal Revenue, L-20563,
October 29, 1968 (28 SCRA 789) penned by Justice
Eugenio Angeles, the Court has expressly overruled it
insofar as it may conflict with the decision of August 10,
1983, now subject of these motions for reconsideration.
On the question of prescription, the private respondent claims that
the five-year reglementary period for the assessment of its tax
liability started from the time it filed its gross sales returns on June
30, 1962. Hence, the assessment for sales taxes made on
January 16, 1968 and March 4, 1968, were already out of time.
We disagree. This contention must fail for what CEPOC filed was
not the sales returns required in Section 183(n) but the ad
valorem tax returns required under Section 245 of the Tax Code.
As Justice Irene R. Cortes emphasized in the aforestated
resolution:
In order to avail itself of the benefits of the five-year
prescription period under Section 331 of the Tax Code,
the taxpayer should have filed the required return for
the tax involved, that is, a sales tax return. (Butuan
Sawmill, Inc. v. CTA, et al., G.R. No. L-21516, April 29,
1966, 16 SCRA 277). Thus CEPOC should have filed
sales tax returns of its gross sales for the subject
periods. Both parties admit that returns were made for
the ad valorem mining tax. CEPOC argues that said
returns contain the information necessary for the
assessment of the sales tax. The Commissioner does
not consider such returns as compliance with the
requirement for the filing of tax returns so as to start the
running of the five-year prescriptive period.
We agree with the Commissioner. It has been held
in Butuan Sawmill Inc. v. CTA, supra, that the filing of
an income tax return cannot be considered as
substantial compliance with the requirement of filing
sales tax returns, in the same way that an income tax
return cannot be considered as a return for
compensating tax for the purpose of computing the
period of prescription under Sec. 331. (Citing Bisaya
Land Transportation Co., Inc. v. Collector of Internal
Revenue, G.R. Nos. L-12100 and L-11812, May 29,
1959). There being no sales tax returns filed by
CEPOC, the statute of stations in Sec. 331 did not
begin to run against the government. The assessment
made by the Commissioner in 1968 on CEPOC's
cement sales during the period from July 1, 1959 to
December 31, 1960 is not barred by the five-year
prescriptive period. Absent a return or when the return
is false or fraudulent, the applicable period is ten (10)
days from the discovery of the fraud, falsity or omission.
The question in this case is: When was CEPOC's
omission to file tha return deemed discovered by the
government, so as to start the running of said
period? 13
The argument that the assessment cannot as yet be enforced
because it is still being contested loses sight of the urgency of the
need to collect taxes as "the lifeblood of the government." If the
payment of taxes could be postponed by simply questioning their
validity, the machinery of the state would grind to a halt and all
government functions would be paralyzed. That is the reason
why, save for the exception already noted, the Tax Code
provides:
Sec. 291. Injunction not available to restrain collection
of tax. No court shall have authority to grant an
injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by this
Code.
It goes without saying that this injunction is available not only
when the assessment is already being questioned in a court of
justice but more so if, as in the instant case, the challenge to the
assessment is still-and only-on the administrative level. There is
all the more reason to apply the rule here because it appears that
even after crediting of the refund against the tax deficiency, a
balance of more than P 4 million is still due from the private
respondent.
To require the petitioner to actually refund to the private
respondent the amount of the judgment debt, which he will later
have the right to distrain for payment of its sales tax liability is in
our view an Idle ritual. We hold that the respondent Court of Tax
Appeals erred in ordering such a charade.
WHEREFORE, the petition is GRANTED. The resolution dated
April 22, 1968, in CTA Case No. 786 is SET ASIDE, without any
pronouncement as to costs.
SO ORDERED.
G.R. Nos. 89898-99 October 1, 1990
MUNICIPALITY OF MAKATI, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON. SALVADOR
P. DE GUZMAN, JR., as Judge RTC of Makati, Branch CXLII
ADMIRAL FINANCE CREDITORS CONSORTIUM, INC., and
SHERIFF SILVINO R. PASTRANA,respondents.
Defante & Elegado for petitioner.
Roberto B. Lugue for private respondent Admiral Finance
Creditors' Consortium, Inc.
R E S O L U T I O N

CORTS, J .:
The present petition for review is an off-shoot of expropriation
proceedings initiated by petitioner Municipality of Makati against
private respondent Admiral Finance Creditors Consortium, Inc.,
Home Building System & Realty Corporation and one Arceli P. Jo,
involving a parcel of land and improvements thereon located at
Mayapis St., San Antonio Village, Makati and registered in the
name of Arceli P. Jo under TCT No. S-5499.
It appears that the action for eminent domain was filed on May 20,
1986, docketed as Civil Case No. 13699. Attached to petitioner's
complaint was a certification that a bank account (Account No.
S/A 265-537154-3) had been opened with the PNB Buendia
Branch under petitioner's name containing the sum of
P417,510.00, made pursuant to the provisions of Pres. Decree
No. 42. After due hearing where the parties presented their
respective appraisal reports regarding the value of the property,
respondent RTC judge rendered a decision on June 4, 1987,
fixing the appraised value of the property at P5,291,666.00, and
ordering petitioner to pay this amount minus the advanced
payment of P338,160.00 which was earlier released to private
respondent.
After this decision became final and executory, private respondent
moved for the issuance of a writ of execution. This motion was
granted by respondent RTC judge. After issuance of the writ of
execution, a Notice of Garnishment dated January 14, 1988 was
served by respondent sheriff Silvino R. Pastrana upon the
manager of the PNB Buendia Branch. However, respondent
sheriff was informed that a "hold code" was placed on the account
of petitioner. As a result of this, private respondent filed a motion
dated January 27, 1988 praying that an order be issued directing
the bank to deliver to respondent sheriff the amount equivalent to
the unpaid balance due under the RTC decision dated June 4,
1987.
Petitioner filed a motion to lift the garnishment, on the ground that
the manner of payment of the expropriation amount should be
done in installments which the respondent RTC judge failed to
state in his decision. Private respondent filed its opposition to the
motion.
Pending resolution of the above motions, petitioner filed on July
20, 1988 a "Manifestation" informing the court that private
respondent was no longer the true and lawful owner of the subject
property because a new title over the property had been
registered in the name of Philippine Savings Bank, Inc. (PSB)
Respondent RTC judge issued an order requiring PSB to make
available the documents pertaining to its transactions over the
subject property, and the PNB Buendia Branch to reveal the
amount in petitioner's account which was garnished by
respondent sheriff. In compliance with this order, PSB filed a
manifestation informing the court that it had consolidated its
ownership over the property as mortgagee/purchaser at an
extrajudicial foreclosure sale held on April 20, 1987. After several
conferences, PSB and private respondent entered into a
compromise agreement whereby they agreed to divide between
themselves the compensation due from the expropriation
proceedings.
Respondent trial judge subsequently issued an order dated
September 8, 1988 which: (1) approved the compromise
agreement; (2) ordered PNB Buendia Branch to immediately
release to PSB the sum of P4,953,506.45 which corresponds to
the balance of the appraised value of the subject property under
the RTC decision dated June 4, 1987, from the garnished account
of petitioner; and, (3) ordered PSB and private respondent to
execute the necessary deed of conveyance over the subject
property in favor of petitioner. Petitioner's motion to lift the
garnishment was denied.
Petitioner filed a motion for reconsideration, which was duly
opposed by private respondent. On the other hand, for failure of
the manager of the PNB Buendia Branch to comply with the order
dated September 8, 1988, private respondent filed two
succeeding motions to require the bank manager to show cause
why he should not be held in contempt of court. During the
hearings conducted for the above motions, the general manager
of the PNB Buendia Branch, a Mr. Antonio Bautista, informed the
court that he was still waiting for proper authorization from the
PNB head office enabling him to make a disbursement for the
amount so ordered. For its part, petitioner contended that its
funds at the PNB Buendia Branch could neither be garnished nor
levied upon execution, for to do so would result in the
disbursement of public funds without the proper appropriation
required under the law, citing the case of Republic of the
Philippines v. Palacio [G.R. No. L-20322, May 29, 1968, 23 SCRA
899].
Respondent trial judge issued an order dated December 21, 1988
denying petitioner's motion for reconsideration on the ground that
the doctrine enunciated in Republic v. Palacio did not apply to the
case because petitioner's PNB Account No. S/A 265-537154-3
was an account specifically opened for the expropriation
proceedings of the subject property pursuant to Pres. Decree No.
42. Respondent RTC judge likewise declared Mr. Antonio
Bautista guilty of contempt of court for his inexcusable refusal to
obey the order dated September 8, 1988, and thus ordered his
arrest and detention until his compliance with the said order.
Petitioner and the bank manager of PNB Buendia Branch then
filed separate petitions for certiorari with the Court of Appeals,
which were eventually consolidated. In a decision promulgated on
June 28, 1989, the Court of Appeals dismissed both petitions for
lack of merit, sustained the jurisdiction of respondent RTC judge
over the funds contained in petitioner's PNB Account No. 265-
537154-3, and affirmed his authority to levy on such funds.
Its motion for reconsideration having been denied by the Court of
Appeals, petitioner now files the present petition for review with
prayer for preliminary injunction.
On November 20, 1989, the Court resolved to issue a temporary
restraining order enjoining respondent RTC judge, respondent
sheriff, and their representatives, from enforcing and/or carrying
out the RTC order dated December 21, 1988 and the writ of
garnishment issued pursuant thereto. Private respondent then
filed its comment to the petition, while petitioner filed its reply.
Petitioner not only reiterates the arguments adduced in its petition
before the Court of Appeals, but also alleges for the first time that
it has actually two accounts with the PNB Buendia Branch, to wit:
xxx xxx xxx
(1) Account No. S/A 265-537154-3 exclusively for
the expropriation of the subject property, with an
outstanding balance of P99,743.94.
(2) Account No. S/A 263-530850-7 for statutory
obligations and other purposes of the municipal
government, with a balance of P170,098,421.72, as of
July 12, 1989.
xxx xxx xxx
[Petition, pp. 6-7; Rollo, pp. 11-12.]
Because the petitioner has belatedly alleged only in this Court the
existence of two bank accounts, it may fairly be asked whether
the second account was opened only for the purpose of
undermining the legal basis of the assailed orders of respondent
RTC judge and the decision of the Court of Appeals, and
strengthening its reliance on the doctrine that public funds are
exempted from garnishment or execution as enunciated
in Republic v. Palacio[supra.] At any rate, the Court will give
petitioner the benefit of the doubt, and proceed to resolve the
principal issues presented based on the factual circumstances
thus alleged by petitioner.
Admitting that its PNB Account No. S/A 265-537154-3 was
specifically opened for expropriation proceedings it had initiated
over the subject property, petitioner poses no objection to the
garnishment or the levy under execution of the funds deposited
therein amounting to P99,743.94. However, it is petitioner's main
contention that inasmuch as the assailed orders of respondent
RTC judge involved the net amount of P4,965,506.45, the funds
garnished by respondent sheriff in excess of P99,743.94, which
are public funds earmarked for the municipal government's other
statutory obligations, are exempted from execution without the
proper appropriation required under the law.
There is merit in this contention. The funds deposited in the
second PNB Account No. S/A 263-530850-7 are public funds of
the municipal government. In this jurisdiction, well-settled is the
rule that public funds are not subject to levy and execution, unless
otherwise provided for by statute [Republic v. Palacio, supra.; The
Commissioner of Public Highways v. San Diego, G.R. No. L-
30098, February 18, 1970, 31 SCRA 616]. More particularly, the
properties of a municipality, whether real or personal, which are
necessary for public use cannot be attached and sold at
execution sale to satisfy a money judgment against the
municipality. Municipal revenues derived from taxes, licenses and
market fees, and which are intended primarily and exclusively for
the purpose of financing the governmental activities and functions
of the municipality, are exempt from execution [See Viuda De Tan
Toco v. The Municipal Council of Iloilo, 49 Phil. 52 (1926): The
Municipality of Paoay, Ilocos Norte v. Manaois, 86 Phil. 629
(1950); Municipality of San Miguel, Bulacan v. Fernandez, G.R.
No. 61744, June 25, 1984, 130 SCRA 56]. The foregoing rule
finds application in the case at bar. Absent a showing that the
municipal council of Makati has passed an ordinance
appropriating from its public funds an amount corresponding to
the balance due under the RTC decision dated June 4, 1987, less
the sum of P99,743.94 deposited in Account No. S/A 265-
537154-3, no levy under execution may be validly effected on the
public funds of petitioner deposited in Account No. S/A 263-
530850-7.
Nevertheless, this is not to say that private respondent and PSB
are left with no legal recourse. Where a municipality fails or
refuses, without justifiable reason, to effect payment of a final
money judgment rendered against it, the claimant may avail of the
remedy of mandamus in order to compel the enactment and
approval of the necessary appropriation ordinance, and the
corresponding disbursement of municipal funds therefor
[SeeViuda De Tan Toco v. The Municipal Council of Iloilo, supra;
Baldivia v. Lota, 107 Phil. 1099 (1960); Yuviengco v. Gonzales,
108 Phil. 247 (1960)].
In the case at bar, the validity of the RTC decision dated June 4,
1987 is not disputed by petitioner. No appeal was taken
therefrom. For three years now, petitioner has enjoyed
possession and use of the subject property notwithstanding its
inexcusable failure to comply with its legal obligation to pay just
compensation. Petitioner has benefited from its possession of the
property since the same has been the site of Makati West High
School since the school year 1986-1987. This Court will not
condone petitioner's blatant refusal to settle its legal obligation
arising from expropriation proceedings it had in fact initiated. It
cannot be over-emphasized that, within the context of the State's
inherent power of eminent domain,
. . . [j]ust compensation means not only the correct
determination of the amount to be paid to the owner of
the land but also the payment of the land within a
reasonable time from its taking. Without prompt
payment, compensation cannot be considered "just" for
the property owner is made to suffer the consequence
of being immediately deprived of his land while being
made to wait for a decade or more before actually
receiving the amount necessary to cope with his loss
[Cosculluela v. The Honorable Court of Appeals, G.R.
No. 77765, August 15, 1988, 164 SCRA 393,
400. See also Provincial Government of Sorsogon v.
Vda. de Villaroya, G.R. No. 64037, August 27, 1987,
153 SCRA 291].
The State's power of eminent domain should be exercised within
the bounds of fair play and justice. In the case at bar, considering
that valuable property has been taken, the compensation to be
paid fixed and the municipality is in full possession and utilizing
the property for public purpose, for three (3) years, the Court finds
that the municipality has had more than reasonable time to pay
full compensation.
WHEREFORE, the Court Resolved to ORDER petitioner
Municipality of Makati to immediately pay Philippine Savings
Bank, Inc. and private respondent the amount of P4,953,506.45.
Petitioner is hereby required to submit to this Court a report of its
compliance with the foregoing order within a non-extendible
period of SIXTY (60) DAYS from the date of receipt of this
resolution.
G.R. No. L-28896 February 17, 1988
vs.
ALGUE, INC., and THE COURT OF TAX
CRUZ, J .:
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance On the other hand, such
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is
therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good,
may be achieved.
The main issue in this case is whether or not the Collector
of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate
business expenses in its income tax returns. The corollary issue
is whether or not the appeal of the private respondent from the
decision of the Collector of Internal Revenue was made on time
and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private
respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the
petitioner assessing it in the total amount of P83,183.85 as
delinquency income taxes for the years 1958 and 1959.
1
On
January 18, 1965, Algue flied a letter of protest or request for
reconsideration, which letter was stamp received on the same
day in the office of the petitioner.
2
On March 12, 1965, a warrant
of distraint and levy was presented to the private respondent,
through its counsel, Atty. Alberto Guevara, Jr., who refused to
receive it on the ground of the pending protest.
3
A search of the
protest in the dockets of the case proved fruitless. Atty. Guevara
produced his file copy and gave a photostat to BIR agent Ramon
Reyes, who deferred service of the warrant.
4
On April 7, 1965,
Atty. Guevara was finally informed that the BIR was not taking
any action on the protest and it was only then that he accepted
the warrant of distraint and levy earlier sought to be
served.
5
Sixteen days later, on April 23, 1965, Algue filed a
petition for review of the decision of the Commissioner of
Internal Revenuewith the Court of Tax Appeals.
6

The above chronology shows that the petition was filed
seasonably. According to Rep. Act No. 1125, the appeal may be
made within thirty days after receipt of the decision or ruling
challenged.
7
It is true that as a rule the warrant of distraint and
levy is "proof of the finality of the assessment"
8
and renders
hopeless a request for reconsideration,"
9
being "tantamount to an
outright denial thereof and makes the said request deemed
rejected."
10
But there is a special circumstance in the case at bar
that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent
received the petitioner's notice of assessment, it filed its letter of
protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest
could not be located in the office of the petitioner. It was only after
Atty. Guevara gave the BIR a copy of the protest that it was, if at
all, considered by the tax authorities. During the intervening
period, the warrant was premature and could therefore not be
served.
As the Court of Tax Appeals correctly noted,"
11
the protest filed
by private respondent was not pro forma and was based on
strong legal considerations. It thus had the effect of suspending
on January 18, 1965, when it was filed, the reglementary period
which started on the date the assessment was received, viz.,
January 14, 1965. The period started running again only on April
7, 1965, when the private respondent was definitely informed of
the implied rejection of the said protest and the warrant was finally
served on it. Hence, when the appeal was filed on April 23, 1965,
only 20 days of the reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00
was properly disallowed because it was not an ordinary
reasonable or necessary business expense. The Court of Tax
Appeals had seen it differently. Agreeing with Algue, it held that
the said amount had been legitimately paid by the private
respondent for actual services rendered. The payment was in the
form of promotional fees. These were collected by the Payees for
their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had
Originally claimed these promotional fees to be personal holding
company income
12
but later conformed to the decision of the
respondent court rejecting this assertion.
13
In fact, as the said
court found, the amount was earned through the joint efforts of
the persons among whom it was distributed It has been
established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it
to sell its land, factories and oil manufacturing process. Pursuant
to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the
formation of the Vegetable Oil Investment Corporation, inducing
other persons to invest in it.
14
Ultimately, after its incorporation
largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties.
15
For this sale,
Algue received as agent a commission of P126,000.00, and it was
from this commission that the P75,000.00 promotional fees were
paid to the aforenamed individuals.
16

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

The petitioner claims that these payments are fictitious because
most of the payees are members of the same family in control of
Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is
not enough substantiation of such payments. In short, the
petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private
respondent when its President, Alberto Guevara, and the
accountant, Cecilia V. de Jesus, testified that the payments were
not made in one lump sum but periodically and in different
amounts as each payee's need arose.
19
It should be
remembered that this was a family corporation where strict
business procedures were not applied and immediate issuance of
receipts was not required. Even so, at the end of the year, when
the books were to be closed, each payee made an accounting of
all of the fees received by him or her, to make up the total of
P75,000.00.
20
Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the
promotional fees was not excessive. The total commission paid
by the Philippine Sugar Estate Development Co. to the private
respondent was P125,000.00.
21
After deducting the said fees,
Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it
was the payees who did practically everything, from the formation
of the Vegetable Oil Investment Corporation to the actual
purchase by it of the Sugar Estate properties. This finding of the
respondent court is in accord with the following provision of the
Tax Code:
SEC. 30. Deductions from gross income.--In computing
net income there shall be allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary
expenses paid or incurred during the taxable year in
carrying on any trade or business, including a
reasonable allowance for salaries or other
compensation for personal services actually rendered;
...
22

and Revenue Regulations No. 2, Section 70 (1), reading as
follows:
SEC. 70. Compensation for personal services.--Among
the ordinary and necessary expenses paid or incurred
in carrying on any trade or business may be included a
reasonable allowance for salaries or other
compensation for personal services actually rendered.
The test of deductibility in the case of compensation
payments is whether they are reasonable and are, in
fact, payments purely for service. This test and
deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments
purely for service. This test and its practical application
may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not
in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a
corporation may be a distribution of a dividend on stock.
This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw
salaries. If in such a case the salaries are in excess of
those ordinarily paid for similar services, and the
excessive payment correspond or bear a close
relationship to the stockholdings of the officers of
employees, it would seem likely that the salaries are not
paid wholly for services rendered, but the excessive
payments are a distribution of earnings upon the stock.
. . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in
the regular employ of Algue nor were they its controlling
stockholders.
23

The Solicitor General is correct when he says that the burden is
on the taxpayer to prove the validity of the claimed deduction. In
the present case, however, we find that the onus has been
discharged satisfactorily. The private respondent has proved that
the payment of the fees was necessary and reasonable in the
light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise
and involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
It is said that taxes are what we pay for civilization society.
Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard earned income
to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The
government for its part, is expected to respond in the form of
tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should
dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not
been observed.
We hold that the appeal of the private respondent from the
decision of the petitioner was filed on time with the respondent
court in accordance with Rep. Act No. 1125. And we also find that
the claimed deduction by the private respondent was permitted
under the Internal Revenue Code and should therefore not have
been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax
Appeals is AFFIRMED in toto, without costs.
SO ORDERED.
G.R. No. L-68252 May 26, 1995
vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT
STEAMSHIP AGENCIES INC., and COURT OF TAX

PUNO, J .:
For resolution is whether or not private
respondent Tokyo Shipping Co. Ltd., is entitled to a refund or tax
creditfor amounts representing pre-payment of income and
common carrier's taxes under the National Internal Revenue
Code, section 24 (b) (2), as amended.
1

Private respondent is a foreign corporation represented in the
Philippines by Soriamont Steamship Agencies, Incorporated. It
owns and operates tramper vessel M/V Gardenia. In December
1980, NASUTRA
2
chartered M/V Gardenia to load 16,500 metric
tons of raw sugar in the Philippines.
3
On December 23, 1980, Mr.
Edilberto Lising, theoperations supervisor of Soriamont
Agency,
4
paid the required income and common carrier's taxes in
the respective sums of FIFTY-NINE THOUSAND FIVE
HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE
CENTAVOS (P59,523.75) and FORTY-SEVEN THOUSAND SIX
HUNDRED NINETEEN PESOS (P47,619.00), or a total of ONE
HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO
PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75) based
on the expected gross receipts of the vessel.
5
Upon arriving,
however, at Guimaras Port of Iloilo, the vessel found no sugar for
loading. On January 10, 1981, NASUTRA and private
respondent's agent mutually agreed to have the vessel sail for
Japan without any cargo.
Claiming the pre-payment of income and common carrier's taxes
as erroneous since no receipt was realized from the charter
agreement, private respondent instituted a claim for tax credit or
refund of the sum ONE HUNDRED SEVEN THOUSAND ONE
HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE
CENTAVOS (P107,142.75) before petitioner Commissioner of
Internal Revenue on March 23, 1981. Petitioner failed to act
promptly on the claim, hence, on May 14, 1981, private
respondent filed a petition for review
6
before public respondent
Court of TaxAppeals.
Petitioner contested the petition. As special and affirmative
defenses, it alleged the following: that taxes are presumed to
have been collected in accordance with law; that in an action for
refund, the burden of proof is upon the taxpayer to show that
taxes are erroneously or illegally collected, and the taxpayer's
failure to sustain said burden is fatal to the action for refund; and
that claims for refund are construed strictly against tax
claimants.
7

After trial, respondent tax court decided in favor of the private
respondent. It held:
It has been shown in this case that 1) the petitioner has
complied with the mentioned statutory requirement by
having filed a written claim for refund within the two-
year period from date of payment; 2) the respondent
has not issued any deficiency assessment nor disputed
the correctness of the tax returns and the
corresponding amounts of prepaid income and
percentage taxes; and 3) the chartered vessel sailed
out of the Philippine port with absolutely no cargo laden
on board as cleared and certified by the Customs
authorities; nonetheless 4) respondent's apparent bit of
reluctance in validating the legal merit of the claim, by
and large, is tacked upon the "examiner who is
investigating petitioner's claim for refund which is the
subject matter of this case has not yet submitted his
report. Whether or not respondent will present his
evidence will depend on the said report of the
examiner." (Respondent's Manifestation and Motion
dated September 7, 1982). Be that as it may the case
was submitted for decision by respondent on the basis
of the pleadings and records and by petitioner on the
evidence presented by counsel sans the respective
memorandum.
An examination of the records satisfies us that the case
presents no dispute as to relatively simple material
facts. The circumstances obtaining amply justify
petitioner's righteous indignation to a more expeditious
action. Respondent has offered no reason nor made
effort to submit any controverting documents to bash
that patina of legitimacy over the claim. But as might
well be, towards the end of some two and a half years
of seeming impotent anguish over the pendency, the
respondent Commissioner of Internal Revenue would
furnish the satisfaction of ultimate solution by
manifesting that "it is now his turn to present evidence,
however, the Appellate Division of the BIR has already
recommended the approval of petitioner's claim for
refund subject matter of this petition. The examiner who
examined this case has also recommended the refund
of petitioner's claim. Without prejudice to withdrawing
this case after the final approval of petitioner's claim,
the Court ordered the resetting to September 7, 1983."
(Minutes of June 9, 1983 Session of the Court) We
need not fashion any further issue into an apparently
settled legal situation as far be it from a comedy of
errors it would be too much of a stretch to hold and
deny the refund of the amount of prepaid income and
common carrier's taxes for which petitioner could no
longer be made accountable.
On August 3, 1984, respondent court denied petitioner's motion
for reconsideration, hence, this petition for review on certiorari.
Petitioner now contends: (1) private respondent has the burden of
proof to support its claim of refund; (2) it failed to prove that it did
not realize any receipt from its charter agreement; and (3) it
suppressed evidence when it did not present its charter
agreement.
We find no merit in the petition.
There is no dispute about the applicable law. It is section 24 (b)
(2) of the National Internal Revenue Code which at that time
provides as follows:
A corporation organized, authorized, or existing under
the laws of any foreign country, engaged in trade or
business within the Philippines, shall be taxable as
provided in subsection (a) of this section upon the
total net income derived in the preceding taxable year
from all sources within the Philippines: Provided,
however, That international carriers shall pay a tax of
two and one-half per cent (2 1/2%) on their
gross Philippine billings: "Gross Philippine Billings"
include gross revenue realized from uplifts anywhere in
the world by any international carrier doing business in
the Philippines of passage documents sold therein,
whether for passenger, excess baggage or mail,
provided the cargo or mail originates from the
Philippines. The gross revenue realized from the said
cargo or mail include the gross freight charge up to final
destination. Gross revenue from chartered flights
originating from the Philippines shall likewise form part
of "Gross Philippine Billings" regardless of the place or
payment of the passage documents . . . . .
Pursuant to this provision, a resident foreign corporation engaged
in the transport of cargo is liable for taxes depending on the
amount of income it derives from sources within the Philippines.
Thus, before such a tax liabilitycan be enforced the taxpayer must
be shown to have earned income sourced from the Philippines.
We agree with petitioner that a claim for refund is in the nature of
a claim for exemption
8
and should be construed instrictissimi
juris against the taxpayer.
9
Likewise, there can be no
disagreement with petitioner's stance that private respondent has
the burden of proof to establish the factual basis of its claim for
tax refund.
The pivotal issue involves a question of fact whether or not the
private respondent was able to prove that it derived no receipts
from its charter agreement, and hence is entitled to a refund of
the taxes it pre-paid to the government.
The respondent court held that sufficient evidence has been
adduced by the private respondent proving that it derived no
receipt from its charter agreement with NASUTRA. This finding of
fact rests on a rational basis, and hence must be sustained.
Exhibits "E", "F," and "G" positively show that the tramper vessel
M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found no
raw sugar to load and returned to Japan without any cargo laden
on board. Exhibit "E" is the Clearance Vessel to a Foreign Port
issued by the District Collector of Customs, Port of Iloilo while
Exhibit "F" is the Certification by the Officer-in-Charge, Export
Division of the Bureau of Customs Iloilo. The correctness of the
contents of these documents regularly issued by officials of the
Bureau of Customs cannot be doubted as indeed, they have not
been contested by the petitioner. The records also reveal that in
the course of the proceedings in the court a quo, petitioner
hedged and hawed when its turn came to present evidence. At
one point, its counsel manifested that the BIR examiner and the
appellate division of the BIR have both recommended the
approval of private respondent's claim for refund. The same
counsel even represented that the government would withdraw its
opposition to the petition after final approval of private
respondents' claim. The case dragged on but petitioner never
withdrew its opposition to the petition even if it did not present
evidence at all. The insincerity of petitioner's stance drew the
sharp rebuke of respondent court in its Decision and for good
reason. Taxpayers owe honesty to government just as
government owes fairness to taxpayers.
In its last effort to retain the money erroneously prepaid by the
private respondent, petitioner contends that private respondent
suppressed evidence when it did not present its charter
agreement with NASUTRA. The contention cannot succeed. It
presupposes without any basis that the charter agreement is
prejudicial evidence against the private respondent.
10
Allegedly, it
will show that private respondent earned a charter fee with or
without transporting its supposed cargo from Iloilo to Japan. The
allegation simply remained an allegation and no court of justice
will regard it as truth. Moreover, the charter agreement could have
been presented by petitioner itself thru the proper use of
a subpoena duces tecum. It never did either because of neglect
or because it knew it would be of no help to bolster its
position.
11
For whatever reason, the petitioner cannot take to task
the private respondent for not presenting what it mistakenly calls
"suppressed evidence."
We cannot but bewail the unyielding stance taken by the
government in refusing to refund the sum of ONE HUNDRED
SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS
AND SEVENTY FIVE CENTAVOS (P107,142.75) erroneously
prepaid by private respondent. The tax was paid way back in
1980 and despite the clear showing that it was erroneously paid,
the government succeeded in delaying its refund for fifteen (15)
years. After fifteen (15) long years and the expenses of litigation,
the money that will be finally refunded to the private respondent is
just worth a damaged nickel. This is not, however, the kind of
success the government, especially the BIR, needs to increase its
collection of taxes. Fair deal is expected by our taxpayers from
the BIR and the duty demands that BIR should refund without any
unreasonable delay what it has erroneously collected. Our ruling
inRoxas v. Court of Tax Appeals
12
is apropos to recall:
The power of taxation is sometimes called also the
power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the
golden egg." And, in order to maintain the general
public's trust and confidence in the Government this
power must be used justly and not treacherously.
IN VIEW HEREOF, the assailed decision of respondent Court of
Tax Appeals, dated September 15, 1983, is AFFIRMED in toto.
No costs.
SO ORDERED.
G.R. No. L-54908 January 22, 1990
vs.
MITSUBISHI METAL CORPORATION, ATLAS
CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION and the COURT OF TAX
G.R. No. 80041 January 22, 1990
vs.
MITSUBISHI METAL CORPORATION, ATLAS
CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION and the COURT OF TAX
Gadioma Law Offices for respondents.

REGALADO, J .:
These cases, involving the same issue being contested by the
same parties and having originated from the same factual
antecedents generating the claims for tax credit of private
respondents, the same were consolidated by resolution of this
Court dated May 31, 1989 and are jointly decided herein.
The records reflect that on April 17, 1970, Atlas Consolidated
Mining and Development Corporation (hereinafter, Atlas) entered
into a Loan and Sales Contract with Mitsubishi Metal Corporation
(Mitsubishi, for brevity), a Japanese corporation licensed to
engage in business in the Philippines, for purposes of the
projected expansion of the productive capacity of the former's
mines in Toledo, Cebu. Under said contract, Mitsubishi agreed to
extend a loan to Atlas 'in the amount of $20,000,000.00, United
States currency, for the installation of a new concentrator for
copper production. Atlas, in turn undertook to sell to Mitsubishi all
the copper concentrates produced from said machine for a period
of fifteen (15) years. It was contemplated that $9,000,000.00 of
said loan was to be used for the purchase of the concentrator
machinery from Japan.
1

Mitsubishi thereafter applied for a loan with the Export-Import
Bank of Japan (Eximbank for short) obviously for purposes of its
obligation under said contract. Its loan application was approved
on May 26, 1970 in the sum of 4,320,000,000.00, at about the
same time as the approval of its loan for 2,880,000,000.00 from
a consortium of Japanese banks. The total amount of both loans
is equivalent to $20,000,000.00 in United States currency at the
then prevailing exchange rate. The records in the Bureau of
Internal Revenue show that the approval of the loan by Eximbank
to Mitsubishi was subject to the condition that Mitsubishi would
use the amount as a loan to Atlas and as a consideration for
importing copper concentrates from Atlas, and that Mitsubishi had
to pay back the total amount of loan by September 30, 1981.
2

Pursuant to the contract between Atlas and Mitsubishi, interest
payments were made by the former to the latter totalling
P13,143,966.79 for the years 1974 and 1975. The corresponding
15% tax thereon in the amount of P1,971,595.01 was withheld
pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the
National Internal Revenue Code, as amended by Presidential
Decree No. 131, and duly remitted to the Government.
3

On March 5, 1976, private respondents filed a claim for tax credit
requesting that the sum of P1,971,595.01 be applied against their
existing and future tax liabilities. Parenthetically, it was later noted
by respondent Court of Tax Appeals in its decision that on August
27, 1976, Mitsubishi executed a waiver and disclaimer of its
interest in the claim for tax credit in favor of
Atlas.
4

The petitioner not having acted on the claim for tax credit, on April
23, 1976 private respondents filed a petition for review with
respondent court, docketed therein as CTA Case No. 2801.
5
The
petition was grounded on the claim that Mitsubishi was a mere
agent of Eximbank, which is a financing institution owned,
controlled and financed by the Japanese Government. Such
governmental status of Eximbank, if it may be so called, is the
basis for private repondents' claim for exemption from paying the
tax on the interest payments on the loan as earlier stated. It was
further claimed that the interest payments on the loan from the
consortium of Japanese banks were likewise exempt because
said loan supposedly came from or were financed by Eximbank.
The provision of the National Internal Revenue Code relied upon
is Section 29 (b) (7) (A),
6
which excludes from gross income:
(A) Income received from their investments in the
Philippines in loans, stocks, bonds or other domestic
securities, or from interest on their deposits in banks in
the Philippines by (1) foreign governments, (2)
financing institutions owned, controlled, or enjoying
refinancing from them, and (3) international or regional
financing institutions established by governments.
Petitioner filed an answer on July 9, 1976. The case was set for
hearing on April 6, 1977 but was later reset upon manifestation of
petitioner that the claim for tax credit of the alleged erroneous
payment was still being reviewed by the Appellate Division of the
Bureau of Internal Revenue. The records show that on November
16, 1976, the said division recommended to petitioner the
approval of private respondent's claim. However, before action
could be taken thereon, respondent court scheduled the case for
hearing on September 30, 1977, during which trial private
respondents presented their evidence while petitioner submitted
his case on the basis of the records of the Bureau of Internal
Revenue and the pleadings.
7

On April 18, 1980, respondent court promulgated its decision
ordering petitioner to grant a tax credit in favor of Atlas in the
amount of P1,971,595.01. Interestingly, the tax court held that
petitioner admitted the material averments of private respondents
when he supposedly prayed "for judgment on the pleadings
without off-spring proof as to the truth of his
allegations."
8
Furthermore, the court declared that all papers and
documents pertaining to the loan of 4,320,000,000.00 obtained
by Mitsubishi from Eximbank show that this was the same amount
given to Atlas. It also observed that the money for the loans from
the consortium of private Japanese banks in the sum of
2,880,000,000.00 "originated" from Eximbank. From these,
respondent court concluded that the ultimate creditor of Atlas was
Eximbank with Mitsubishi acting as a mere "arranger or conduit
through which the loans flowed from the creditor Export-Import
Bank of Japan to the debtor Atlas Consolidated Mining &
Development Corporation."
9

A motion for reconsideration having been denied on August 20,
1980, petitioner interposed an appeal to this Court, docketed
herein as G.R. No. 54908.
While CTA Case No. 2801 was still pending before the tax court,
the corresponding 15% tax on the amount of P439,167.95 on the
P2,927,789.06 interest payments for the years 1977 and 1978
was withheld and remitted to the Government. Atlas again filed a
claim for tax credit with the petitioner, repeating the same basis
for exemption.
On June 25, 1979, Mitsubishi and Atlas filed a petition for review
with the Court of Tax Appeals docketed as CTA Case No. 3015.
Petitioner filed his answer thereto on August 14, 1979, and, in a
letter to private respondents dated November 12, 1979, denied
said claim for tax credit for lack of factual or legal basis.
10

On January 15, 1981, relying on its prior ruling in CTA Case No.
2801, respondent court rendered judgment ordering the petitioner
to credit Atlas the aforesaid amount of tax paid. A motion for
reconsideration, filed on March 10, 1981, was denied by
respondent court in a resolution dated September 7, 1987. A
notice of appeal was filed on September 22, 1987 by petitioner
with respondent court and a petition for review was filed with this
Court on December 19, 1987. Said later case is now before us as
G.R. No. 80041 and is consolidated with G.R. No. 54908.
The principal issue in both petitions is whether or not the interest
income from the loans extended to Atlas by Mitsubishi is
excludible from gross income taxation pursuant to Section 29 b)
(7) (A) of the tax code and, therefore, exempt from withholding
tax. Apropos thereto, the focal question is whether or not
Mitsubishi is a mere conduit of Eximbank which will then be
considered as the creditor whose investments in the Philippines
on loans are exempt from taxes under the code.
Prefatorily, it must be noted that respondent court erred in holding
in CTA Case No. 2801 that petitioner should be deemed to have
admitted the allegations of the private respondents when it
submitted the case on the basis of the pleadings and records of
the bureau. There is nothing to indicate such admission on the
part of petitioner nor can we accept respondent court's
pronouncement that petitioner did not offer to prove the truth of its
allegations. The records of the Bureau of Internal Revenue
relevant to the case were duly submitted and admitted as
petitioner's supporting evidence. Additionally, a hearing was
conducted, with presentation of evidence, and the findings of
respondent court were based not only on the pleadings but on the
evidence adduced by the parties. There could, therefore, not have
been a judgment on the pleadings, with the theorized admissions
imputed to petitioner, as mistakenly held by respondent court.
Time and again, we have ruled that findings of fact of the Court of
Tax Appeals are entitled to the highest respect and can only be
disturbed on appeal if they are not supported by substantial
evidence or if there is a showing of gross error or abuse on the
part of the tax court.
11
Thus, ordinarily, we could give due
consideration to the holding of respondent court that Mitsubishi is
a mere agent of Eximbank. Compelling circumstances obtaining
and proven in these cases, however, warrant a departure from
said general rule since we are convinced that there is a
misapprehension of facts on the part of the tax court to the extent
that its conclusions are speculative in nature.
The loan and sales contract between Mitsubishi and Atlas does
not contain any direct or inferential reference to Eximbank
whatsoever. The agreement is strictly between Mitsubishi as
creditor in the contract of loan and Atlas as the seller of the
copper concentrates. From the categorical language used in the
document, one prestation was in consideration of the other. The
specific terms and the reciprocal nature of their obligations make
it implausible, if not vacuous to give credit to the cavalier
assertion that Mitsubishi was a mere agent in said transaction.
Surely, Eximbank had nothing to do with the sale of the copper
concentrates since all that Mitsubishi stated in its loan application
with the former was that the amount being procured would be
used as a loan to and in consideration for importing copper
concentrates from Atlas.
12
Such an innocuous statement of
purpose could not have been intended for, nor could it legally
constitute, a contract of agency. If that had been the purpose as
respondent court believes, said corporations would have
specifically so stated, especially considering their experience and
expertise in financial transactions, not to speak of the amount
involved and its purchasing value in 1970.
A thorough analysis of the factual and legal ambience of these
cases impels us to give weight to the following arguments of
petitioner:
The nature of the above contract shows that the same
is not just a simple contract of loan. It is not a mere
creditor-debtor relationship. It is more of a reciprocal
obligation between ATLAS and MITSUBISHI where the
latter shall provide the funds in the installation of a new
concentrator at the former's Toledo mines in Cebu,
while ATLAS in consideration of which, shall sell to
MITSUBISHI, for a term of 15 years, the entire copper
concentrate that will be produced by the installed
concentrator.
Suffice it to say, the selling of the copper concentrate to
MITSUBISHI within the specified term was the
consideration of the granting of the amount of $20
million to ATLAS. MITSUBISHI, in order to fulfill its part
of the contract, had to obtain funds. Hence, it had to
secure a loan or loans from other sources. And from
what sources, it is immaterial as far as ATLAS in
concerned. In this case, MITSUBISHI obtained the $20
million from the EXIMBANK, of Japan and the
consortium of Japanese banks financed through the
EXIMBANK, of Japan.
When MITSUBISHI therefore secured such loans, it
was in its own independent capacity as a private entity
and not as a conduit of the consortium of Japanese
banks or the EXIMBANK of Japan. While the loans
were secured by MITSUBISHI primarily "as a loan to
and in consideration for importing copper concentrates
from ATLAS," the fact remains that it was a loan by
EXIMBANK of Japan to MITSUBISHI and not to
ATLAS.
Thus, the transaction between MITSUBISHI and
EXIMBANK of Japan was a distinct and separate
contract from that entered into by MITSUBISHI and
ATLAS. Surely, in the latter contract, it is not
EXIMBANK, that was intended to be benefited. It is
MITSUBISHI which stood to profit. Besides, the Loan
and Sales Contract cannot be any clearer. The only
signatories to the same were MITSUBISHI and ATLAS.
Nowhere in the contract can it be inferred that
MITSUBISHI acted for and in behalf of EXIMBANK, of
Japan nor of any entity, private or public, for that
matter.
Corollary to this, it may well be stated that in this
jurisdiction, well-settled is the rule that when a contract
of loan is completed, the money ceases to be the
property of the former owner and becomes the sole
property of the obligor (Tolentino and Manio vs.
Gonzales Sy, 50 Phil. 558).
In the case at bar, when MITSUBISHI obtained the loan
of $20 million from EXIMBANK, of Japan, said amount
ceased to be the property of the bank and became the
property of MITSUBISHI.
The conclusion is indubitable; MITSUBISHI, and NOT
EXIMBANK, is the sole creditor of ATLAS, the former
being the owner of the $20 million upon completion of
its loan contract with EXIMBANK of Japan.
The interest income of the loan paid by ATLAS to
MITSUBISHI is therefore entirely different from the
interest income paid by MITSUBISHI to EXIMBANK, of
Japan. What was the subject of the 15% withholding tax
is not the interest income paid by MITSUBISHI to
EXIMBANK, but the interest income earned by
MITSUBISHI from the loan to ATLAS. . . .
13

To repeat, the contract between Eximbank and Mitsubishi is
entirely different. It is complete in itself, does not appear to be
suppletory or collateral to another contract and is, therefore, not to
be distorted by other considerations aliunde. The application for
the loan was approved on May 20, 1970, or more than a month
after the contract between Mitsubishi and Atlas was entered into
on April 17, 1970. It is true that under the contract of loan with
Eximbank, Mitsubishi agreed to use the amount as a loan to and
in consideration for importing copper concentrates from Atlas, but
all that this proves is the justification for the loan as represented
by Mitsubishi, a standard banking practice for evaluating the
prospects of due repayment. There is nothing wrong with such
stipulation as the parties in a contract are free to agree on such
lawful terms and conditions as they see fit. Limiting the
disbursement of the amount borrowed to a certain person or to a
certain purpose is not unusual, especially in the case of Eximbank
which, aside from protecting its financial exposure, must see to it
that the same are in line with the provisions and objectives of its
charter.
Respondents postulate that Mitsubishi had to be a conduit
because Eximbank's charter prevents it from making loans except
to Japanese individuals and corporations. We are not impressed.
Not only is there a failure to establish such submission by
adequate evidence but it posits the unfair and unexplained
imputation that, for reasons subject only of surmise, said financing
institution would deliberately circumvent its own charter to
accommodate an alien borrower through a manipulated
subterfuge, but with it as a principal and the real obligee.
The allegation that the interest paid by Atlas was remitted in full
by Mitsubishi to Eximbank, assuming the truth thereof, is too
tenuous and conjectural to support the proposition that Mitsubishi
is a mere conduit. Furthermore, the remittance of the interest
payments may also be logically viewed as an arrangement in
paying Mitsubishi's obligation to Eximbank. Whatever
arrangement was agreed upon by Eximbank and Mitsubishi as to
the manner or procedure for the payment of the latter's obligation
is their own concern. It should also be noted that Eximbank's loan
to Mitsubishi imposes interest at the rate of 75% per annum, while
Mitsubishis contract with Atlas merely states that the "interest on
the amount of the loan shall be the actual cost beginning from and
including other dates of releases against loan."
14

It is too settled a rule in this jurisdiction, as to dispense with the
need for citations, that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in
favor of the taxing power. Taxation is the rule and exemption is
the exception. The burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by the exemption so
claimed, which onus petitioners have failed to discharge.
Significantly, private respondents are not even among the entities
which, under Section 29 (b) (7) (A) of the tax code, are entitled to
exemption and which should indispensably be the party in interest
in this case.
Definitely, the taxability of a party cannot be blandly glossed over
on the basis of a supposed "broad, pragmatic analysis" alone
without substantial supportive evidence, lest governmental
operations suffer due to diminution of much needed funds. Nor
can we close this discussion without taking cognizance of
petitioner's warning, of pervasive relevance at this time, that while
international comity is invoked in this case on the nebulous
representation that the funds involved in the loans are those of a
foreign government, scrupulous care must be taken to avoid
opening the floodgates to the violation of our tax laws. Otherwise,
the mere expedient of having a Philippine corporation enter into a
contract for loans or other domestic securities with private foreign
entities, which in turn will negotiate independently with their
governments, could be availed of to take advantage of the tax
exemption law under discussion.
WHEREFORE, the decisions of the Court of Tax Appeals in CTA
Cases Nos. 2801 and 3015, dated April 18, 1980 and January 15,
1981, respectively, are hereby REVERSED and SET ASIDE.
SO ORDERED.
[G.R. No. 112024. January 28, 1999]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs. COMMISSIONER OF INTERNAL REVENUE, COURT
OF TAX APPEALS and COURT OF APPEALS, respondents.
D E C I S I O N
QUISUMBING, J .:
This petition for review assails the Resolution
[1]
of the Court of
Appeals dated September 22, 1993, affirming the Decision
[2]
and
Resolution
[3]
of the Court of Tax Appeals which denied the claims of the
petitioner for tax refund and tax credits, and disposing as follows:
IN VIEW OF ALL THE FOREGOING, the instant petition for review
is DENIED due course. The Decision of the Court of Tax Appeals dated
May 20, 1993 and its resolution dated July 20, 1993, are hereby
AFFIRMED in toto.
SO ORDERED.
[4]

The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, petitioners claim for refund/tax credit of overpaid
income tax for 1985 in the amount of P5,299,749.95 is hereby denied for
having been filed beyond the reglementary period. The 1986 claim for
refund amounting to P234,077.69 is likewise denied since petitioner has
opted and in all likelihood automatically credited the same to the
succeeding year. The petition for review is dismissed for lack of merit.
SO ORDERED.
[5]

The facts on record show the antecedent circumstances pertinent to
this case.
Petitioner, Philippine Bank of Communications (PBCom),
a commercial banking corporation duly organized under Philippine laws,
filed its quarterly income tax returns for the first and second quarters of
1985, reported profits, and paid the total income tax
of P5,016,954.00. The taxes due were settled by applying PBComs tax
credit memos and accordingly, the Bureau of Internal Revenue (BIR)
issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00
and P1, 615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed
its Annual Income Tax Returns for the year-ended December 31, 1985,
it declared a net loss of P25,317,228.00, thereby showing no income
taxliability. For the succeeding year, ending December 31, 1986, the
petitioner likewise reported a net loss of P14,129,602.00, and thus
declared no tax payable for the year.
But during these two years, PBCom earned rental income from
leased properties. The lessees withheld and remitted to the BIR
withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in
1986.
On August 7, 1987, petitioner requested the Commissioner of
Internal Revenue, among others, for a tax credit of P5,016,954.00
representing the overpayment of taxes in the first and second quarters of
1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of
creditable taxes withheld by their lessees from property rentals in 1985
for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal
Revenue, petitioner instituted a Petition for Review on November 18,
1988 before the Court of Tax Appeals (CTA). The petition was
docketed as CTA Case No. 4309 entitled: Philippine Bank of
Communications vs. Commissioner of Internal Revenue.
The losses petitioner incurred as per the summary of petitioners
claims for refund and tax credit for 1985 and 1986, filed before the
Court of Tax Appeals, are as follows:
1985 1986
Net
Income
(Loss)
(P25,317,228.00) (P14,129,602.00)
Tax
Due
NIL NIL
Quarter
ly tax

Payme 5,016,954.00 ---
nts
Made
Tax
Withhe
ld at
Source
282,795.50 234,077.69
Exce
ss Tax
Payme
nts
P5,299,749.50* ======
========
P234,077.69 =======
=======
*CTAs decision reflects PBComs 1985 tax claim as P5,299,749.95.
A forty-five centavo difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on
the outset, denied the request of petitioner for a tax refund or credit in
the sum amount of P5,299,749.95, on the ground that it was filed beyond
the two-year reglementary period provided for by law. The petitioners
claim for refund in 1986 amounting to P234,077.69 was likewise denied
on the assumption that it was automatically credited by PBCom against
its taxpayment in the succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of
the CTAs decision but the same was denied due course for lack of
merit.
[6]

Thereafter, PBCom filed a petition for review of said decision and
resolution of the CTA with the Court of Appeals. However on
September 22, 1993, the Court of Appeals affirmed in toto the CTAs
resolution dated July 20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom -- which relied in good faith on the
formal assurances of BIR in RMC No. 7-85 and did not
immediately file with the CTA a petition for review asking for
the refund/tax credit of its 1985-86 excess quarterly income tax
payments -- can be prejudiced by the subsequent BIR rejection,
applied retroactively, of its assurances in RMC No. 7-85 that
the prescriptive period for the refund/tax credit of excess
quarterly income tax payments is not two years but ten (10).
[7]

II. Whether the Court of Appeals seriously erred in affirming the
CTA decision which denied PBComs claim for the refund
of P234,077.69 income tax overpaid in 1986 on the mere
speculation, without proof, that there were taxes due in 1987
and that PBCom availed of tax-crediting that year.
[8]

Simply stated, the main question is: Whether or not the Court of
Appeals erred in denying the plea for tax refund or tax credits on the
ground of prescription, despite petitioners reliance on RMC No. 7-85,
changing the prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet
barred by prescription relying on the applicability of Revenue
Memorandum Circular No. 7-85 issued on April 1, 1985. The circular
states that overpaid income taxes are not covered by the two-year
prescriptive period under the tax Code and that taxpayers may claim
refund or tax credits for the excess quarterly income tax with the BIR
within ten (10) years under Article 1144 of the Civil Code. The
pertinent portions of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX
CREDIT OF EXCESS CORPORATE INCOME
TAX RESULTING FROM THE FILING OF THE
FINAL ADJUSTMENT RETURN
TO: All Internal Revenue Officers and Others Concerned
Sections 85 and 86 of the National Internal Revenue Code provide:
x x x x x x x x x
The foregoing provisions are implemented by Section 7 of Revenue
Regulations Nos. 10-77 which provide:
x x x x x x x x x
It has been observed, however, that because of the excess tax payments,
corporations file claims for recovery of overpaid income tax with the
Court of Tax Appeals within the two-year period from the date of
payment, in accordance with Sections 292 and 295 of the National
Internal Revenue Code. It is obvious that the filing of the case in court
is to preserve the judicial right of the corporation to claim the refund or
tax credit.
It should be noted, however, that this is not a case of erroneously or
illegally paid tax under the provisions of Sections 292 and 295 of the
Tax Code.
In the above provision of the Regulations the corporation may request
for the refund of the overpaid income tax or claim for automatic tax
credit. To insure prompt action on corporate annual income tax returns
showing refundable amounts arising from overpaid quarterly income
taxes, this Office has promulgated Revenue Memorandum Order No. 32-
76 dated June 11, 1976, containing the procedure in processing said
returns. Under these procedures, the returns are merely pre-audited
which consist mainly of checking mathematical accuracy of the figures
of the return. After which, the refund or tax credit is granted, and, this
procedure was adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review
in the Court of Tax Appeals in order to preserve the right to claim
refund or tax credit within the two-year period. As already stated,
actions hereon by the Bureau are immediate after only a cursory pre-
audit of the income tax returns. Moreover, a taxpayer may recover from
the Bureau of Internal Revenue excess income tax paid under the
provisions of Section 86 of the Tax Code within 10 years from the date
of payment considering that it is an obligation created by law (Article
1144 of the Civil Code).
[9]
(Emphasis supplied.)
Petitioner argues that the government is barred from asserting a
position contrary to its declared circular if it would result to injustice to
taxpayers. Citing ABS-CBN Broadcasting Corporation vs. Court of Tax
Appeals
[10]
petitioner claims that rulings or circulars promulgated by the
Commissioner of Internal Revenue have no retroactive effect if it would
be prejudicial to taxpayers. In ABS-CBN case, the Court held that the
government is precluded from adopting a position inconsistent with one
previously taken where injustice would result therefrom or where there
has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue
Code explicitly provides for this rule as follows:
Sec. 246. Non-retroactivity of rulings-- Any revocation, modification or
reversal of any of the rules and regulations promulgated in accordance
with the preceding section or any of the rulings or circulars promulgated
by the Commissioner shall not be given retroactive application if the
revocation, modification, or reversal will be prejudicial to the taxpayers
except in the following cases:
a) where the taxpayer deliberately misstates or omits material facts
from his return or in any document required of him by the Bureau of
Internal Revenue;
b) where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is
based;
c) where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through the Solicitor
General, argues that the two-year prescriptive period for filing tax cases
in court concerning income tax payments of Corporations is reckoned
from the date of filing the Final Adjusted Income Tax Return, which is
generally done on April 15 following the close of the calendar year. As
precedents, respondent Commissioner cited cases which adhered to this
principle, towit: ACCRA Investments Corp. vs. Court of Appeals, et
al.,
[11]
and Commissioner of Internal Revenue vs. TMX Sales, Inc., et
al..
[12]
Respondent Commissioner also states that since the Final
Adjusted Income Tax Return of the petitioner for the taxable year 1985
was supposed to be filed on April 15, 1986, the latter had only until
April 15, 1988 to seek relief from the court. Further, respondent
Commissioner stresses that when the petitioner filed the case before the
CTA on November 18, 1988, the same was filed beyond the time fixed
by law, and such failure is fatal to petitioners cause of action.
After a careful study of the records and applicable jurisprudence on
the matter, we find that, contrary to the petitioners contention, the
relaxation of revenue regulations by RMC 7-85 is not warranted as it
disregards the two-year prescriptive period set by law.
Basic is the principle that taxes are the lifeblood of the nation. The
primary purpose is to generate funds for the State to finance the needs of
the citizenry and to advance the common weal.
[13]
Due process of law
under the Constitution does not require judicial proceedings in tax
cases. This must necessarily be so because it is upon taxation that the
government chiefly relies to obtain the means to carry on its operations
and it is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little
as possible.
[14]

From the same perspective, claims for refund or tax credit should be
exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
Section 230 of the National Internal Revenue Code (NIRC) of 1977
(now Sec. 229, NIRC of 1997) provides for the prescriptive period for
filing a court proceeding for the recovery of tax erroneously or illegally
collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. -- No suit
or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been
excessive or in any manner wrongfully collected, until a claim for refund
or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum
has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment;
Provided however, That the Commissioner may, even without a written
claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have
been erroneously paid. (Italics supplied)
The rule states that the taxpayer may file a claim for refund or credit
with the Commissioner of Internal Revenue, within two (2) years after
payment of tax, before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from the time of filing
the Adjustment Return and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life
Insurance Co.,
[15]
this Court explained the application of Sec. 230 of
1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run
only from the time that the refund is ascertained, which can only be
determined after a final adjustment return is accomplished. In the
present case, this date is April 16, 1984, and two years from this date
would be April 16, 1986. x x x As we have earlier said in the TMX
Sales case, Sections 68,
[16]
69,
[17]
and 70
[18]
on Quarterly Corporate
Income Tax Payment and Section 321 should be considered in
conjunction with it.
[19]

When the Acting Commissioner of Internal Revenue issued RMC 7-
85, changing the prescriptive period of two years to ten years on claims
of excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing,
the BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are
considered administrative rulings (in the sense of more specific and less
general interpretations of tax laws) which are issued from time to time
by the Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty
is to enforce it, is entitled to great respect by the courts. Nevertheless,
such interpretation is not conclusive and will be ignored if judicially
found to be erroneous.
[20]
Thus, courts will not countenance
administrative issuances that override, instead of remaining consistent
and in harmony with, the law they seek to apply and implement.
[21]

In the case of People vs. Lim,
[22]
it was held that rules and regulations
issued by administrative officials to implement a law cannot go beyond
the terms and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is
not only inconsistent with but is contrary to the provisions and spirit of
Act. No. 4003 as amended, because whereas the prohibition prescribed
in said Fisheries Act was for any single period of time not exceeding
five years duration, FAO No. 37-1 fixed no period, that is to say, it
establishes an absolute ban for all time. This discrepancy between Act
No. 4003 and FAO No. 37-1 was probably due to an oversight on the
part of Secretary of Agriculture and Natural Resources. Of course, in
case of discrepancy, the basic Act prevails, for the reason that the
regulation or rule issued to implement a law cannot go beyond the
terms and provisions of the latter. x x x In this connection, the attention
of the technical men in the offices of Department Heads who draft rules
and regulation is called to the importance and necessity of closely
following the terms and provisions of the law which they intended to
implement, this to avoid any possible misunderstanding or confusion as
in the present case.
[23]

Further, fundamental is the rule that the State cannot be put in
estoppel by the mistakes or errors of its officials or agents.
[24]
As pointed
out by the respondent courts, the nullification of RMC No. 7-85 issued
by the Acting Commissioner of Internal Revenue is an administrative
interpretation which is not in harmony with Sec. 230 of 1977 NIRC, for
being contrary to the express provision of a statute. Hence, his
interpretation could not be given weight for to do so would, in effect,
amend the statute.
As aptly stated by respondent Court of Appeals:
It is likewise argued that the Commissioner of Internal Revenue, after
promulgating RMC No. 7-85, is estopped by the principle of non-
retroactivity of BIR rulings. Again We do not agree. The Memorandum
Circular, stating that a taxpayer may recover the excess income tax paid
within 10 years from date of payment because this is an obligation
created by law, was issued by the Acting Commissioner of Internal
Revenue. On the other hand, the decision, stating that the taxpayer
should still file a claim for a refund or tax credit and the corresponding
petition for review within the two-year prescription period, and that the
lengthening of the period of limitation on refund from two to ten years
would be adverse to public policy and run counter to the positive
mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation
of the Court of Tax Appeals. Estoppel has no application in the case at
bar because it was not the Commissioner of Internal Revenue who
denied petitioners claim of refund or tax credit. Rather, it was the Court
of Tax Appeals who denied (albeit correctly) the claim and in effect,
ruled that the RMC No. 7-85 issued by the Commissioner of Internal
Revenue is an administrative interpretation which is out of harmony
with or contrary to the express provision of a statute (specifically Sec.
230, NIRC), hence, cannot be given weight for to do so would in effect
amend the statute.
[25]

Article 8 of the Civil Code
[26]
recognizes judicial decisions, applying
or interpreting statutes as part of the legal system of the country. But
administrative decisions do not enjoy that level of recognition. A
memorandum-circular of a bureau head could not operate to vest a
taxpayer with a shield against judicial action. For there are no vested
rights to speak of respecting a wrong construction of the law by the
administrative officials and such wrong interpretation could not place
the Government in estoppel to correct or overrule the
same.
[27]
Moreover, the non-retroactivity of rulings by the Commissioner
of Internal Revenue is not applicable in this case because the nullity of
RMC No. 7-85 was declared by respondent courts and not by the
Commissioner of Internal Revenue. Lastly, it must be noted that, as
repeatedly held by this Court, a claim for refund is in the nature of a
claim for exemption and should be construed in strictissimi juris against
the taxpayer.
[28]

On the second issue, the petitioner alleges that the Court of Appeals
seriously erred in affirming CTAs decision denying its claim for refund
of P 234,077.69 (tax overpaid in 1986), based on mere speculation,
without proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC
[29]
(now Sec. 76 of the 1997 NIRC)
provides that any excess of the total quarterly payments over the actual
income tax computed in the adjustment or final corporate income tax
return,shall either (a) be refunded to the corporation, or (b) may be
credited against the estimated quarterly income tax liabilities for the
quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment
return (by marking the option box provided in the BIR form) its
intention, whether to request for a refund or claim for an automatic tax
credit for the succeeding taxable year. To ease the administration of tax
collection, these remedies are in the alternative, and the choice of one
precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 - the
Court of Tax Appeals, after examining the adjusted final corporate
annual income tax return for taxable year 1986, found out that petitioner
opted to apply for automatic tax credit. This was the basis used (vis-avis
the fact that the 1987 annual corporate tax return was not offered by the
petitioner as evidence) by the CTA in concluding that petitioner had
indeed availed of and applied the automatic tax credit to the succeeding
year, hence it can no longer ask for refund, as to [sic] the two remedies
of refund and tax credit are alternative.
[30]

That the petitioner opted for an automatic tax credit in accordance
with Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted
Income Tax Return, is a finding of fact which we must
respect. Moreover, the 1987 annual corporate tax return of the petitioner
was not offered as evidence to controvert said fact. Thus, we are bound
by the findings of fact by respondent courts, there being no showing of
gross error or abuse on their part to disturb our reliance thereon.
[31]

WHEREFORE, the petition is hereby DENIED. The decision of
the Court of Appeals appealed from is AFFIRMED, with COSTS
against the petitioner.
SO ORDERED.
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of
Internal Revenue; ROMULO VILLA, Deputy Commissioner,
Bureau of Internal Revenue; TOMAS TOLEDO Deputy
Commissioner, Bureau of Internal Revenue; MANUEL ALBA,
Minister of Budget, FRANCISCO TANTUICO, Chairman,
Commissioner on Audit, and CESAR E. A. VIRATA, Minister
of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.

FERNANDO, C.J .:
The success of the challenge posed in this suit for declaratory
relief or prohibition proceeding 1 on the validity of Section I of
Batas Pambansa Blg. 135 depends upon a showing of its
constitutional infirmity. The assailed provision further amends
Section 21 of the NationalInternal Revenue Code of 1977, which
provides for rates of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c) royalties,
prizes, and other winnings, (d) interest from bank deposits and
yield or any other monetary benefit from deposit substitutes and
from trust fund and similar arrangements, (e) dividends and share
of individual partner in the net profits of taxable partnership, (f)
adjusted gross income.
2
Petitioner
3
as taxpayer alleges that by
virtue thereof, "he would be unduly discriminated against by the
imposition of higher rates of tax upon his income arising from the
exercise of his profession vis-a-vis those which are imposed
upon fixed income or salaried individual taxpayers.
4
He
characterizes the above sction as arbitrary amounting to class
legislation, oppressive and capricious in character
5
For petitioner,
therefore, there is a transgression of both the equal
protection and due process clauses
6
of the Constitution as well
as of the rule requiring uniformity in taxation.
7

The Court, in a resolution of January 26, 1982, required
respondents to file an answer within 10 days from notice. Such an
answer, after two extensions were granted the Office of the
Solicitor General, was filed on May 28, 1982.
8
The facts as
alleged were admitted but not the allegations which to their mind
are "mere arguments, opinions or conclusions on the part of the
petitioner, the truth [for them] being those stated [in their] Special
and Affirmative Defenses."
9
The answer then affirmed: "Batas
Pambansa Big. 135 is a valid exercise of the State's power to tax.
The authorities and cases cited while correctly quoted or
paraghraph do not support petitioner's stand." 10 The prayer is for
the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must
be dismissed.
1. It is manifest that the field of state activity has assumed a much
wider scope, The reason was so clearly set forth by retired Chief
Justice Makalintal thus: "The areas which used to be left
to private enterprise and initiative and which the government was
called upon to enter optionally, and only 'because it was better
equipped to administer for the public welfare than is any private
individual or group of individuals,' continue to lose their well-
defined boundaries and to be absorbed within activities that the
government must undertake in its sovereign capacity if it is to
meet the increasing social challenges of the times." 11 Hence the
need for more revenues. The power to tax, an inherent
prerogative, has to be availed of to assure the performance of
vital state functions. It is the source of the bulk of public funds. To
praphrase a recent decision, taxes being the lifeblood of the
government, their prompt and certain availability is of the
essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is
an attribute of sovereignty. It is the strongest of all the powers of
of government." 13 It is, of course, to be admitted that for all its
plenitude 'the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits . Adversely
affecting as it does properly rights, both the due process and
equal protection clauses inay properly be invoked, all petitioner
does, to invalidate in appropriate cases a revenue measure. if it
were otherwise, there would -be truth to the 1803 dictum of Chief
Justice Marshall that "the power to tax involves the power to
destroy." 14 In a separate opinion in Graves v. New
York, 15 Justice Frankfurter, after referring to it as an 1,
unfortunate remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times following] a
free use of absolutes." 16 This is merely to emphasize that it is
riot and there cannot be such a constitutional mandate. Justice
Frankfurter could rightfully conclude: "The web of unreality spun
from Marshall's famous dictum was brushed away by one stroke
of Mr. Justice Holmess pen: 'The power to tax is not the power to
destroy while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the
fundamental law overrides any legislative or executive, act that
runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as
petitioner here alleges fails to abide by its command, then this
Court must so declare and adjudge it null. The injury thus is
centered on the question of whether the imposition of a higher tax
rate on taxable net income derived from business or profession
than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges
arbitrariness. A mere allegation, as here. does not suffice. There
must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision
as void or its face, he has not made out a case. This is merely to
adhere to the authoritative doctrine that were the due process and
equal protection clauses are invoked, considering that they arc
not fixed rules but rather broad standards, there is a need for of
such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must
prevail. 18
5. It is undoubted that the due process clause may be invoked
where a taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to
amount to the confiscation of property. That would be a
clear abuse of power. It then becomes the duty of this Court to
say that such an arbitrary act amounted to the exercise of an
authority not conferred. That properly calls for the application of
the Holmes dictum. It has also been held that where the assailed
tax measure is beyond the jurisdiction of the state, or is not for a
public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the
charge that there is a denial of this constitutional mandate
whether the assailed act is in the exercise of the lice power or the
power of eminent domain is to demonstrated that the
governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of
hostility, or at the very least, discrimination that finds no support in
reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all
persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the liabilities
imposed. Favoritism and undue preference cannot be allowed.
For the principle is that equal protection and security shall be
given to every person under circumtances which if not Identical
are analogous. If law be looked upon in terms of burden or
charges, those that fall within a class should be treated in the
same fashion, whatever restrictions cast on some in the group
equally binding on the rest."
20
That same formulation applies as
well to taxation measures. The equal protection clause is, of
course, inspired by the noble concept of approximating the Ideal
of the laws benefits being available to all and the affairs of men
being governed by that serene and impartial uniformity, which is
of the very essence of the Idea of law. There is, however,
wisdom, as well as realism in these words of Justice Frankfurter:
"The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the
equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but
are expressions of policy arising out of specific difficulties,
address to the attainment of specific ends by the use of specific
remedies. The Constitution does not require things which are
different in fact or opinion to be treated in law as though they were
the same."
21
Hence the constant reiteration of the view that
classification if rational in character is allowable. As a matter of
fact, in a leading case of Lutz V. Araneta,
22
this Court, through
Justice J.B.L. Reyes, went so far as to hold "at any rate, it is
inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that
'inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation.'"
23

7. Petitioner likewise invoked the kindred concept of uniformity.
According to the Constitution: "The rule of taxation shag be
uniform and equitable."
24
This requirement is met according to
Justice Laurel in Philippine Trust Company v. Yatco,
25
decided in
1940, when the tax "operates with the same force and effect in
every place where the subject may be found. "
26
He likewise
added: "The rule of uniformity does not call for perfect uniformity
or perfect equality, because this is hardly attainable."
27
The
problem of classification did not present itself in that case. It did
not arise until nine years later, when the Supreme Court held:
"Equality and uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed at the same
rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation, ... .
28
As clarified
by Justice Tuason, where "the differentiation" complained of
"conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore
uniform."
29
There is quite a similarity then to the standard of
equal protection for all that is required is that the tax "applies
equally to all persons, firms and corporations placed in similar
situation."
30

8. Further on this point. Apparently, what misled petitioner is his
failure to take into consideration the distinction between a tax rate
and a tax base. There is no legal objection to a broader tax base
or taxable income by eliminating all deductible items and at the
same time reducing the applicable tax rate. Taxpayers may be
classified into different categories. To repeat, it. is enough that the
classification must rest upon substantial distinctions that make
real differences. In the case of the gross income taxation
embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the application
of generalized rules removing all deductible items for all taxpayers
within the class and fixing a set of reduced tax rates to be applied
to all of them. Taxpayers who are recipients of compensation
income are set apart as a class. As there is practically no
overhead expense, these taxpayers are e not entitled to make
deductions for income tax purposes because they are in the same
situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen,
there is no uniformity in the costs or expenses necessary to
produce their income. It would not be just then to disregard the
disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the
basis of gross income. There is ample justification then for the
Batasang Pambansa to adopt the gross system of income
taxation to compensation income, while continuing the system of
net income taxation as regards professional and business
income.
9. Nothing can be clearer, therefore, than that the petition is
without merit, considering the (1) lack of factual foundation to
show the arbitrary character of the assailed provision;
31
(2) the
force of controlling doctrines on due process, equal protection,
and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of
professionals and businessman certainly not a suspect
classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary;
ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal
Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE
AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO.,
INC.; KAMAHALAN PUBLISHING CORPORATION;
PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and
OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as
Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary; and
HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS
ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS,
ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G.
FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN,
QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC., and
PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF
FINANCE, THE COMMISSIONER OF INTERNAL REVENUE
and THE COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary, and
HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION,
INC. and ASSOCIATION OF PHILIPPINE BOOK
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of
Finance; HON. LIWAYWAY V. CHATO, as the Commissioner
of Internal Revenue; and HON. GUILLERMO PARAYNO, JR.,
in his capacity as the Commissioner of
Customs, respondents.
R E S O L U T I O N

MENDOZA, J .:
These are motions seeking reconsideration of our decision
dismissing the petitions filed in these cases for the declaration of
unconstitutionality of R.A. No. 7716, otherwise known as the
Expanded Value-Added Tax Law. The motions, of which there
are 10 in all, have been filed by the several petitioners in these
cases, with the exception of the Philippine Educational Publishers
Association, Inc. and the Association of Philippine Booksellers,
petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a
consolidated comment, to which the Philippine Airlines, Inc.,
petitioner in G.R. No. 115852, and the Philippine Press Institute,
Inc., petitioner in G.R. No. 115544, and Juan T. David, petitioner
in G.R. No. 115525, each filed a reply. In turn the Solicitor
General filed on June 1, 1995 a rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills.
Some of the petitioners (Tolentino, Kilosbayan, Inc.,
Philippine Airlines (PAL), Roco, and Chamber of Real Estate and
Builders Association (CREBA)) reiterate previous claims made by
them that R.A. No. 7716 did not "originate exclusively" in
the House of Representativesas required by Art. VI, 24 of the
Constitution. Although they admit that H. No. 11197 was filed in
the House of Representatives where it passed three readings and
that afterward it was sent to the Senate where after first reading it
was referred to the Senate Ways and Means Committee, they
complain that the Senate did not pass it on second and third
readings. Instead what the Senate did was to pass its own version
(S. No. 1630) which it approved on May 24, 1994. Petitioner
Tolentino adds that what the Senate committee should have done
was to amend H. No. 11197 by striking out the text of the bill and
substituting it with the text of S. No. 1630. That way, it is said, "the
bill remains a House bill and the Senate version just becomes the
text (only the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which
the Senate proposed an amendment to a House revenue bill by
enacting its own version of a revenue bill. On at least two
occasions during the Eighth Congress, the Senate passed its own
version of revenue bills, which, in consolidation with House bills
earlier passed, became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE
OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING
FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX
AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL
EQUIPMENT) which was approved by the President on April 10,
1992. This Act is actually a consolidation of H. No. 34254, which
was approved by the House on January 29, 1992, and S. No.
1920, which was approved by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO
WHOEVER SHALL GIVE REWARD TO ANY FILIPINO
ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was
approved by the President on May 22, 1992. This Act is a
consolidation of H. No. 22232, which was approved by the House
of Representatives on August 2, 1989, and S. No. 807, which was
approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws
which were also the result of the consolidation of House and
Senate bills. These are the following, with indications of the dates
on which the laws were approved by the President and dates the
separate bills of the two chambers of Congress were respectively
passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX
EVASION, AMENDING FOR THIS PURPOSE THE
PERTINENT SECTIONS OF THE
NATIONAL INTERNAL REVENUE CODE (December
28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF
INTERNAL REVENUE TO REQUIRE
THEPAYMENT OF THE VALUE-ADDED TAX EVERY
MONTH AND TO ALLOW LOCAL
GOVERNMENTUNITS TO SHARE IN VAT REVENUE,
AMENDING FOR THIS PURPOSE CERTAIN
SECTIONS OF THE NATIONAL INTERNAL REVENUE
CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF
INTERNAL REVENUE TO PRESCRIBE THE PLACE
FOR PAYMENT OF INTERNAL REVENUE TAXES BY
LARGE TAXPAYERS, AMENDING FOR THIS
PURPOSE CERTAIN PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY
OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES OR AGENCIES INCLUDING
GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS (GOCCS) TO DEDUCT AND
WITHHOLD THE VALUE-ADDED TAX DUE AT THE
RATE OF THREE PERCENT (3%) ON GROSS
PAYMENT FOR THE PURCHASE OF GOODS AND
SIX PERCENT (6%) ON GROSS RECEIPTS FOR
SERVICES RENDERED BY CONTRACTORS (April 6,
1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS TO DECLARE
DIVIDENDS UNDER CERTAIN CONDITIONS TO THE
NATIONAL GOVERNMENT, AND FOR OTHER
PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE
STRUCTURE AND ADMINISTRATION OF THE
DOCUMENTARY STAMP TAX, AMENDING FOR THE
PURPOSE CERTAIN PROVISIONS OF THE
AMENDED, ALLOCATING FUNDS FOR SPECIFIC
PROGRAMS, AND FOR OTHER PURPOSES
(December 23, 1993)
House Bill No. 7789, May 31, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER
OR EXCHANGE OF SHARES OF STOCK LISTED
AND TRADED THROUGH THE LOCAL STOCK
EXCHANGE OR THROUGH INITIAL PUBLIC
OFFERING, AMENDING FOR THE PURPOSE THE
AMENDED, BY INSERTING A NEW SECTION AND
REPEALING CERTAIN SUBSECTIONS THEREOF
(May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in
which the Senate, in the exercise of its power to propose
amendments to bills required to originate in the House, passed its
own version of a House revenue measure. It is noteworthy that, in
the particular case of S. No. 1630, petitioners Tolentino and Roco,
as members of the Senate, voted to approve it on second and
third readings.
On the other hand, amendment by substitution, in the manner
urged by petitioner Tolentino, concerns a mere matter of form.
Petitioner has not shown what substantial difference it would
make if, as the Senate actually did in this case, a separate bill like
S. No. 1630 is instead enacted as a substitute measure, "taking
into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original
amendment shall be considered.
No amendment by substitution shall be entertained
unless the text thereof is submitted in writing.
Any of said amendments may be withdrawn before a
vote is taken thereon.
69. No amendment which seeks the inclusion of a
legislative provision foreign to the subject matter of a
bill (rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by
substituting it with another which covers a subject
distinct from that proposed in the original bill or
resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to
revenue bills, the Philippine Senate possesses less power than
the U.S. Senate because of textual differences between
constitutional provisions giving them the power to propose or
concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House
of Representatives; but the Senate may propose or
concur with amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House
of Representatives, but the Senate may propose or
The addition of the word "exclusively" in the Philippine
Constitution and the decision to drop the phrase "as on other
Bills" in the American version, according to petitioners, shows the
intention of the framers of our Constitution to restrict the Senate's
power to propose amendments to revenue bills. Petitioner
Tolentino contends that the word "exclusively" was inserted to
modify "originate" and "the words 'as in any other bills' (sic) were
eliminated so as to show that these bills were not to be like other
bills but must be treated as a special kind."
The history of this provision does not support this contention. The
supposed indicia of constitutional intent are nothing but the relics
of an unsuccessful attempt to limit the power of the Senate. It will
be recalled that the 1935 Constitution originally provided for a
unicameral National Assembly. When it was decided in 1939 to
change to a bicameral legislature, it became necessary to provide
for the procedure for lawmaking by the Senate and the House of
Representatives. The work of proposing amendments to the
Constitution was done by the National Assembly, acting as a
constituent assembly, some of whose members, jealous of
preserving the Assembly's lawmaking powers, sought to curtail
the powers of the proposed Senate. Accordingly they proposed
the following provision:
All bills appropriating public funds, revenue or tariff bills,
bills of local application, and private bills shall originate
exclusively in the Assembly, but the Senate may
propose or concur with amendments. In case of
disapproval by the Senate of any such bills, the
Assembly may repass the same by a two-thirds vote of
all its members, and thereupon, the bill so repassed
shall be deemed enacted and may be submitted to the
President for corresponding action. In the event that the
Senate should fail to finally act on any such bills, the
Assembly may, after thirty days from the opening of the
next regular session of the same legislative term,
reapprove the same with a vote of two-thirds of all the
members of the Assembly. And upon such reapproval,
the bill shall be deemed enacted and may be submitted
to the President for corresponding action.
The special committee on the revision of laws of the Second
National Assembly vetoed the proposal. It deleted everything after
the first sentence. As rewritten, the proposal was approved by the
National Assembly and embodied in Resolution No. 38, as
amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR
CONSTITUTION 65-66 (1950)). The proposed amendment was
submitted to the people and ratified by them in the elections held
on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from
which Art. VI, 24 of the present Constitution was derived. It
explains why the word "exclusively" was added to the American
text from which the framers of the Philippine Constitution
borrowed and why the phrase "as on other Bills" was not copied.
Considering the defeat of the proposal, the power of the Senate to
propose amendments must be understood to be full, plenary and
complete "as on other Bills." Thus, because revenue bills are
required to originate exclusively in the House of Representatives,
the Senate cannot enact revenue measures of its own without
such bills. After a revenue bill is passed and sent over to it by the
House, however, the Senate certainly can pass its own version on
the same subject matter. This follows from the coequality of the
two chambers of Congress.
That this is also the understanding of book authors of the scope of
the Senate's power to concur is clear from the following
commentaries:
The power of the Senate to propose or concur with
amendments is apparently without restriction. It would
seem that by virtue of this power, the Senate can
practically re-write a bill required to come from the
House and leave only a trace of the original bill. For
example, a general revenue bill passed by the lower
house of the United States Congress contained
provisions for the imposition of an inheritance tax . This
was changed by the Senate into a corporation tax. The
amending authority of the Senate was declared by the
United States Supreme Court to be sufficiently broad to
enable it to make the alteration. [Flint v. Stone Tracy
Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF
THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated
by the House of Representatives because it is more
numerous in membership and therefore also more
representative of the people. Moreover, its members
are presumed to be more familiar with the needs of the
country in regard to the enactment of the legislation
involved.
The Senate is, however, allowed much leeway in the
exercise of its power to propose or concur with
amendments to the bills initiated by the House of
Representatives. Thus, in one case, a bill introduced in
the U.S. House of Representatives was changed by the
Senate to make a proposed inheritance tax a
corporation tax. It is also accepted practice for the
Senate to introduce what is known as an amendment
by substitution, which may entirely replace the bill
initiated in the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145
(1993)).
In sum, while Art. VI, 24 provides that all appropriation, revenue
or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills must "originate exclusively in
the House of Representatives," it also adds, "but the Senate may
propose or concur with amendments." In the exercise of this
power, the Senate may propose an entirely new bill as a
substitute measure. As petitioner Tolentino states in a high school
text, a committee to which a bill is referred may do any of the
following:
(1) to endorse the bill without changes; (2) to make
changes in the bill omitting or adding sections or
altering its language; (3) to make and endorse an
entirely new bill as a substitute, in which case it will be
known as a committee bill; or (4) to make no report at
all.
(A. TOLENTINO, THE GOVERNMENT OF THE
PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are
required to originate in the House by prescribing that the number
of the House bill and its other parts up to the enacting clause
must be preserved although the text of the Senate amendment
may be incorporated in place of the original body of the bill is to
insist on a mere technicality. At any rate there is no rule
prescribing this form. S. No. 1630, as a substitute measure, is
therefore as much an amendment of H. No. 11197 as any which
the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners'
basic error is that they assume that S. No. 1630 is
an independent and distinct bill. Hence their repeated references
to its certification that it was passed by the Senate "in substitution
of S.B. No. 1129, taking into consideration P.S. Res. No. 734
and H.B. No. 11197," implying that there is something
substantially different between the reference to S. No. 1129 and
the reference to H. No. 11197. From this premise, they conclude
that R.A. No. 7716 originated both in the House and in the Senate
and that it is the product of two "half-baked bills because neither
H. No. 11197 nor S. No. 1630 was passed by both houses of
Congress."
In point of fact, in several instances the provisions of S. No. 1630,
clearly appear to be mere amendments of the corresponding
provisions of H. No. 11197. The very tabular comparison of the
provisions of H. No. 11197 and S. No. 1630 attached as
Supplement A to the basic petition of petitioner Tolentino, while
showing differences between the two bills, at the same time
indicates that the provisions of the Senate bill were precisely
intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No.
1630. Because the Senate bill was a mere amendment of the
House bill, H. No. 11197 in its original form did not have to pass
the Senate on second and three readings. It was enough that
after it was passed on first reading it was referred to the Senate
Committee onWays and Means. Neither was it required that S.
No. 1630 be passed by the House of Representatives before the
two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H.
No. 11197 and S. No. 1630. When the House bill and Senate bill,
which became R.A. No. 1405 (Act prohibiting the disclosure of
bank deposits), were referred to a conference committee, the
question was raised whether the two bills could be the subject of
such conference, considering that the bill from one house had not
been passed by the other and vice versa. As Congressman Duran
put the question:
MR. DURAN. Therefore, I raise this question of order
as to procedure: If a House bill is passed by the House
but not passed by the Senate, and a Senate bill of a
similar nature is passed in the Senate but never passed
in the House, can the two bills be the subject of a
conference, and can a law be enacted from these two
bills? I understand that the Senate bill in this particular
instance does not refer to investments in government
securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters:
not only investigation of deposits in banks but also
investigation of investments in government securities.
Now, since the two bills differ in their subject matter, I
believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B.
Laurel, Jr.) said:
THE SPEAKER. The report of the conference
committee is in order. It is precisely in cases like this
where a conference should be had. If the House bill had
been approved by the Senate, there would have been
no need of a conference; but precisely because the
Senate passed another bill on the same subject matter,
the conference committee had to be created, and we
are now considering the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42
(emphasis added))
III. The President's certification. The fallacy in thinking that H. No.
11197 and S. No. 1630 are distinct and unrelated measures also
accounts for the petitioners' (Kilosbayan's and PAL's) contention
that because the President separately certified to the need for the
immediate enactment of these measures, his certification was
ineffectual and void. The certification had to be made of the
version of the same revenue bill which at the momentwas being
considered. Otherwise, to follow petitioners' theory, it would be
necessary for the President to certify as many bills as are
presented in a house of Congress even though the bills are
merely versions of the bill he has already certified. It is enough
that he certifies the bill which, at the time he makes the
certification, is under consideration. Since on March 22, 1994 the
Senate was considering S. No. 1630, it was that bill which had to
be certified. For that matter on June 1, 1993 the President had
earlier certified H. No. 9210 for immediate enactment because it
was the one which at that time was being considered by the
House. This bill was later substituted, together with other bills, by
H. No. 11197.
As to what Presidential certification can accomplish, we have
already explained in the main decision that the phrase "except
when the President certifies to the necessity of its immediate
enactment, etc." in Art. VI, 26 (2) qualifies not only the
requirement that "printed copies [of a bill] in its final form [must
be] distributed to the members three days before its passage" but
also the requirement that before a bill can become a law it must
have passed "three readings on separate days." There is not only
textual support for such construction but historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it
shall have been printed and copies thereof in its final
form furnished its Members at least three calendar days
prior to its passage, except when the President shall
have certified to the necessity of its immediate
enactment. Upon the last reading of a bill, no
amendment thereof shall be allowed and the question
upon its passage shall be taken immediately thereafter,
and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art.
VIII, 19 (2):
(2) No bill shall become a law unless it has passed
three readings on separate days, and printed copies
thereof in its final form have been distributed to the
Members three days before its passage, except when
the Prime Minister certifies to the necessity of its
immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.
This provision of the 1973 document, with slight modification, was
adopted in Art. VI, 26 (2) of the present Constitution, thus:
(2) No bill passed by either House shall become a law
unless it has passed three readings on separate days,
and printed copies thereof in its final form have been
distributed to its Members three days before its
passage, except when the President certifies to the
necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill,
no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and
the yeasand nays entered in the Journal.
The exception is based on the prudential consideration that if in
all cases three readings on separate days are required and a bill
has to be printed in final form before it can be passed, the need
for a law may be rendered academic by the occurrence of the
very emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not
an emergency, especially in a country like the Philippines where
budget deficit is a chronic condition. Even if this were the case, an
enormous budget deficit does not make the need for R.A. No.
7716 any less urgent or the situation calling for its enactment any
less an emergency.
Apparently, the members of the Senate (including some of the
petitioners in these cases) believed that there was an urgent need
for consideration of S. No. 1630, because they responded to the
call of the President by voting on the bill on second and third
readings on the same day. While the judicial department is not
bound by the Senate's acceptance of the President's certification,
the respect due coequal departments of the government in
matters committed to them by the Constitution and the absence of
a clear showing of grave abuse of discretion caution a stay of the
judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough
consideration in the Senate where it was discussed for six days.
Only its distribution in advance in its final printed form was
actually dispensed with by holding the voting on second and third
readings on the same day (March 24, 1994). Otherwise, sufficient
time between the submission of the bill on February 8, 1994 on
second reading and its approval on March 24, 1994 elapsed
before it was finally voted on by the Senate on third reading.
The purpose for which three readings on separate days is
required is said to be two-fold: (1) to inform the members of
Congress of what they must vote on and (2) to give them notice
that a measure is progressing through the enacting process, thus
enabling them and others interested in the measure to prepare
their positions with reference to it. (1 J. G. SUTHERLAND,
STATUTES AND STATUTORY CONSTRUCTION 10.04, p. 282
(1972)). These purposes were substantially achieved in the case
of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally
by Kilosbayan, Inc. and the Movement ofAttorneys for
Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in
violation of the constitutional policy of full public disclosure and
the people's right to know (Art. II, 28 and Art. III, 7) the
Conference Committee met for two days in executive session with
only the conferees present.
As pointed out in our main decision, even in the United States it
was customary to hold such sessions with only the conferees and
their staffs in attendance and it was only in 1975 when a new rule
was adopted requiring open sessions. Unlike its American
counterpart, the Philippine Congress has not adopted a rule
prescribing open hearings for conference committees.
It is nevertheless claimed that in the United States, before the
adoption of the rule in 1975, at least staff members were present.
These were staff members of the Senators and Congressmen,
however, who may be presumed to be their confidential men, not
stenographers as in this case who on the last two days of the
conference were excluded. There is no showing that the
conferees themselves did not take notes of their proceedings so
as to give petitioner Kilosbayan basis for claiming that even in
secret diplomatic negotiations involving state interests, conferees
keep notes of their meetings. Above all, the public's right to know
was fully served because the Conference Committee in this case
submitted a report showing the changes made on the differing
versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that
conference committee reports must contain "a detailed,
sufficiently explicit statement of the changes in or other
amendments." These changes are shown in the bill attached to
the Conference Committee Report. The members of both houses
could thus ascertain what changes had been made in the original
bills without the need of a statement detailing the changes.
The same question now presented was raised when the bill which
became R.A. No. 1400 (Land Reform Act of 1955) was reported
by the Conference Committee. Congressman Bengzon raised a
point of order. He said:
MR. BENGZON. My point of order is that it is out of
order to consider the report of the conference
committee regarding House Bill No. 2557 by reason of
the provision of Section 11, Article XII, of the Rules of
this House which provides specifically that the
conference report must be accompanied by a detailed
statement of the effects of the amendment on the bill of
the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker.
Therefore it is out of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say
a few words in connection with the point of order raised
by the gentleman from Pangasinan.
There is no question about the provision of the Rule
cited by the gentleman from Pangasinan, but this
provision applies to those cases where only portions of
the bill have been amended. In this case before us an
entire bill is presented; therefore, it can be easily seen
from the reading of the bill what the provisions are.
Besides, this procedure has been an established
practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we
have to look into the reason for the provisions of the
Rules, and the reason for the requirement in the
provision cited by the gentleman from Pangasinan is
when there are only certain words or phrases inserted
in or deleted from the provisions of the bill included in
the conference report, and we cannot understand what
those words and phrases mean and their relation to the
bill. In that case, it is necessary to make a detailed
statement on how those words and phrases will affect
the bill as a whole; but when the entire bill itself is
copied verbatim in the conference report, that is not
necessary. So when the reason for the Rule does not
exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record
shows that when the ruling was appealed, it was upheld by viva
voce and when a division of the House was called, it was
sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference
committee to insert new provisions as long as these are germane
to the subject of the conference. As this Court held in Philippine
Judges Association v. Prado, 227 SCRA 703 (1993), in an opinion
written by then Justice Cruz, the jurisdiction of the conference
committee is not limited to resolving differences between the
Senate and the House. It may propose an entirely new provision.
What is important is that its report is subsequently approved by
the respective houses of Congress. This Court ruled that it would
not entertain allegations that, because new provisions had been
added by the conference committee, there was thereby a violation
of the constitutional injunction that "upon the last reading of a bill,
no amendment thereto shall be allowed."
Applying these principles, we shall decline to look into
the petitioners' charges that an amendment was made
upon the last reading of the bill that eventually became
R.A. No. 7354 and that copiesthereof in its final
form were not distributed among the members of each
House. Both the enrolled bill and the legislative journals
certify that the measure was duly enacted i.e., in
accordance with Article VI, Sec. 26 (2) of the
Constitution. We are bound by such official assurances
from a coordinate department of the government, to
which we owe, at the very least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference
committees in the Philippines in a 1979 study:
Conference committees may be of two types: free or
instructed. These committees may be given instructions
by their parent bodies or they may be left without
instructions. Normally the conference committees are
without instructions, and this is why they are often
critically referred to as "the little legislatures." Once bills
have been sent to them, the conferees have almost
unlimited authority to change the clauses of the bills
and in fact sometimes introduce new measures that
were not in the original legislation. No minutes are kept,
and members' activities on conference committees are
difficult to determine. One congressman known for his
idealism put it this way: "I killed a bill on export
incentives for my interest group [copra] in the
conference committee but I could not have done so
anywhere else." The conference committee submits a
report to both houses, and usually it is accepted. If the
report is not accepted, then the committee is
discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in
COMMITTEES AND LEGISLATURES: A
COMPARATIVE ANALYSIS 163 (J. D. LEES AND M.
SHAW, eds.)).
In citing this study, we pass no judgment on the methods of
conference committees. We cite it only to say that conference
committees here are no different from their counterparts in the
United States whose vast powers we noted in Philippine Judges
Association v. Prado, supra. At all events, under Art. VI, 16(3)
each house has the power "to determine the rules of its
proceedings," including those of its committees. Any meaningful
change in the method and procedures of Congress or its
committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that
R.A. No. 7716 violates Art. VI, 26 (1) of the Constitution which
provides that "Every bill passed by Congress shall embrace only
one subject which shall be expressed in the title thereof." PAL
contends that the amendment of its franchise by the withdrawal of
its exemption from the VAT is not expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2%
on its gross revenue "in lieu of all other taxes, duties, royalties,
registration, license and other fees and charges of any kind,
nature, or description, imposed, levied, established, assessed or
collected by any municipal, city, provincial or national authority or
government agency, now or in the future."
PAL was exempted from the payment of the VAT along with other
entities by 103 of the National Internal Revenue Code, which
provides as follows:
103. Exempt transactions. The following shall be
exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws
or international agreements to which the Philippines is a
signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including
that granted to PAL, by amending 103, as follows:
103. Exempt transactions. The following shall be
exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws,
except those granted under Presidential Decree Nos.
66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716
which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX
(VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE
VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS TAX
BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED AND FOR OTHER
PURPOSES," Congress thereby clearly expresses its intention to
amend any provision of the NIRC which stands in the way of
accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected
in the title of the law by specific reference to P.D. No. 1590. It is
unnecessary to do this in order to comply with the constitutional
requirement, since it is already stated in the title that the law
seeks to amend the pertinent provisions of the NIRC, among
which is 103(q), in order to widen the base of the VAT. Actually,
it is the bill which becomes a law that is required to express in its
title the subject of legislation. The titles of H. No. 11197 and S.
No. 1630 in fact specifically referred to 103 of the NIRC as
among the provisions sought to be amended. We are satisfied
that sufficient notice had been given of the pendency of these bills
in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar
argument as that now made by PAL was rejected. R.A. No. 7354
is entitled AN ACT CREATING THE PHILIPPINE POSTAL
CORPORATION, DEFINING ITS POWERS, FUNCTIONS AND
RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE
INDUSTRY AND FOR OTHER PURPOSES CONNECTED
THEREWITH. It contained a provision repealing all franking
privileges. It was contended that the withdrawal of franking
privileges was not expressed in the title of the law. In holding that
there was sufficient description of the subject of the law in its title,
including the repeal of franking privileges, this Court held:
To require every end and means necessary for the
accomplishment of the general objectives of the statute
to be expressed in its title would not only be
unreasonable but would actually render legislation
impossible. [Cooley, Constitutional Limitations, 8th Ed.,
p. 297] As has been correctly explained:
The details of a legislative act need not be
specifically stated in its title, but matter
germane to the subject as expressed in the
title, and adopted to the accomplishment of
the object in view, may properly be included
in the act. Thus, it is proper to create in the
same act the machinery by which the act is to
be enforced, to prescribe the penalties for its
infraction, and to remove obstacles in the
way of its execution. If such matters are
properly connected with the subject as
expressed in the title, it is unnecessary that
they should also have special mention in the
title. (Southern Pac. Co. v. Bartine, 170 Fed.
725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held
that, as a general proposition, the press is not exempt from the
taxing power of the State and that what the constitutional
guarantee of free press prohibits are laws which single out the
press or target a group belonging to the press for special
treatment or which in any way discriminate against the press on
the basis of the content of the publication, and R.A. No. 7716 is
none of these.
Now it is contended by the PPI that by removing the exemption of
the press from the VAT while maintaining those granted to others,
the law discriminates against the press. At any rate, it is averred,
"even nondiscriminatory taxation of constitutionally guaranteed
freedom is unconstitutional."
With respect to the first contention, it would suffice to say that
since the law granted the press a privilege, the law could take
back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not
forever waive the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the
press to the same tax burden to which other businesses have
long ago been subject. It is thus different from the tax involved in
the cases invoked by the PPI. The license tax in Grosjean
v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was
found to be discriminatory because it was laid on the gross
advertising receipts only of newspapers whose weekly circulation
was over 20,000, with the result that the tax applied only to 13 out
of 124 publishers in Louisiana. These large papers were critical of
Senator Huey Long who controlled the state legislature which
enacted the license tax. The censorial motivation for the law was
thus evident.
On the other hand, in Minneapolis Star & Tribune
Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d
295 (1983), the tax was found to be discriminatory because
although it could have been made liable for the sales tax or, in
lieu thereof, for the use tax on the privilege of using, storing or
consuming tangible goods, the press was not. Instead, the press
was exempted from both taxes. It was, however, later made to
pay a special use tax on the cost of paper and ink which made
these items "the only items subject to the use tax that were
component of goods to be sold at retail." The U.S. Supreme Court
held that the differential treatment of the press "suggests that the
goal of regulation is not related to suppression of expression, and
such goal is presumptively unconstitutional." It would therefore
appear that even a law that favors the press is constitutionally
suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O.
No. 273 are withdrawn "absolutely and unqualifiedly" by R.A. No.
7716. Other exemptions from the VAT, such as those previously
granted to PAL, petroleum concessionaires, enterprises
registered with the Export Processing Zone Authority, and many
more are likewise totally withdrawn, in addition to exemptions
which are partially withdrawn, in an effort to broaden the base of
the tax.
The PPI says that the discriminatory treatment of the press is
highlighted by the fact that transactions, which are profit oriented,
continue to enjoy exemption under R.A. No. 7716. An
enumeration of some of these transactions will suffice to show
that by and large this is not so and that the exemptions are
granted for a purpose. As the Solicitor General says, such
exemptions are granted, in some cases, to encourage agricultural
production and, in other cases, for the personal benefit of the end-
user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their
original state (agricultural, marine and forest products,
cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry
feeds) and goods or services to enhance agriculture
(milling of palay, corn, sugar cane and raw sugar,
livestock, poultry feeds, fertilizer, ingredients used for
the manufacture of feeds).
(b) Goods used for personal consumption or use
(household and personal effects of citizens returning to
the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as petroleum
products or to be used for manufacture of petroleum
products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and
veterinary services, and services rendered under
employer-employee relationship.
(e) Works of art and similar creations sold by the artist
himself.
(f) Transactions exempted under special laws, or
international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt
not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions
for Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not
discriminate against the press because "even nondiscriminatory
taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the
following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87
L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is
immaterial. The protection afforded by the First
Amendment is not so restricted. A license tax certainly
does not acquire constitutional validity because it
classifies the privileges protected by the First
Amendment along with the wares and merchandise of
hucksters and peddlers and treats them all alike. Such
equality in treatment does not save the ordinance.
Freedom of press, freedom of speech, freedom of
religion are in preferred position.
The Court was speaking in that case of a license tax, which,
unlike an ordinary tax, is mainly for regulation. Its imposition on
the press is unconstitutional because it lays a prior restraint on
the exercise of its right. Hence, although its application to others,
such those selling goods, is valid, its application to the press or to
religious groups, such as the Jehovah's Witnesses, in connection
with the latter's sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is one thing
to impose a tax on income or property of a preacher. It is quite
another thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible
Society v. City of Manila, 101 Phil. 386 (1957) which invalidated a
city ordinance requiring a business license fee on those engaged
in the sale of general merchandise. It was held that the tax could
not be imposed on the sale of bibles by the American Bible
Society without restraining the free exercise of its right to
propagate.
The VAT is, however, different. It is not a license tax. It is not a
tax on the exercise of a privilege, much less a constitutional right.
It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to its
payment is not to burden the exercise of its right any more than to
make the press pay income tax or subject it to general regulation
is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although
it sells bibles, the proceeds derived from the sales are used to
subsidize the cost of printing copies which are given free to those
who cannot afford to pay so that to tax the sales would be to
increase the price, while reducing the volume of sale. Granting
that to be the case, the resulting burden on the exercise of
religious freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that might
make the right to disseminate religious doctrines costly.
Otherwise, to follow the petitioner's argument, to increase the tax
on the sale of vestments would be to lay an impermissible burden
on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by
107 of the NIRC, as amended by 7 of R.A. No. 7716, although
fixed in amount, is really just to pay for the expenses of
registration and enforcement of provisions such as those relating
to accounting in 108 of the NIRC. That the PBS distributes free
bibles and therefore is not liable to pay the VAT does not excuse
it from the payment of this fee because it also sells some copies.
At any rate whether the PBS is liable for the VAT must be decided
in concrete cases, in the event it is assessed this tax by the
Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and
contract clauses and the rule on taxation. CREBA asserts that
R.A. No. 7716 (1) impairs the obligations of contracts, (2)
classifies transactions as covered or exempt without reasonable
basis and (3) violates the rule that taxes should be uniform and
equitable and that Congress shall "evolve a progressive system of
taxation."
With respect to the first contention, it is claimed that the
application of the tax to existing contracts of the sale of real
property by installment or on deferred payment basis would result
in substantial increases in the monthly amortizations to be paid
because of the 10% VAT. The additional amount, it is pointed out,
is something that the buyer did not anticipate at the time he
entered into the contract.
The short answer to this is the one given by this Court in an early
case: "Authorities from numerous sources are cited by the
plaintiffs, but none of them show that a lawful tax on a new
subject, or an increased tax on an old one, interferes with a
contract or impairs its obligation, within the meaning of the
Constitution. Even though such taxation may affect particular
contracts, as it may increase the debt of one person and lessen
the security of another, or may impose additional burdens upon
one class and release the burdens of another, still the tax must be
paid unless prohibited by the Constitution, nor can it be said that it
impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong,
39 Phil. 567, 574 (1919)). Indeed not only existing laws but also
"the reservation of the essential attributes of sovereignty, is . . .
read into contracts as a postulate of the legal order." (Philippine-
American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147
(1968)) Contracts must be understood as having been made in
reference to the possible exercise of the rightful authority of the
government and no obligation of contract can extend to the defeat
of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed.
885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such
transactions as the sale of agricultural products, food items,
petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential.
The sale of real property for socialized and low-cost housing is
exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are
equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary
services, etc., which are essential goods and services was
already exempt under 103, pars. (b) (d) (1) of the NIRC before
the enactment of R.A. No. 7716. Petitioner is in error in claiming
that R.A. No. 7716 granted exemption to these transactions, while
subjecting those of petitioner to the payment of the VAT.
Moreover, there is a difference between the "homeless poor" and
the "homeless less poor" in the example given by petitioner,
because the second group or middle class can afford to rent
houses in the meantime that they cannot yet buy their own
homes. The two social classes are thus differently situated in life.
"It is inherent in the power to tax that the State be free to select
the subjects of taxation, and it has been repeatedly held that
'inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation.'"
(Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio
v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130
SCRA 654, 663 (1984); Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A.
No. 7716 also violates Art. VI, 28(1) which provides that "The
rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles
or kinds of property of the same class be taxed at the same rate.
The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation. To satisfy this
requirement it is enough that the statute or ordinance applies
equally to all persons, forms and corporations placed in similar
situation. (City of Baguio v. De Leon, supra; Sison, Jr. v.
Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long
before R.A. No. 7716 was enacted. R.A. No. 7716 merely
expands the base of the tax. The validity of the original VAT Law
was questioned in Kapatiran ng Naglilingkod sa Pamahalaan ng
Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to
those made in these cases, namely, that the law was "oppressive,
discriminatory, unjust and regressive in violation of Art. VI, 28(1)
of the Constitution." (At 382) Rejecting the challenge to the law,
this Court held:
As the Court sees it, EO 273 satisfies all the
requirements of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on
all goods and services sold to the public, which are not
exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed
only on sales of goods or services by persons engaged
in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores
are consequently exempt from its application. Likewise
exempt from the tax are sales of farm and marine
products, so that the costs of basic food and other
necessities, spared as they are from the incidence of
the VAT, are expected to be relatively lower and within
the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is
made by the Cooperative Union of the Philippines, Inc. (CUP),
while petitioner Juan T. David argues that the law contravenes the
mandate of Congress to provide for a progressive system of
taxation because the law imposes a flat rate of 10% and thus
places the tax burden on all taxpayers without regard to their
ability to pay.
The Constitution does not really prohibit the imposition of indirect
taxes which, like the VAT, are regressive. What it simply provides
is that Congress shall "evolve a progressive system of taxation."
The constitutional provision has been interpreted to mean simply
that "direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized." (E. FERNANDO,
THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed.
(1977)). Indeed, the mandate to Congress is not to prescribe, but
to evolve, a progressive tax system. Otherwise, sales taxes,
which perhaps are the oldest form of indirect taxes, would have
been prohibited with the proclamation of Art. VIII, 17(1) of the
1973 Constitution from which the present Art. VI, 28(1) was
taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but
not avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the taxpayers'
ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero rating of
certain transactions (R.A. No. 7716, 3, amending 102 (b) of the
NIRC), while granting exemptions to other transactions. (R.A. No.
7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential
goods and services are exempted from the VAT:
(a) Goods for consumption or use which are in their
original state (agricultural, marine and forest products,
cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry
feeds) and goods or services to enhance agriculture
(milling of palay, corn sugar cane and raw sugar,
livestock, poultry feeds, fertilizer, ingredients used for
the manufacture of feeds).
(b) Goods used for personal consumption or use
(household and personal effects of citizens returning to
the Philippines) and or professional use, like
professional instruments and implements, by persons
coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum
products or to be used for manufacture of petroleum
products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and
veterinary services, and services rendered under
employer-employee relationship.
(e) Works of art and similar creations sold by the artist
himself.
(f) Transactions exempted under special laws, or
international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt
not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions
for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT
are those which involve goods and services which are used or
availed of mainly by higher income groups. These include real
properties held primarily for sale to customers or for lease in the
ordinary course of trade or business, the right or privilege to use
patent, copyright, and other similar property or right, the right or
privilege to use industrial, commercial or scientific equipment,
motion picture films, tapes and discs, radio, television, satellite
transmission and cable television time, hotels, restaurants and
similar places, securities, lending investments, taxicabs, utility
cars for rent, tourist buses, and other common carriers, services
of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad
claims of constitutional violations by tendering issues not at retail
but at wholesale and in the abstract. There is no fully developed
record which can impart to adjudication the impact of actuality.
There is no factual foundation to show in the concrete the
application of the law to actual contracts and exemplify its effect
on property rights. For the fact is that petitioner's members have
not even been assessed the VAT. Petitioner's case is not made
concrete by a series of hypothetical questions asked which are no
different from those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does
not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here
would condemn such a provision as void on its face, he
has not made out a case. This is merely to adhere to
the authoritative doctrine that where the due process
and equal protection clauses are invoked, considering
that they are not fixed rules but rather broad standards,
there is a need for proof of such persuasive character
as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of
a concrete case. It may be that postponement of adjudication
would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A
test case, provided it is an actual case and not an abstract or
hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for
adjudicating abstract issues. Otherwise, adjudication would be no
different from the giving of advisory opinion that does not really
settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide
whenever a claim is made that "there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the government." This duty can
only arise if an actual case or controversy is before us. Under Art .
VIII, 5 our jurisdiction is defined in terms of "cases" and all that
Art. VIII, 1, 2 can plausibly mean is that in the exercise of
that jurisdiction we have the judicial power to determine questions
of grave abuse of discretion by any branch or instrumentality of
the government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial
power," which is "the power of a court to hear and decide cases
pending between parties who have the right to sue and be sued in
the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559
(1912)), as distinguished from legislative and executive power.
This power cannot be directly appropriated until it is apportioned
among several courts either by the Constitution, as in the case of
Art. VIII, 5, or by statute, as in the case of the Judiciary Act of
1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980
(B.P. Blg. 129). The power thus apportioned constitutes the
court's "jurisdiction," defined as "the power conferred by law upon
a court or judge to take cognizance of a case, to the exclusion of
all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an
actual case coming within its jurisdiction, this Court cannot inquire
into any allegation of grave abuse of discretion by the other
departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other
hand, the Cooperative Union of the Philippines (CUP), after briefly
surveying the course of legislation, argues that it was to adopt a
definite policy of granting tax exemption to cooperatives that the
present Constitution embodies provisions on cooperatives. To
subject cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D. No. 175
was promulgated exempting cooperatives from the payment of
income taxes and sales taxes but in 1984, because of the crisis
which menaced the national economy, this exemption was
withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again
granted cooperatives exemption from income and sales taxes
until December 31, 1991, but, in the same year, E.O. No. 93
revoked the exemption; and that finally in 1987 the framers of the
Constitution "repudiated the previous actions of the government
adverse to the interests of the cooperatives, that is, the repeated
revocation of the tax exemption to cooperatives and instead
upheld the policy of strengthening the cooperatives by way of the
grant of tax exemptions," by providing the following in Art. XII:
1. The goals of the national economy are a more
equitable distribution of opportunities, income, and
wealth; a sustained increase in the amount of goods
and services produced by the nation for the benefit of
the people; and an expanding productivity as the key to
raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full
employment based on sound agricultural development
and agrarian reform, through industries that make full
and efficient use of human and natural resources, and
which are competitive in both domestic and foreign
markets. However, the State shall protect Filipino
enterprises against unfair foreign competition and trade
practices.
In the pursuit of these goals, all sectors of the economy
and all regions of the country shall be given optimum
opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base
of their ownership.
15. The Congress shall create an agency to promote
the viability and growth of cooperatives as instruments
for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true
that P.D. No. 1955 singled out cooperatives by withdrawing their
exemption from income and sales taxes under P.D. No. 175, 5.
What P.D. No. 1955, 1 did was to withdraw the exemptions and
preferential treatments theretofore granted to private business
enterprises in general, in view of the economic crisis which then
beset the nation. It is true that after P.D. No. 2008, 2 had
restored the tax exemptions of cooperatives in 1986, the
exemption was again repealed by E.O. No. 93, 1, but then again
cooperatives were not the only ones whose exemptions were
withdrawn. The withdrawal of tax incentives applied to all,
including government and private entities. In the second place,
the Constitution does not really require that cooperatives be
granted tax exemptions in order to promote their growth and
viability. Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one of
vacillation, as far as the grant of tax privileges was concerned,
and that it was to put an end to this indecision that the
constitutional provisions cited were adopted. Perhaps as a matter
of policy cooperatives should be granted tax exemptions, but that
is left to the discretion of Congress. If Congress does not grant
exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the
Constitution cooperatives are exempt from taxation. Such theory
is contrary to the Constitution under which only the following are
exempt from taxation: charitable institutions, churches and
parsonages, by reason of Art. VI, 28 (3), and non-stock, non-
profit educational institutions by reason of Art. XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716
is that it denies cooperatives the equal protection of the law
because electric cooperatives are exempted from the VAT. The
classification between electric and other cooperatives (farmers
cooperatives, producers cooperatives, marketing cooperatives,
etc.) apparently rests on a congressional determination that there
is greater need to provide cheaper electric power to as many
people as possible, especially those living in the rural areas, than
there is to provide them with other necessities in life. We cannot
say that such classification is unreasonable.
We have carefully read the various arguments raised against the
constitutional validity of R.A. No. 7716. We have in fact taken the
extraordinary step of enjoining its enforcement pending resolution
of these cases. We have now come to the conclusion that the law
suffers from none of the infirmities attributed to it by petitioners
and that its enactment by the other branches of the government
does not constitute a grave abuse of discretion. Any question as
to its necessity, desirability or expediency must be addressed to
Congress as the body which is electorally responsible,
remembering that, as Justice Holmes has said, "legislators are
the ultimate guardians of the liberties and welfare of the people in
quite as great a degree as are the courts." (Missouri, Kansas &
Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973
(1904)). It is not right, as petitioner in G.R. No. 115543 does in
arguing that we should enforce the public accountability of
legislators, that those who took part in passing the law in question
by voting for it in Congress should later thrust to the courts the
burden of reviewing measures in the flush of enactment. This
Court does not sit as a third branch of the legislature, much less
exercise a veto power over legislation.
ABAKADA GURO PARTY
LIST (Formerly AASJAS)
OFFICERS SAMSON S.
ALCANTARA and ED
VINCENT S. ALBANO,
G.R. No. 168056

Petitioners,
Present:

DAVIDE, JR., C.J .,
PUNO,
PANGANIBAN,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-
GUTIERREZ,
- versus - CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO-MORALES,
CALLEJO, SR.,
AZCUNA,
TINGA,
CHICO-NAZARIO, and
GARCIA, J J .
THE HONORABLE
EXECUTIVE SECRETARY
EDUARDO ERMITA;
HONORABLE SECRETARY
OF THE DEPARTMENT OF
FINANCE CESAR PURISIMA;
and HONORABLE
COMMISSIONER OF
INTERNAL REVENUE
GUILLERMO PARAYNO, JR.,

Respondents.

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- - x

AQUILINO Q. PIMENTEL, JR.,
LUISA P. EJERCITO-
ESTRADA, JINGGOY E.
ESTRADA, PANFILO M.
LACSON, ALFREDO S. LIM,
JAMBY A.S. MADRIGAL, AND
SERGIO R. OSMEA III,
G.R. No. 168207

Petitioners,

- versus -

EXECUTIVE SECRETARY
EDUARDO R. ERMITA,
CESAR V. PURISIMA,

SECRETARY OF FINANCE,
GUILLERMO L. PARAYNO,
JR., COMMISSIONER OF THE
BUREAU OF INTERNAL
REVENUE,

Respondents.

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- - x

ASSOCIATION OF PILIPINAS
SHELL DEALERS, INC.
represented by its President,
ROSARIO ANTONIO;
PETRON DEALERS
ASSOCIATION represented by
its President, RUTH E.
BARBIBI; ASSOCIATION OF
CALTEX DEALERS OF THE
PHILIPPINES represented by its
President, MERCEDITAS A.
GARCIA; ROSARIO
ANTONIO doing business under
the name and style of ANB
NORTH SHELL SERVICE
STATION; LOURDES
MARTINEZ doing business
under the name and style of
SHELL GATE N.
DOMINGO; BETHZAIDA
TAN doing business under the
name and style of ADVANCE
SHELL STATION;
REYNALDO P. MONTOYA
G.R. No. 168461
doing business under the name
and style of NEW LAMUAN
SHELL SERVICE STATION;
EFREN SOTTO doing business
RED FIELD SHELL SERVICE
STATION; DONICA
CORPORATION represented by
its President, DESI
TOMACRUZ; RUTH E.
MARBIBI doing business under
the name and style of R&R
PETRON STATION; PETER
M. UNGSON doing business
CLASSIC STAR GASOLINE
SERVICE STATION;
MARIAN SHEILA A. LEE
and style of NTE GASOLINE
& SERVICE STATION;
JULIAN CESAR P. POSADAS
and style of STARCARGA
ENTERPRISES;
ADORACION MAEBO doing
business under the name and
style of CMA MOTORISTS
CENTER; SUSAN M.
ENTRATA doing business under
the name and style of LEONAS
GASOLINE STATION and
SERVICE CENTER;
CARMELITA BALDONADO
and style of FIRST CHOICE
SERVICE CENTER;
MERCEDITAS A. GARCIA
and style of LORPED
SERVICE CENTER;
RHEAMAR A. RAMOS doing
style of RJRAM PTT GAS
STATION; MA. ISABEL
VIOLAGO doing business under
the name and style of
VIOLAGO-PTT SERVICE
CENTER; MOTORISTS
HEART CORPORATION
represented by its Vice-President
for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS
HARVARD CORPORATION
FLORDELIZA; MOTORISTS
HERITAGE CORPORATION
FLORDELIZA; PHILIPPINE
STANDARD OIL
CORPORATION represented by
its Vice-President for
Operations, JOSELITO F.
FLORDELIZA; ROMEO
MANUEL doing business under
the name and style of
ROMMAN GASOLINE
STATION; ANTHONY
ALBERT CRUZ III doing
style of TRUE SERVICE
STATION,

Petitioners,

- versus -

CESAR V. PURISIMA, in his
capacity as Secretary of the
Department of Finance and
JR., in his capacity as
Commissioner of Internal
Revenue,

Respondents.

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

FRANCIS JOSEPH G.
ESCUDERO, VINCENT
CRISOLOGO, EMMANUEL
JOEL J. VILLANUEVA,
RODOLFO G. PLAZA,
DARLENE ANTONINO-
CUSTODIO, OSCAR G.
MALAPITAN, BENJAMIN C.
AGARAO, JR. JUAN
EDGARDO M. ANGARA,
JUSTIN MARC SB. CHIPECO,
FLORENCIO G. NOEL, MUJIV
S. HATAMAN, RENATO B.
G.R. No. 168463
MAGTUBO, JOSEPH A.
SANTIAGO, TEOFISTO DL.
GUINGONA III, RUY ELIAS C.
LOPEZ, RODOLFO Q.
AGBAYANI and TEODORO A.
CASIO,

Petitioners,

- versus -

CESAR V. PURISIMA, in his
capacity as Secretary of Finance,
JR., in his capacity as
Commissioner of Internal
Revenue, and EDUARDO R.
ERMITA, in his capacity as
Executive Secretary,

Respondents.

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- - x

BATAAN GOVERNOR
ENRIQUE T. GARCIA, JR.
G.R. No. 168730

Petitioner,

- versus -

HON. EDUARDO R. ERMITA,
in his capacity as the Executive
Secretary; HON. MARGARITO

TEVES, in his capacity as
Secretary of Finance; HON.
JOSE MARIO BUNAG, in his
capacity as the OIC
Commissioner of the Bureau of
Internal Revenue; and HON.
ALEXANDER AREVALO, in
his capacity as the OIC
Commissioner of the Bureau of
Customs,

Promulgated:

Respondents.
September 1, 2005

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- - - - - - - - - - x

D E C I S I O N

AUSTRIA-MARTINEZ, J .:

The expenses of government, having for their object the
interest of all, should be borne by everyone, and the more
man enjoys the advantages of society, the more he ought to
hold himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot
(1727-1781)
French statesman
and economist

Mounting budget deficit, revenue generation, inadequate fiscal
allocation for education, increased emoluments for health workers, and
wider coverage for full value-addedtax benefits these are the reasons
why Republic Act No. 9337 (R.A. No. 9337)
[1]
was enacted. Reasons,
the wisdom of which, the Court even with its extensive constitutional
power of review, cannot probe. The petitioners in these cases, however,
question not only the wisdom of the law, but also perceived
constitutional infirmities in its passage.

Every law enjoys in its favor the presumption of constitutionality.
Their arguments notwithstanding, petitioners failed to justify their call
for the invalidity of the law. Hence, R.A. No. 9337 is not
unconstitutional.

LEGISLATIVE HISTORY

R.A. No. 9337 is a consolidation of three legislative bills namely,
House Bill Nos. 3555 and 3705, and Senate Bill No. 1950.

House Bill No. 3555
[2]
was introduced on first reading on January
7, 2005. The House Committee on Ways and Means approved the bill,
in substitution of House Bill No. 1468, which Representative (Rep.) Eric
D. Singson introduced on August 8, 2004. The President certified the
bill on January 7, 2005 for immediate enactment. On January 27, 2005,
the House of Representatives approved the bill on second and third
reading.

House Bill No. 3705
[3]
on the other hand, substituted House Bill
No. 3105 introduced by Rep. Salacnib F. Baterina, and House Bill No.
3381 introduced by Rep. Jacinto V. Paras. Its mother bill is House
Bill No. 3555. The House Committee on Ways and Means approved the
bill on February 2, 2005. The President also certified it as urgent
onFebruary 8, 2005. The House of Representatives approved the bill
on second and third reading on February 28, 2005.

Meanwhile, the Senate Committee on Ways and Means
approved Senate Bill No. 1950
[4]
on March 7, 2005, in substitution of
Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House
Bill Nos. 3555 and 3705. Senator Ralph G. Recto sponsored Senate
Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both
sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N.
Pangilinan. The President certified the bill on March 11, 2005, and was
approved by the Senate on second and third reading on April 13, 2005.

On the same date, April 13, 2005, the Senate agreed to the request
of the House of Representatives for a committee conference on the
disagreeing provisions of the proposed bills.

Before long, the Conference Committee on the Disagreeing
Provisions of House Bill No. 3555, House Bill No. 3705, and Senate Bill
No. 1950, after having met and discussed in full free and conference,
recommended the approval of its report, which the Senate did on May
10, 2005, and with the House of Representatives agreeing thereto the
next day, May 11, 2005.

On May 23, 2005, the enrolled copy of the consolidated House and
Senate version was transmitted to the President, who signed the same
into law on May 24, 2005. Thus, came R.A. No. 9337.

July 1, 2005 is the effectivity date of R.A. No. 9337.
[5]
When said
date came, the Court issued a temporary restraining order, effective
immediately and continuing until further orders, enjoining respondents
from enforcing and implementing the law.

Oral arguments were held on July 14, 2005. Significantly, during
the hearing, the Court speaking through Mr. Justice Artemio V.
Panganiban, voiced the rationale for its issuance of the temporary
restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the
details of your presentation, let me just tell
you a little background. You know when
the law took effect on July 1, 2005, the
Court issued a TRO at about 5 oclock in the
afternoon. But before that, there was a lot of
complaints aired on television and on radio.
Some people in a gas station were
complaining that the gas prices went up by
10%. Some people were complaining that
their electric bill will go up by 10%. Other
times people riding in domestic air carrier
were complaining that the prices that theyll
have to pay would have to go up by 10%.
While all that was being aired, per your
presentation and per our own understanding
of the law, thats not true. Its not true that
the e-vat law necessarily increased prices by
10% uniformly isnt it?

ATTY. BANIQUED : No, Your Honor.

J. PANGANIBAN : It is not?

ATTY. BANIQUED : Its not, because, Your Honor,
there is an Executive Order that granted the
Petroleum companies some subsidy . . .
interrupted

J. PANGANIBAN : Thats correct . . .

ATTY. BANIQUED : . . . and therefore that was
meant to temper the impact . . . interrupted

J. PANGANIBAN : . . . mitigating measures . . .

ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : As a matter of fact a part of
the mitigating measures would be the
elimination of the Excise Tax and the import
duties. That is why, it is not correct to say
that the VAT as to petroleum dealers
increased prices by 10%.


J. PANGANIBAN : And therefore, there is no
justification for increasing the retail price by
10% to cover the E-Vat tax. If you consider
the excise tax and the import duties, the Net
Tax would probably be in the neighborhood
of 7%? We are not going into exact figures
I am just trying to deliver a point that
different industries, different products,
different services are hit differently. So its
not correct to say that all prices must go up
by 10%.
ATTY. BANIQUED : Youre right, Your Honor.

J. PANGANIBAN : Now. For instance, Domestic
Airline companies, Mr. Counsel, are at
present imposed a Sales Tax of 3%. When
this E-Vat law took effect the Sales Tax was
also removed as a mitigating measure. So,
therefore, there is no justification to increase
the fares by 10% at best 7%, correct?

ATTY. BANIQUED : I guess so, Your Honor, yes.

J. PANGANIBAN : There are other products that
the people were complaining on that first
day, were being increased arbitrarily by
10%. And thats one reason among many
others this Court had to issue TRO because
of the confusion in the implementation.
Thats why we added as an issue in this
case, even if its tangentially taken up by the
pleadings of the parties, the confusion in the
implementation of the E-vat. Our people
were subjected to the mercy of that
confusion of an across the board increase of
10%, which you yourself now admit and I
think even the Government will admit is
incorrect. In some cases, it should be 3%
only, in some cases it should be 6%
depending on these mitigating measures and
the location and situation of each product, of
each service, of each company, isnt it?


J. PANGANIBAN : Alright. So thats one reason
why we had to issue a TRO pending the
clarification of all these and we wish the
government will take time to clarify all these
by means of a more detailed implementing
rules, in case the law is upheld by this
Court. . . .
[6]

The Court also directed the parties to file their respective
Memoranda.

G.R. No. 168056

Before R.A. No. 9337 took effect, petitioners ABAKADA
GURO Party List, et al., filed a petition for prohibition on May 27,
2005. They question the constitutionality of Sections 4, 5 and 6 of R.A.
No. 9337, amending Sections 106, 107 and 108, respectively, of the
National Internal Revenue Code (NIRC). Section 4 imposes a 10%
VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of
services and use or lease of properties. These questioned provisions
contain a uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to
12%, effective January 1, 2006, after any of the following conditions
have been satisfied, to wit:

. . . That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%), after any
of the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP
of the previous year exceeds one and one-half percent (1
%).

Petitioners argue that the law is unconstitutional, as it constitutes
abandonment by Congress of its exclusive authority to fix the rate of
taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution.

G.R. No. 168207

On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a
petition for certiorari likewise assailing the constitutionality of Sections
4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the
President to increase the VAT rate to 12%, on the ground that it amounts
to an undue delegation of legislative power, petitioners also contend that
the increase in the VAT rate to 12% contingent on any of the two
conditions being satisfied violates the due process clause embodied in
Article III, Section 1 of the Constitution, as it imposes an unfair and
additional tax burden on the people, in that: (1) the 12% increase is
ambiguous because it does not state if the rate would be returned to the
original 10% if the conditions are no longer satisfied; (2) the rate is
unfair and unreasonable, as the people are unsure of the applicable VAT
rate from year to year; and (3) the increase in the VAT rate, which is
supposed to be an incentive to the President to raise the VAT collection
to at least 2
4
/
5
of the GDP of the previous year, should only be based on
fiscal adequacy.

Petitioners further claim that the inclusion of a stand-by
authority granted to the President by the Bicameral Conference
Committee is a violation of the no-amendment rule upon last reading
of a bill laid down in Article VI, Section 26(2) of the Constitution.

G.R. No. 168461

Thereafter, a petition for prohibition was filed on June 29, 2005, by
the Association of Pilipinas Shell Dealers, Inc., et al., assailing the
following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC,
requiring that the input tax on depreciable goods shall
be amortized over a 60-month period, if the acquisition,
excluding the VAT components, exceeds One Million
Pesos (P1, 000,000.00);

2) Section 8, amending Section 110 (B) of the NIRC,
imposing a 70% limit on the amount of input tax to be
credited against the output tax; and

3) Section 12, amending Section 114 (c) of the NIRC,
authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including
GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to
10% VAT under Sections 106 (sale of goods and
properties) and 108 (sale of services and use or lease of
properties) of the NIRC.

Petitioners contend that these provisions are unconstitutional for
being arbitrary, oppressive, excessive, and confiscatory.

Petitioners argument is premised on the constitutional right of
non-deprivation of life, liberty or property without due process of law
under Article III, Section 1 of the Constitution. According to
petitioners, the contested sections impose limitations on the amount of
input tax that may be claimed. Petitioners also argue that the input tax
partakes the nature of a property that may not be confiscated,
appropriated, or limited without due process of law. Petitioners further
contend that like any other property or property right, the input tax credit
may be transferred or disposed of, and that by limiting the same, the
government gets to tax a profit or value-added even if there is no profit
or value-added.

Petitioners also believe that these provisions violate the
constitutional guarantee of equal protection of the law under Article III,
Section 1 of the Constitution, as the limitation on the creditable input tax
if: (1) the entity has a high ratio of input tax; or (2) invests in capital
equipment; or (3) has several transactions with the government, is not
based on real and substantial differences to meet a valid classification.

Lastly, petitioners contend that the 70% limit is anything but
progressive, violative of Article VI, Section 28(1) of the Constitution,
and that it is the smaller businesses with higher input tax to output tax
ratio that will suffer the consequences thereof for it wipes out whatever
meager margins the petitioners make.

G.R. No. 168463

Several members of the House of Representatives led by Rep.
Francis Joseph G. Escudero filed this petition for certiorari on June 30,
2005. They question the constitutionality of R.A. No. 9337 on the
following grounds:

1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an
undue delegation of legislative power, in violation of
Article VI, Section 28(2) of the Constitution;

2) The Bicameral Conference Committee acted without
jurisdiction in deleting the no pass on provisions
present in Senate Bill No. 1950 and House Bill No.
3705; and

3) Insertion by the Bicameral Conference Committee of
Sections 27, 28, 34, 116, 117, 119, 121, 125,
[7]
148,
151, 236, 237 and 288, which were present in Senate
Bill No. 1950, violates Article VI, Section 24(1) of the
Constitution, which provides that all appropriation,
revenue or tariff bills shall originate exclusively in the
House of Representatives

G.R. No. 168730

On the eleventh hour, Governor Enrique T. Garcia filed a petition
for certiorari and prohibition on July 20, 2005, alleging
unconstitutionality of the law on the ground that the limitation on the
creditable input tax in effect allows VAT-registered establishments to
retain a portion of the taxes they collect, thus violating the principle that
tax collection and revenue should be solely allocated for public purposes
and expenditures. Petitioner Garcia further claims that allowing these
establishments to pass on the tax to the consumers is inequitable, in
violation of Article VI, Section 28(1) of the Constitution.

RESPONDENTS COMMENT

The Office of the Solicitor General (OSG) filed a Comment in
behalf of respondents. Preliminarily, respondents contend that R.A. No.
9337 enjoys the presumption of constitutionality and petitioners failed to
cast doubt on its validity.

Relying on the case of Tolentino vs. Secretary of Finance, 235
SCRA
630 (1994), respondents argue that the procedural issues raised by
petitioners, i.e., legality of the bicameral proceedings, exclusive
origination of revenue measures and the power of the Senate
concomitant thereto, have already been settled. With regard to the issue
of undue delegation of legislative power to the President, respondents
contend that the law is complete and leaves no discretion to the
President but to increase the rate to 12% once any of the two conditions
provided therein arise.

Respondents also refute petitioners argument that the increase to
12%, as well as the 70% limitation on the creditable input tax, the 60-
month amortization on the purchase or importation of capital goods
exceeding P1,000,000.00, and the 5% final withholding tax by
government agencies, is arbitrary, oppressive, and confiscatory, and that
it violates the constitutional principle on progressive taxation, among
others.

Finally, respondents manifest that R.A. No. 9337 is the anchor of
the governments fiscal reform agenda. A reform in the value-added
system of taxation is the core revenue measure that will tilt the balance
towards a sustainable macroeconomic environment necessary for
economic growth.

ISSUES

The Court defined the issues, as follows:

PROCEDURAL ISSUE

Whether R.A. No. 9337 violates the following
provisions of the Constitution:

a. Article VI, Section 24, and
b. Article VI, Section 26(2)

SUBSTANTIVE ISSUES

1. Whether Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:

a. Article VI, Section 28(1), and

2. Whether Section 8 of R.A. No. 9337, amending
Sections 110(A)(2) and 110(B) of the NIRC; and Section 12
of R.A. No. 9337, amending Section 114(C) of the NIRC,
violate the following provisions of the Constitution:

b. Article III, Section 1

RULING OF THE COURT

As a prelude, the Court deems it apt to restate the general
principles and concepts of value-added tax (VAT), as the confusion and
inevitably, litigation, breeds from a fallacious notion of its nature.

The VAT is a tax on spending or consumption. It is levied on the
sale, barter, exchange or lease of goods or properties and services.
[8]

Being an indirect tax on expenditure, the seller of goods or services may
pass on the amount of tax paid to the buyer,
[9]
with the seller acting
merely as a tax collector.
[10]
The burden of VAT is intended to fall on
the immediate buyers and ultimately, the end-consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly
liable on the transaction or business it engages in, without transferring
the burden to someone else.
[11]
Examples are individual and corporate
income taxes, transfer taxes, and residence taxes.
[12]

In the Philippines, the value-added system of sales taxation has
long been in existence, albeit in a different mode. Prior to 1978, the
system was a single-stage tax computed under the cost deduction
method and was payable only by the original sellers. The single-stage
system was subsequently modified, and a mixture of the cost deduction
method and tax credit method was used to determine the value-added
tax payable.
[13]
Under the tax credit method, an entity can credit
against or subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.
[14]

It was only in 1987, when President Corazon C. Aquino issued
Executive Order No. 273, that the VAT system was rationalized by
imposing a multi-stage tax rate of 0% or 10% on all sales using the tax
credit method.
[15]

E.O. No. 273 was followed by R.A. No. 7716 or the Expanded
VAT Law,
[16]
R.A. No. 8241 or the Improved VAT Law,
[17]
R.A. No.
8424 or the Tax Reform Act of 1997,
[18]
and finally, the presently
beleaguered R.A. No. 9337, also referred to by respondents as the VAT
Reform Act.

The Court will now discuss the issues in logical sequence.

PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the
Constitution:

a. Article VI, Section 24, and

A. The Bicameral Conference Committee

Petitioners Escudero, et al., and Pimentel, et al., allege that the
Bicameral Conference Committee exceeded its authority by:

1) Inserting the stand-by authority in favor of the
President in Sections 4, 5, and 6 of R.A. No. 9337;

2) Deleting entirely the no pass-on provisions found in
both the House and Senate bills;

3) Inserting the provision imposing a 70% limit on the
amount of input tax to be credited against the output tax; and

4) Including the amendments introduced only by Senate
Bill No. 1950 regarding other kinds of taxes in addition to the
value-added tax.

Petitioners now beseech the Court to define the powers of the
Bicameral Conference Committee.

It should be borne in mind that the power of internal regulation and
discipline are intrinsic in any legislative body for, as unerringly
elucidated by Justice Story, [i]f the power did not exist, it would be
utterly impracticable to transact the business of the nation, either at
all, or at least with decency, deliberation, and order.
[19]
Thus,
Article VI, Section 16 (3) of the Constitution provides that each House
may determine the rules of its proceedings. Pursuant to this inherent
constitutional power to promulgate and implement its own rules of
procedure, the respective rules of each house of Congress provided for
the creation of a Bicameral Conference Committee.

Thus, Rule XIV, Sections 88 and 89 of the Rules of House of
Representatives provides as follows:

Sec. 88. Conference Committee. In the event that the
House does not agree with the Senate on the amendment to
any bill or joint resolution, the differences may be settled by
the conference committees of both chambers.

In resolving the differences with the Senate, the House
panel shall, as much as possible, adhere to and support the
House Bill. If the differences with the Senate are so
substantial that they materially impair the House Bill, the
panel shall report such fact to the House for the latters
appropriate action.

Sec. 89. Conference Committee Reports. . . . Each
report shall contain a detailed, sufficiently explicit statement
of the changes in or amendments to the subject measure.

. . .

The Chairman of the House panel may be interpellated
on the Conference Committee Report prior to the voting
thereon. The House shall vote on the Conference Committee
Report in the same manner and procedure as it votes on a bill
on third and final reading.

Rule XII, Section 35 of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree
with the House of Representatives on the provision of any
bill or joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet
within ten (10) days after their composition. The President
shall designate the members of the Senate Panel in the
conference committee with the approval of the Senate.

Each Conference Committee Report shall contain a
detailed and sufficiently explicit statement of the changes in,
or amendments to the subject measure, and shall be signed by
a majority of the members of each House panel, voting
separately.

A comparative presentation of the conflicting House
and Senate provisions and a reconciled version thereof with
the explanatory statement of the conference committee shall
be attached to the report.

. . .

The creation of such conference committee was apparently in
response to a problem, not addressed by any constitutional provision,
where the two houses of Congress find themselves in disagreement over
changes or amendments introduced by the other house in a legislative
bill. Given that one of the most basic powers of the legislative branch is
to formulate and implement its own rules of proceedings and to
discipline its members, may the Court then delve into the details of how
Congress complies with its internal rules or how it conducts its business
of passing legislation? Note that in the present petitions, the issue is not
whether provisions of the rules of both houses creating the bicameral
conference committee are unconstitutional, but whether the bicameral
conference committee has strictly complied with the rules of both
houses, thereby remaining within the jurisdiction conferred upon it
by Congress.

In the recent case of Farias vs. The Executive Secretary,
[20]
the
Court En Banc, unanimously reiterated and emphasized its adherence to
the enrolled bill doctrine, thus, declining therein petitioners plea for
the Court to go behind the enrolled copy of the bill. Assailed in said
case was Congresss creation of two sets of bicameral conference
committees, the lack of records of said committees proceedings, the
alleged violation of said committees of the rules of both houses, and the
disappearance or deletion of one of the provisions in the compromise bill
submitted by the bicameral conference committee. It was argued that
such irregularities in the passage of the law nullified R.A. No. 9006, or
the Fair Election Act.

Striking down such argument, the Court held thus:

Under the enrolled bill doctrine, the signing of a bill
by the Speaker of the House and the Senate President and the
certification of the Secretaries of both Houses of Congress
that it was passed are conclusive of its due enactment. A
review of cases reveals the Courts consistent adherence to
the rule. The Court finds no reason to deviate from the
salutary rule in this case where the irregularities alleged
by the petitioners mostly involved the internal rules of
Congress, e.g., creation of the 2
nd
or 3
rd
Bicameral
Conference Committee by the House. This Court is not
the proper forum for the enforcement of these internal
rules of Congress, whether House or Senate.
Parliamentary rules are merely procedural and with their
observance the courts have no concern. Whatever doubts
there may be as to the formal validity of Rep. Act No.
9006 must be resolved in its favor. The Court reiterates its
ruling in Arroyo vs. De Venecia, viz.:

But the cases, both here and abroad, in
varying forms of expression, all deny to the
courts the power to inquire into allegations
that, in enacting a law, a House of Congress
failed to comply with its own rules, in the
absence of showing that there was a violation
of a constitutional provision or the rights of
private individuals. In Osmea v. Pendatun, it
was held: At any rate, courts have declared that
the rules adopted by deliberative bodies are
subject to revocation, modification or waiver at
the pleasure of the body adopting them. And it
has been said that Parliamentary rules are
merely procedural, and with their observance,
the courts have no concern. They may be
waived or disregarded by the legislative body.
Consequently, mere failure to conform to
parliamentary usage will not invalidate the
action (taken by a deliberative body) when the
requisite number of members have agreed to a
particular measure.
[21]
(Emphasis supplied)

The foregoing declaration is exactly in point with the present
cases, where petitioners allege irregularities committed by the
conference committee in introducing changes or deleting provisions in
the House and Senate bills. Akin to the Farias case,
[22]
the present
petitions also raise an issue regarding the actions taken by the
conference committee on matters regarding Congress compliance with
its own internal rules. As stated earlier, one of the most basic and
inherent power of the legislature is the power to formulate rules for its
proceedings and the discipline of its members. Congress is the best
judge of how it should conduct its own business expeditiously and in
the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its
conference committee if it believes that said members violated any of its
rules of proceedings. Even the expanded jurisdiction of this Court
cannot apply to questions regarding only the internal operation of
Congress, thus, the Court is wont to deny a review of the internal
proceedings of a co-equal branch of government.

Moreover, as far back as 1994 or more than ten years ago, in the
case of Tolentino vs. Secretary of Finance,
[23]
the Court already made
the pronouncement that [i]f a change is desired in the practice [of the
Bicameral Conference Committee] it must be sought in Congress
since this question is not covered by any constitutional provision but
is only an internal rule of each house.
[24]
To date, Congress has not
seen it fit to make such changes adverted to by the Court. It seems,
therefore, that Congress finds the practices of the bicameral conference
committee to be very useful for purposes of prompt and efficient
legislative action.

Nevertheless, just to put minds at ease that no blatant irregularities
tainted the proceedings of the bicameral conference committees, the
Court deems it necessary to dwell on the issue. The Court observes that
there was a necessity for a conference committee because a comparison
of the provisions of House Bill Nos. 3555 and 3705 on one hand, and
Senate Bill No. 1950 on the other, reveals that there were indeed
disagreements. As pointed out in the petitions, said disagreements were
as follows:

House Bill No.
3555

House Bill No.3705

Senate Bill No. 1950

With regard to Stand-By Authority in favor of President

Provides for 12%
VAT on every sale
of goods or
properties
Provides for 12%
VAT in general on
sales of goods or
properties and
Provides for a single
rate of 10% VAT on
sale of goods or
properties (amending
(amending Sec.
106 of NIRC);
12% VAT on
importation of
goods (amending
Sec. 107 of NIRC);
and 12% VAT on
sale of services
and use or lease of
properties
(amending Sec.
108 of NIRC)
reduced rates for sale
of certain locally
manufactured goods
and petroleum
products and raw
materials to be used
in the manufacture
thereof (amending
Sec. 106 of NIRC);
12% VAT on
importation of goods
and reduced rates for
certain imported
products including
petroleum products
(amending Sec. 107
of NIRC); and 12%
VAT on sale of
services and use or
lease of properties
and a reduced rate for
certain services
including power
generation (amending
Sec. 108 of NIRC)
Sec. 106 of NIRC),
10% VAT on sale of
services including sale
of electricity by
generation companies,
transmission and
distribution
companies, and use or
lease of properties
(amending Sec. 108 of
NIRC)

With regard to the no pass-on provision

No similar
provision
Provides that the
VAT imposed on
power generation and
on the sale of
Provides that the VAT
imposed on sales of
electricity by
generation companies
petroleum products
shall be absorbed by
generation companies
or sellers,
respectively, and shall
not be passed on to
consumers
and services of
transmission
companies and
distribution
companies, as well as
those of franchise
grantees of electric
utilities shall not apply
to residential
end-users. VAT shall
be absorbed by
generation,
transmission, and
distribution
companies.
With regard to 70% limit on input tax credit

Provides that the
input tax credit for
capital goods on
which a VAT has
been paid shall be
equally distributed
over 5 years or the
depreciable life of
such capital goods;
the input tax credit
for goods and
services other than
capital goods shall
not exceed 5% of
the total amount of
such goods and
services; and for
No similar provision Provides that the input
tax credit for capital
goods on which a
VAT has been paid
shall be equally
distributed over 5
years or the
depreciable life of
such capital goods; the
input tax credit for
goods and services
other than capital
goods shall not exceed
90% of the output
VAT.
persons engaged in
retail trading of
goods, the
allowable input tax
credit shall not
exceed 11% of the
total amount of
goods purchased.

With regard to amendments to be made to NI RC provisions
regarding income and excise taxes

No similar
provision
No similar provision Provided for
amendments to several
NIRC provisions
regarding corporate
income, percentage,
franchise and excise
taxes

The disagreements between the provisions in the House bills and
the Senate bill were with regard to (1) what rate of VAT is to be
imposed; (2) whether only the VAT imposed on electricity generation,
transmission and distribution companies should not be passed on to
consumers, as proposed in the Senate bill, or both the VAT imposed on
electricity generation, transmission and distribution companies and the
VAT imposed on sale of petroleum products should not be passed on to
consumers, as proposed in the House bill; (3) in what manner input tax
credits should be limited; (4) and whether the NIRC provisions on
corporate income taxes, percentage, franchise and excise taxes should be
amended.

There being differences and/or disagreements on the foregoing
provisions of the House and Senate bills, the Bicameral Conference
Committee was mandated by the rules of both houses of Congress to act
on the same by settling said differences and/or disagreements. The
Bicameral Conference Committee acted on the disagreeing provisions
by making the following changes:

1. With regard to the disagreement on the rate of VAT to be
imposed, it would appear from the Conference Committee Report that
the Bicameral Conference Committee tried to bridge the gap in the
difference between the 10% VAT rate proposed by the Senate, and the
various rates with 12% as the highest VAT rate proposed by the House,
by striking a compromise whereby the present 10% VAT rate would be
retained until certain conditions arise, i.e., the value-added tax collection
as a percentage of gross domestic product (GDP) of the previous year
exceeds 2 4/5%, or National Government deficit as a percentage of GDP
of the previous year exceeds 1%, when the President, upon
recommendation of the Secretary of Finance shall raise the rate of VAT
to 12% effective January 1, 2006.

2. With regard to the disagreement on whether only the VAT
imposed on electricity generation, transmission and distribution
companies should not be passed on to consumers or whether both the
VAT imposed on electricity generation, transmission and distribution
companies and the VAT imposed on sale of petroleum products may be
passed on to consumers, the Bicameral Conference Committee chose to
settle such disagreement by altogether deleting from its Report any no
pass-on provision.

3. With regard to the disagreement on whether input tax credits
should be limited or not, the Bicameral Conference Committee decided
to adopt the position of the House by putting a limitation on the amount
of input tax that may be credited against the output tax, although it
crafted its own language as to the amount of the limitation on input tax
credits and the manner of computing the same by providing thus:

(A) Creditable Input Tax. . . .

. . .

Provided, The input tax on goods
purchased or imported in a calendar month for use
in trade or business for which deduction for
depreciation is allowed under this Code, shall be
spread evenly over the month of acquisition and
the fifty-nine (59) succeeding months if the
aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds
one million Pesos (P1,000,000.00): PROVIDED,
however, that if the estimated useful life of the
capital good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall
be spread over such shorter period: . . .

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

4. With regard to the amendments to other provisions of the
NIRC on corporate income tax, franchise, percentage and excise taxes,
the conference committee decided to include such amendments and
basically adopted the provisions found in Senate Bill No. 1950, with
some changes as to the rate of the tax to be imposed.

Under the provisions of both the Rules of the House of
Representatives and Senate Rules, the Bicameral Conference Committee
is mandated to settle the differences between the disagreeing provisions
in the House bill and the Senate bill. The term settle is synonymous to
reconcile and harmonize.
[25]
To reconcile or harmonize disagreeing
provisions, the Bicameral Conference Committee may then (a) adopt the
specific provisions of either the House bill or Senate bill, (b) decide that
neither provisions in the House bill or the provisions in the Senate bill
would
be carried into the final form of the bill, and/or (c) try to arrive at a
compromise between the disagreeing provisions.

In the present case, the changes introduced by the Bicameral
Conference Committee on disagreeing provisions were meant only to
reconcile and harmonize the disagreeing provisions for it did not inject
any idea or intent that is wholly foreign to the subject embraced by the
original provisions.

The so-called stand-by authority in favor of the President, whereby
the rate of 10% VAT wanted by the Senate is retained until such time
that certain conditions arise when the 12% VAT wanted by the House
shall be imposed, appears to be a compromise to try to bridge the
difference in the rate of VAT proposed by the two houses of Congress.
Nevertheless, such compromise is still totally within the subject of what
rate of VAT should be imposed on taxpayers.

The no pass-on provision was deleted altogether. In the transcripts
of the proceedings of the Bicameral Conference Committee held on May
10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the
reason for deleting the no pass-on provision in this wise:

. . . the thinking was just to keep the VAT law or the
VAT bill simple. And we were thinking that no sector
should be a beneficiary of legislative grace, neither should
any sector be discriminated on. The VAT is an indirect
tax. It is a pass on-tax. And lets keep it plain and simple.
Lets not confuse the bill and put a no pass-on provision.
Two-thirds of the world have a VAT system and in this two-
thirds of the globe, I have yet to see a VAT with a no pass-
though provision. So, the thinking of the Senate is basically
simple, lets keep the VAT simple.
[26]
(Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no
pass-on provision never really enjoyed the support of either House.
[27]

With regard to the amount of input tax to be credited against output
tax, the Bicameral Conference Committee came to a compromise on the
percentage rate of the limitation or cap on such input tax credit, but
again, the change introduced by the Bicameral Conference Committee
was totally within the intent of both houses to put a cap on input
tax that may be
credited against the output tax. From the inception of the subject
revenue bill in the House of Representatives, one of the major objectives
was to plug a glaring loophole in the tax policy and administration by
creating vital restrictions on the claiming of input VAT tax credits . . .
and [b]y introducing limitations on the claiming of tax credit, we are
capping a major leakage that has placed our collection efforts at an
apparent disadvantage.
[28]

As to the amendments to NIRC provisions on taxes other than the
value-added tax proposed in Senate Bill No. 1950, since said provisions
were among those referred to it, the conference committee had to act on
the same and it basically adopted the version of the Senate.

Thus, all the changes or modifications made by the Bicameral
Conference Committee were germane to subjects of the provisions
referred
to it for reconciliation. Such being the case, the Court does not see any
grave abuse of discretion amounting to lack or excess of jurisdiction
committed by the Bicameral Conference Committee. In the earlier
cases of Philippine Judges Association vs. Prado
[29]
and Tolentino vs.
Secretary of Finance,
[30]
the Court recognized the long-standing
legislative practice of giving said conference committee ample
latitude for compromising differences between the Senate and the
House. Thus, in the Tolentinocase, it was held that:

. . . it is within the power of a conference committee to
include in its report an entirely new provision that is not
found either in the House bill or in the Senate bill. If the
committee can propose an amendment consisting of one or
two provisions, there is no reason why it cannot propose
several provisions, collectively considered as an amendment
in the nature of a substitute, so long as such amendment is
germane to the subject of the bills before the committee.
After all, its report was not final but needed the approval of
both houses of Congress to become valid as an act of the
legislative department. The charge that in this case the
Conference Committee acted as a third legislative
chamber is thus without any basis.
[31]
(Emphasis supplied)

B. R.A. No. 9337 Does Not Violate Article VI,
Section 26(2) of the Constitution on the
No-Amendment Rule

Article VI, Sec. 26 (2) of the Constitution, states:

No bill passed by either House shall become a law
unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed
to its Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment
to meet a public calamity or emergency. Upon the last
reading of a bill, no amendment thereto shall be allowed, and
the vote thereon shall be taken immediately thereafter, and
the yeas and nays entered in the Journal.

Petitioners argument that the practice where a bicameral
conference committee is allowed to add or delete provisions in the
House bill and the Senate bill after these had passed three readings is in
effect a circumvention of the no amendment rule (Sec. 26 (2), Art. VI
of the 1987 Constitution), fails to convince the Court to deviate from its
ruling in the Tolentino case that:

Nor is there any reason for requiring that the
Committees Report in these cases must have undergone
three readings in each of the two houses. If that be the case,
there would be no end to negotiation since each house may
seek modification of the compromise bill. . . .

Art. VI. 26 (2) must, therefore, be construed as
referring only to bills introduced for the first time in
either house of Congress, not to the conference committee
report.
[32]
(Emphasis supplied)

The Court reiterates here that the no-amendment rule refers
only to the procedure to be followed by each house of Congress with
regard to bills initiated in each of said respective houses, before said
bill is transmitted to the other house for its concurrence or
amendment. Verily, to construe said provision in a way as to proscribe
any further changes to a bill after one house has voted on it would lead
to absurdity as this would mean that the other house of Congress would
be deprived of its constitutional power to amend or introduce changes to
said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken
to mean that the introduction by the Bicameral Conference Committee
of amendments and modifications to disagreeing provisions in bills that
have been acted upon by both houses of Congress is prohibited.

C. R.A. No. 9337 Does Not Violate Article VI,
Section 24 of the Constitution on Exclusive
Origination of Revenue Bills

Coming to the issue of the validity of the amendments made
regarding the NIRC provisions on corporate income taxes and
percentage, excise taxes. Petitioners refer to the following provisions, to
wit:

Section
27

Rates of Income Tax on
Domestic Corporation
28(A)(1) Tax on Resident Foreign
Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from
VAT
117 Percentage Tax on domestic
carriers and keepers of Garage
119 Tax on franchises
121 Tax on banks and Non-Bank
Financial Intermediaries
148 Excise Tax on manufactured oils
and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or
commercial invoices
288 Disposition of Incremental
Revenue

Petitioners claim that the amendments to these provisions of the
NIRC did not at all originate from the House. They aver that House Bill
No. 3555 proposed amendments only regarding Sections 106, 107, 108,
110 and 114 of the NIRC, while House Bill No. 3705 proposed
amendments only to Sections 106, 107,108, 109, 110 and 111 of the
NIRC; thus, the other sections of the NIRC which the Senate amended
but which amendments were not found in the House bills are not
intended to be amended by the House of Representatives. Hence, they
argue that since the proposed amendments did not originate from the
House, such amendments are a violation of Article VI, Section 24 of the
Constitution.

The argument does not hold water.

Article VI, Section 24 of the Constitution reads:

Sec. 24. All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the
House of Representatives but the Senate may propose or

In the present cases, petitioners admit that it was indeed House Bill
Nos. 3555 and 3705 that initiated the move for amending provisions of
the NIRC dealing mainly with the value-added tax. Upon transmittal of
said House bills to the Senate, the Senate came out with Senate Bill No.
1950 proposing amendments not only to NIRC provisions on the value-
added tax but also amendments to NIRC provisions on other kinds of
taxes. Is the introduction by the Senate of provisions not dealing
directly with the value- added tax, which is the only kind of tax being
amended in the House bills, still within the purview of the constitutional
provision authorizing the Senate to propose or concur with amendments
to a revenue bill that originated from the House?

The foregoing question had been squarely answered in
the Tolentino case, wherein the Court held, thus:

. . . To begin with, it is not the law but the revenue
bill which is required by the Constitution to originate
exclusively in the House of Representatives. It is important
to emphasize this, because a bill originating in the House
may undergo such extensive changes in the Senate that the
result may be a rewriting of the whole. . . . At this point,
what is important to note is that, as a result of the Senate
action, a distinct bill may be produced. To insist that a
revenue statute and not only the bill which initiated the
legislative process culminating in the enactment of the
law must substantially be the same as the House bill
would be to deny the Senates power not only to concur
with amendments but also to propose amendments. It
would be to violate the coequality of legislative power of the
two houses of Congress and in fact make the House superior
to the Senate.

Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version even
with respect to bills which are required by the
Constitution to originate in the House.
. . .

Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of the public debt, private bills and
bills of local application must come from the House of
Representatives on the theory that, elected as they are from
the districts, the members of the House can be expected to
be more sensitive to the local needs and problems. On the
other hand, the senators, who are elected at large, are
expected to approach the same problems from the
national perspective. Both views are thereby made to
bear on the enactment of such laws.
[33]
(Emphasis
supplied)

Since there is no question that the revenue bill exclusively
originated in the House of Representatives, the Senate was
acting within its
constitutional power to introduce amendments to the House bill when it
included provisions in Senate Bill No. 1950 amending corporate income
taxes, percentage, excise and franchise taxes. Verily, Article VI, Section
24 of the Constitution does not contain any prohibition or limitation on
the extent of the amendments that may be introduced by the Senate to
the House revenue bill.

Furthermore, the amendments introduced by the Senate to the
NIRC provisions that had not been touched in the House bills are still in
furtherance of the intent of the House in initiating the subject revenue
bills. The Explanatory Note of House Bill No. 1468, the very first
House bill introduced on the floor, which was later substituted by House
Bill No. 3555, stated:

One of the challenges faced by the present
administration is the urgent and daunting task of solving the
countrys serious financial problems. To do this, government
expenditures must be strictly monitored and controlled and
revenues must be significantly increased. This may be easier
said than done, but our fiscal authorities are still optimistic
the government will be operating on a balanced budget by the
year 2009. In fact, several measures that will result to
significant expenditure savings have been identified by the
administration. It is supported with a credible package of
revenue measures that include measures to improve tax
administration and control the leakages in revenues from
income taxes and the value-added tax (VAT). (Emphasis
supplied)

Rep. Eric D. Singson, in his sponsorship speech for House Bill No.
3555, declared that:

In the budget message of our President in the year
2005, she reiterated that we all acknowledged that on top of
our agenda must be the restoration of the health of our fiscal
system.

In order to considerably lower the consolidated public
sector deficit and eventually achieve a balanced budget by
the year 2009, we need to seize windows of opportunities
which might seem poignant in the beginning, but in the
long run prove effective and beneficial to the overall
status of our economy. One such opportunity is a review
of existing tax rates, evaluating the relevance given our
present conditions.
[34]
(Emphasis supplied)

Notably therefore, the main purpose of the bills emanating from
the House of Representatives is to bring in sizeable revenues for the
government
to supplement our countrys serious financial problems, and improve tax
administration and control of the leakages in revenues from income
taxes and value-added taxes. As these house bills were transmitted to
the Senate, the latter, approaching the measures from the point of
national perspective, can introduce amendments within the purposes of
those bills. It can provide for ways that would soften the impact of the
VAT measure on the consumer, i.e., by distributing the burden across all
sectors instead of putting it entirely on the shoulders of the consumers.
The sponsorship speech of Sen. Ralph Recto on why the provisions on
income tax on corporation were included is worth quoting:

All in all, the proposal of the Senate Committee on
Ways and Means will raise P64.3 billion in additional
revenues annually even while by mitigating prices of power,
services and petroleum products.

However, not all of this will be wrung out of VAT. In
fact, only P48.7 billion amount is from the VAT on twelve
goods and services. The rest of the tab P10.5 billion- will
be picked by corporations.

What we therefore prescribe is a burden sharing
between corporate Philippines and the consumer. Why
should the latter bear all the pain? Why should the fiscal
salvation be only on the burden of the consumer?

The corporate worlds equity is in form of the increase
in the corporate income tax from 32 to 35 percent, but up to
2008 only. This will raise P10.5 billion a year. After that, the
rate will slide back, not to its old rate of 32 percent, but two
notches lower, to 30 percent.

Clearly, we are telling those with the capacity to pay,
corporations, to bear with this emergency provision that will
be in effect for 1,200 days, while we put our fiscal house in
order. This fiscal medicine will have an expiry date.

For their assistance, a reward of tax reduction awaits
them. We intend to keep the length of their sacrifice brief.
We would like to assure them that not because there is a light
at the end of the tunnel, this government will keep on making
the tunnel long.

The responsibility will not rest solely on the weary
shoulders of the small man. Big business will be there to
share the burden.
[35]

As the Court has said, the Senate can propose amendments and in
fact, the amendments made on provisions in the tax on income of
corporations are germane to the purpose of the house bills which is to
raise revenues for the government.

Likewise, the Court finds the sections referring to other percentage
and excise taxes germane to the reforms to the VAT system, as these
sections would cushion the effects of VAT on consumers. Considering
that certain goods and services which were subject to percentage tax and
excise tax would no longer be VAT-exempt, the consumer would be
burdened more as they would be paying the VAT in addition to these
taxes. Thus, there is a need to amend these sections to soften the impact
of VAT. Again, in his sponsorship speech, Sen. Recto said:

However, for power plants that run on oil, we will
reduce to zero the present excise tax on bunker fuel, to lessen
the effect of a VAT on this product.

For electric utilities like Meralco, we will wipe out the
franchise tax in exchange for a VAT.

And in the case of petroleum, while we will levy the
VAT on oil products, so as not to destroy the VAT chain, we
will however bring down the excise tax on socially sensitive
products such as diesel, bunker, fuel and kerosene.

. . .

What do all these exercises point to? These are not
contortions of giving to the left hand what was taken from the
right. Rather, these sprang from our concern of softening the
impact of VAT, so that the people can cushion the blow of
higher prices they will have to pay as a result of VAT.
[36]

The other sections amended by the Senate pertained to matters of
tax administration which are necessary for the implementation of the
changes in the VAT system.

To reiterate, the sections introduced by the Senate are germane to
the subject matter and purposes of the house bills, which is to
supplement our countrys fiscal deficit, among others. Thus, the Senate
acted within its power to propose those amendments.

SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106,
107 and 108 of the NIRC, violate the following provisions of the
Constitution:

A. No Undue Delegation of Legislative
Power

Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al.,
and Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A.
No. 9337, amending Sections 106, 107 and 108, respectively, of the
NIRC giving the President the stand-by authority to raise the VAT rate
from 10% to 12% when a certain condition is met, constitutes undue
delegation of the legislative power to tax.

The assailed provisions read as follows:

SEC. 4. Sec. 106 of the same Code, as amended, is
hereby further amended to read as follows:

SEC. 106. Value-Added Tax on Sale of Goods or
Properties.

(A) Rate and Base of Tax. There shall be
levied, assessed and collected on every sale, barter
or exchange of goods or properties, a value-added
tax equivalent to ten percent (10%) of the gross
selling price or gross value in money of the goods
or properties sold, bartered or exchanged, such tax
to be paid by the seller or transferor: provided,
that the President, upon the recommendation
of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the
following conditions has been satisfied.

(i) value-added tax collection as a
percentage of Gross Domestic Product
(GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%) or

(ii) national government deficit as a
percentage of GDP of the previous year
exceeds one and one-half percent (1 %).

SEC. 5. Section 107 of the same Code, as amended, is

SEC. 107. Value-Added Tax on Importation of Goods.

(A) In General. There shall be levied,
assessed and collected on every importation of
goods a value-added tax equivalent to ten percent
(10%) based on the total value used by the Bureau
of Customs in determining tariff and customs
duties, plus customs duties, excise taxes, if any,
and other charges, such tax to be paid by the
importer prior to the release of such goods from
customs custody: Provided, That where the
customs duties are determined on the basis of the
quantity or volume of the goods, the value-added
tax shall be based on the landed cost plus excise
taxes, if any: provided, further, that the
President, upon the recommendation of the
Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to
twelve percent (12%) after any of the following
conditions has been satisfied.

exceeds one and one-half percent (1 %).

SEC. 6. Section 108 of the same Code, as amended, is

SEC. 108. Value-added Tax on Sale of Services
and Use or Lease of Properties

(A) Rate and Base of Tax. There shall be
levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts
derived from the sale or exchange of
services: provided, that the President, upon the
recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate
of value-added tax to twelve percent (12%),
after any of the following conditions has been
satisfied.

exceeds one and one-half percent (1
%). (Emphasis supplied)

Petitioners allege that the grant of the stand-by authority to the
President to increase the VAT rate is a virtual abdication by Congress of
its exclusive power to tax because such delegation is not within the
purview of Section 28 (2), Article VI of the Constitution, which
provides:

The Congress may, by law, authorize the President to
fix within specified limits, and may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and
other duties or imposts within the framework of the national
development program of the government.

They argue that the VAT is a tax levied on the sale, barter or
exchange of goods and properties as well as on the sale or exchange of
services, which cannot be included within the purview of tariffs under
the exempted delegation as the latter refers to customs duties, tolls or
tribute payable upon merchandise to the government and usually
imposed on goods or merchandise imported or exported.

Petitioners ABAKADA GURO Party List, et al., further contend
that delegating to the President the legislative power to tax is contrary to
republicanism. They insist that accountability, responsibility and
transparency should dictate the actions of Congress and they should not
pass to the President the decision to impose taxes. They also argue that
the law also effectively nullified the Presidents power of control, which
includes the authority to set aside and nullify the acts of her subordinates
like the Secretary of Finance, by mandating the fixing of the tax rate by
the President upon the recommendation of the Secretary of Finance.

Petitioners Pimentel, et al. aver that the President has ample
powers to cause, influence or create the conditions provided by the law
to bring about either or both the conditions precedent.

On the other hand, petitioners Escudero, et al. find bizarre and
revolting the situation that the imposition of the 12% rate would be
subject to the whim of the Secretary of Finance, an unelected bureaucrat,
contrary to the principle of no taxation without representation. They
submit that the Secretary of Finance is not mandated to give a favorable
recommendation and he may not even give his recommendation.
Moreover, they allege that no guiding standards are provided in the law
on what basis and as to how he will make his recommendation. They
claim, nonetheless, that any recommendation of the Secretary of Finance
can easily be brushed aside by the President since the former is a mere
alter ego of the latter, such that, ultimately, it is the President who
decides whether to impose the increased tax rate or not.

A brief discourse on the principle of non-delegation of powers is
instructive.

The principle of separation of powers ordains that each of the three
great branches of government has exclusive cognizance of and is
supreme in matters falling within its own constitutionally allocated
sphere.
[37]
A logical
corollary to the doctrine of separation of powers is the principle of non-
delegation of powers, as expressed in the Latin maxim: potestas
delegata non delegari potest which means what has been delegated,
cannot be delegated.
[38]
This doctrine is based on the ethical principle
that such as delegated power constitutes not only a right but a duty to be
performed by the delegate through the instrumentality of his own
judgment and not through the intervening mind of another.
[39]

With respect to the Legislature, Section 1 of Article VI of the
Constitution provides that the Legislative power shall be vested in the
Congress of the Philippines which shall consist of a Senate and a House
of Representatives. The powers which Congress is prohibited from
delegating are those which are strictly, or inherently and exclusively,
legislative. Purely legislative power, which can never be delegated, has
been described as the authority to make a complete law complete as
to the time when it shall take effect and as to whom it shall be
applicable and to determine the expediency of its enactment.
[40]

Thus, the rule is that in order that a court may be justified in holding a
statute unconstitutional as a delegation of legislative power, it must
appear that the power involved is purely legislative in nature that is,
one appertaining exclusively to the legislative department. It is the
nature of the power, and not the liability of its use or the manner of its
exercise, which determines the validity of its delegation.

Nonetheless, the general rule barring delegation of legislative
powers is subject to the following recognized limitations or exceptions:

(1) Delegation of tariff powers to the President under
Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President
under Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.

In every case of permissible delegation, there must be a showing
that the delegation itself is valid. It is valid only if the law (a) is
complete in itself, setting forth therein the policy to be executed, carried
out, or implemented by the delegate;
[41]
and (b) fixes a standard the
limits of which are sufficiently determinate and determinable to
which the delegate must conform in the performance of his
functions.
[42]
A sufficient standard is one which defines legislative
policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the
legislative command is to be effected.
[43]
Both tests are intended to
prevent a total transference of legislative authority to the delegate, who
is not allowed to step into the shoes of the legislature and exercise a
power essentially legislative.
[44]

In People vs. Vera,
[45]
the Court, through eminent Justice Jose P.
Laurel, expounded on the concept and extent of delegation of power in
this wise:

In testing whether a statute constitutes an undue
delegation of legislative power or not, it is usual to inquire
whether the statute was complete in all its terms and
provisions when it left the hands of the legislature so that
nothing was left to the judgment of any other appointee or
delegate of the legislature.

. . .

The true distinction, says Judge Ranney, is
between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and
conferring an authority or discretion as to its execution,
to be exercised under and in pursuance of the law. The
first cannot be done; to the latter no valid objection can
be made.

. . .

It is contended, however, that a legislative act may be
made to the effect as law after it leaves the hands of the
legislature. It is true that laws may be made effective on
certain contingencies, as by proclamation of the executive or
the adoption by the people of a particular community. In
Wayman vs. Southard, the Supreme Court of the United
States ruled that the legislature may delegate a power not
legislative which it may itself rightfully exercise. The power
to ascertain facts is such a power which may be delegated.
There is nothing essentially legislative in ascertaining the
existence of facts or conditions as the basis of the taking
into effect of a law. That is a mental process common to
all branches of the government. Notwithstanding the
apparent tendency, however, to relax the rule prohibiting
delegation of legislative authority on account of the
complexity arising from social and economic forces at work
in this modern industrial age, the orthodox pronouncement of
Judge Cooley in his work on Constitutional Limitations finds
restatement in Prof. Willoughby's treatise on the Constitution
of the United States in the following language speaking of
declaration of legislative power to administrative
agencies: The principle which permits the legislature to
provide that the administrative agent may determine
when the circumstances are such as require the
application of a law is defended upon the ground that at
the time this authority is granted, the rule of public
policy, which is the essence of the legislative act, is
determined by the legislature. In other words, the
legislature, as it is its duty to do, determines that, under
given circumstances, certain executive or administrative
action is to be taken, and that, under other circumstances,
different or no action at all is to be taken. What is thus
left to the administrative official is not the legislative
determination of what public policy demands, but simply
the ascertainment of what the facts of the case require to
be done according to the terms of the law by which he is
governed. The efficiency of an Act as a declaration of
legislative will must, of course, come from Congress, but
the ascertainment of the contingency upon which the Act
shall take effect may be left to such agencies as it may
designate. The legislature, then, may provide that a law
shall take effect upon the happening of future specified
contingencies leaving to some other person or body the
power to determine when the specified contingency has
arisen.(Emphasis supplied).
[46]

In Edu vs. Ericta,
[47]
the Court reiterated:

What cannot be delegated is the authority under the
Constitution to make laws and to alter and repeal them; the
test is the completeness of the statute in all its terms and
provisions when it leaves the hands of the legislature. To
determine whether or not there is an undue delegation of
legislative power, the inquiry must be directed to the scope
and definiteness of the measure enacted. The legislative does
not abdicate its functions when it describes what job must
be done, who is to do it, and what is the scope of his
authority. For a complex economy, that may be the only
way in which the legislative process can go forward. A
distinction has rightfully been made between delegation
of power to make the laws which necessarily involves a
discretion as to what it shall be, which constitutionally
may not be done, and delegation of authority or
discretion as to its execution to be exercised under and in
pursuance of the law, to which no valid objection can be
made. The Constitution is thus not to be regarded as denying
the legislature the necessary resources of flexibility and
practicability. (Emphasis supplied).
[48]

Clearly, the legislature may delegate to executive officers or bodies
the power to determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms, made
to depend, but the legislature must prescribe sufficient standards,
policies or limitations on their authority.
[49]
While the power to tax
cannot be delegated to executive agencies, details as to the enforcement
and administration of an exercise of such power may be left to them,
including the power to determine the existence of facts on which its
operation depends.
[50]

The rationale for this is that the preliminary ascertainment of facts
as basis for the enactment of legislation is not of itself a legislative
function, but is simply ancillary to legislation. Thus, the duty of
correlating information and making recommendations is the kind of
subsidiary activity which the legislature may perform through its
members, or which it may delegate to others to perform. Intelligent
legislation on the complicated problems of modern society is impossible
in the absence of accurate information on the part of the legislators, and
any reasonable method of securing such information is proper.
[51]
The
Constitution as a continuously operative charter of government does not
require that Congress find for itself
every fact upon which it desires to base legislative action or that it make
for itself detailed determinations which it has declared to be prerequisite
to application of legislative policy to particular facts and circumstances
impossible for Congress itself properly to investigate.
[52]

In the present case, the challenged section of R.A. No. 9337 is the
common proviso in Sections 4, 5 and 6 which reads as follows:

That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%), after any
of the following conditions has been satisfied:

(i) Value-added tax collection as a
percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth
percent (2 4/5%); or

(ii) National government deficit as a
percentage of GDP of the previous year exceeds
one and one-half percent (1 %).

The case before the Court is not a delegation of legislative power.
It is simply a delegation of ascertainment of facts upon which
enforcement and administration of the increase rate under the law is
contingent. The legislature has made the operation of the 12% rate
effective January 1, 2006, contingent upon a specified fact or condition.
It leaves the entire operation or non-operation of the 12% rate upon
factual matters outside of the control of the executive.

No discretion would be exercised by the President. Highlighting
the absence of discretion is the fact that the word shall is used in the
common proviso. The use of the word shall connotes a mandatory
order. Its use in a statute denotes an imperative obligation and is
inconsistent with the idea of discretion.
[53]
Where the law is clear and
unambiguous, it must be taken to mean exactly what it says, and courts
have no choice but to see to it that the mandate is obeyed.
[54]

Thus, it is the ministerial duty of the President to immediately
impose the 12% rate upon the existence of any of the conditions
specified by Congress. This is a duty which cannot be evaded by the
President. Inasmuch as the law specifically uses the word shall, the
exercise of discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the specified
conditions are present. The time of taking into effect of the 12% VAT
rate is based on the happening of a certain specified contingency, or
upon the ascertainment of certain facts or conditions by a person or body
other than the legislature itself.

The Court finds no merit to the contention of
petitioners ABAKADA GURO Party List, et al. that the law effectively
nullified the Presidents power of control over the Secretary of Finance
by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance. The Court cannot also
subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in
view of the phrase upon the recommendation of the Secretary of
Finance. Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary of
Finance can easily be brushed aside by the President since the former is
a mere alter ego of the latter.

When one speaks of the Secretary of Finance as the alter ego of the
President, it simply means that as head of the Department of Finance he
is the assistant and agent of the Chief Executive. The multifarious
executive and administrative functions of the Chief Executive are
performed by and through the executive departments, and the acts of the
secretaries of such departments, such as the Department of Finance,
performed and promulgated in the regular course of business, are, unless
disapproved or reprobated by the Chief Executive, presumptively the
acts of the Chief Executive. The Secretary of Finance, as such, occupies
a political position and holds office in an advisory capacity, and, in the
language of Thomas Jefferson, "should be of the President's bosom
confidence" and, in the language of Attorney-General Cushing, is
subject to the direction of the President."
[55]

In the present case, in making his recommendation to the President
on the existence of either of the two conditions, the Secretary of Finance
is not acting as the alter ego of the President or even her subordinate. In
such instance, he is not subject to the power of control and direction of
the President. He is acting as the agent of the legislative department, to
determine and declare the event upon which its expressed will is to take
effect.
[56]
The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much
broader perspective to properly evaluate them. His function is to gather
and collate statistical data and other pertinent information and verify if
any of the two conditions laid out by Congress is present. His
personality in such instance is in reality but a projection of that of
Congress. Thus, being the agent of Congress and not of the President,
the President cannot alter or modify or nullify, or set aside the findings
of the Secretary of Finance and to substitute the judgment of the former
for that of the latter.

Congress simply granted the Secretary of Finance the authority to
ascertain the existence of a fact, namely, whether by December 31,
2005, the value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth percent
(2
4
/
5
%) or the national government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1%). If either of
these two instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President. Then the 12%
VAT rate must be imposed by the President effective January 1,
2006. There is no undue delegation of legislative power but only of
the discretion as to the execution of a law. This is constitutionally
permissible.
[57]
Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must do
it, and what is the scope of his authority; in our complex economy that is
frequently the only way in which the legislative process can go
forward.
[58]

As to the argument of petitioners ABAKADA GURO Party List, et
al. that delegating to the President the legislative power to tax is contrary
to the principle of republicanism, the same deserves scant consideration.
Congress did not delegate the power to tax but the mere implementation
of the law. The intent and will to increase the VAT rate to 12% came
from Congress and the task of the President is to simply execute the
legislative policy. That Congress chose to do so in such a manner is not
within the province of the Court to inquire into, its task being to interpret
the law.
[59]

The insinuation by petitioners Pimentel, et al. that the President
has ample powers to cause, influence or create the conditions to bring
about either or both the conditions precedent does not deserve any merit
as this argument is highly speculative. The Court does not rule on
allegations which are manifestly conjectural, as these may not exist at
all. The Court deals with facts, not fancies; on realities, not appearances.
When the Court acts on appearances instead of realities, justice and law
will be short-lived.

B. The 12% Increase VAT Rate Does Not
Impose an Unfair and Unnecessary
Additional Tax Burden

Petitioners Pimentel, et al. argue that the 12% increase in the VAT
rate imposes an unfair and additional tax burden on the people.
Petitioners also argue that the 12% increase, dependent on any of the 2
conditions set forth in the contested provisions, is ambiguous because it
does not state if the VAT rate would be returned to the original 10% if
the rates are no longer satisfied. Petitioners also argue that such rate is
unfair and unreasonable, as the people are unsure of the applicable VAT
rate from year to year.

Under the common provisos of Sections 4, 5 and 6 of R.A. No.
9337, if any of the two conditions set forth therein are satisfied, the
President shall increase the VAT rate to 12%. The provisions of the law
are clear. It does not provide for a return to the 10% rate nor does it
empower the President to so revert if, after the rate is increased to 12%,
the VAT collection goes below the 2
4
/
5
of the GDP of the previous year
or that the national government deficit as a percentage of GDP of the
previous year does not exceed 1%.

Therefore, no statutory construction or interpretation is needed.
Neither can conditions or limitations be introduced where none is
provided for. Rewriting the law is a forbidden ground that only
Congress may tread upon.
[60]

Thus, in the absence of any provision providing for a return to the
10% rate, which in this case the Court finds none, petitioners argument
is, at best, purely speculative. There is no basis for petitioners fear of a
fluctuating VAT rate because the law itself does not provide that the rate
should go back to 10% if the conditions provided in Sections 4, 5 and 6
are no longer present. The rule is that where the provision of the law is
clear and unambiguous, so that there is no occasion for the court's
seeking the legislative intent, the law must be taken as it is, devoid of
judicial addition or subtraction.
[61]

Petitioners also contend that the increase in the VAT rate, which
was allegedly an incentive to the President to raise the VAT collection to
at least 2
4
/
5
of the GDP of the previous year, should be based on fiscal
adequacy.

Petitioners obviously overlooked that increase in VAT collection is
not the only condition. There is another condition, i.e., the national
government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 %).

Respondents explained the philosophy behind these alternative
conditions:

1. VAT/GDP Ratio > 2.8%

The condition set for increasing VAT rate to 12% have
economic or fiscal meaning. If VAT/GDP is less than 2.8%,
it means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the
function of the tax collection. Therefore, there is no value to
increase it to 12% because such action will also be
ineffectual.

2. Natl Govt Deficit/GDP >1.5%

The condition set for increasing VAT when
deficit/GDP is 1.5% or less means the fiscal condition of
government has reached a relatively sound position or is
towards the direction of a balanced budget position.
Therefore, there is no need to increase the VAT rate since the
fiscal house is in a relatively healthy position. Otherwise
stated, if the ratio is more than 1.5%, there is indeed a need to
increase the VAT rate.
[62]

That the first condition amounts to an incentive to the President to
increase the VAT collection does not render it unconstitutional so long
as there is a public purpose for which the law was passed, which in this
case, is mainly to raise revenue. In fact, fiscal adequacy dictated the
need for a raise in revenue.

The principle of fiscal adequacy as a characteristic of a sound tax
system was originally stated by Adam Smith in his Canons of
Taxation (1776), as:

IV. Every tax ought to be so contrived as both to take out
and to keep out of the pockets of the people as little as
possible over and above what it brings into the public
treasury of the state.
[63]

It simply means that sources of revenues must be adequate to meet
government expenditures and their variations.
[64]

The dire need for revenue cannot be ignored. Our country is in a
quagmire of financial woe. During the Bicameral Conference
Committee hearing, then Finance Secretary Purisima bluntly depicted
the countrys gloomy state of economic affairs, thus:

First, let me explain the position that
the Philippines finds itself in right now. We are in a position
where 90 percent of our revenue is used for debt service. So,
for every peso of revenue that we currently raise, 90 goes to
debt service. Thats interest plus amortization of our debt.
So clearly, this is not a sustainable situation. Thats the first
fact.

The second fact is that our debt to GDP level is way out
of line compared to other peer countries that borrow money
from that international financial markets. Our debt to GDP is
approximately equal to our GDP. Again, that shows you that
this is not a sustainable situation.

The third thing that Id like to point out is the
environment that we are presently operating in is not as
benign as what it used to be the past five years.

What do I mean by that?

In the past five years, weve been lucky because we
were operating in a period of basically global growth and low
interest rates. The past few months, we have seen an inching
up, in fact, a rapid increase in the interest rates in the leading
economies of the world. And, therefore, our ability to
borrow at reasonable prices is going to be challenged. In
fact, ultimately, the question is our ability to access the
financial markets.

When the President made her speech in July last year,
the environment was not as bad as it is now, at least based on
the forecast of most financial institutions. So, we were
assuming that raising 80 billion would put us in a position
where we can then convince them to improve our ability to
borrow at lower rates. But conditions have changed on us
because the interest rates have gone up. In fact, just within
this room, we tried to access the market for a billion dollars
because for this year alone, the Philippines will have to
borrow 4 billion dollars. Of that amount, we have borrowed
1.5 billion. We issued last January a 25-year bond at 9.7
percent cost. We were trying to access last week and the
market was not as favorable and up to now we have not
accessed and we might pull back because the conditions are
not very good.

So given this situation, we at the Department of Finance
believe that we really need to front-end our deficit reduction.
Because it is deficit that is causing the increase of the debt
and we are in what we call a debt spiral. The more debt you
have, the more deficit you have because interest and debt
service eats and eats more of your revenue. We need to get
out of this debt spiral. And the only way, I think, we can get
out of this debt spiral is really have a front-end adjustment in
our revenue base.
[65]

The image portrayed is chilling. Congress passed the law hoping
for rescue from an inevitable catastrophe. Whether the law is indeed
sufficient to answer the states economic dilemma is not for the Court to
judge. In the Farias case, the Court refused to consider the various
arguments raised therein that dwelt on the wisdom of Section 14 of R.A.
No. 9006 (The Fair Election Act), pronouncing that:

. . . policy matters are not the concern of the Court.
Government policy is within the exclusive dominion of the
political branches of the government. It is not for this Court
to look into the wisdom or propriety of legislative
determination. Indeed, whether an enactment is wise or
unwise, whether it is based on sound economic theory,
whether it is the best means to achieve the desired results,
whether, in short, the legislative discretion within its
prescribed limits should be exercised in a particular manner
are matters for the judgment of the legislature, and the
serious conflict of opinions does not suffice to bring them
within the range of judicial cognizance.
[66]

In the same vein, the Court in this case will not dawdle on the
purpose of Congress or the executive policy, given that it is not for the
judiciary to "pass upon questions of wisdom, justice or expediency of
legislation.
[67]

II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and
110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending
Section 114(C) of the NIRC, violate the following provisions of the
Constitution:

b. Article III, Section 1

A. Due Process and Equal Protection Clauses

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue
that Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B),
and Section 12 of R.A. No. 9337, amending Section 114 (C) of the
NIRC are arbitrary, oppressive, excessive and confiscatory. Their
argument is premised on the constitutional right against deprivation of
life, liberty of property without due process of law, as embodied in
Article III, Section 1 of the Constitution.

Petitioners also contend that these provisions violate the
constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection
clauses are invoked, considering that they are not fixed rules but rather
broad standards, there is a need for proof of such persuasive character as
would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail.
[68]

Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC
imposes a limitation on the amount of input tax that may be credited
against the output tax. It states, in part: [P]rovided, that the input tax
inclusive of the input VAT carried over from the previous quarter that
may be credited in every quarter shall not exceed seventy percent (70%)
of the output VAT:

Input Tax is defined under Section 110(A) of the NIRC, as
amended, as the value-added tax due from or paid by a VAT-registered
person on the importation of goods or local purchase of good and
services, including lease or use of property, in the course of trade or
business, from a VAT-registered person, and Output Tax is the value-
added taxdue on the sale or lease of taxable goods or properties or
services by any person registered or required to register under the law.

Petitioners claim that the contested sections impose limitations on
the amount of input tax that may be claimed. In effect, a portion of the
input tax that has already been paid cannot now be credited against the
output tax.

Petitioners argument is not absolute. It assumes that the input tax
exceeds 70% of the output tax, and therefore, the input tax in excess of
70% remains uncredited. However, to the extent that the input tax is less
than 70% of the output tax, then 100% of such input tax is still
creditable.

More importantly, the excess input tax, if any, is retained in a
businesss books of accounts and remains creditable in the succeeding
quarter/s. This is explicitly allowed by Section 110(B), which provides
that if the input tax exceeds the output tax, the excess shall be carried
over to the succeeding quarter or quarters. In addition, Section 112(B)
allows a VAT-registered person to apply for the issuance of a tax credit
certificate or refund for any unused input taxes, to the extent that such
input taxes have not been applied against the output taxes. Such unused
input tax may be used in payment of his other internal revenue taxes.

The non-application of the unutilized input tax in a given quarter is
not ad infinitum, as petitioners exaggeratedly contend. Their analysis of
the effect of the 70% limitation is incomplete and one-sided. It ends at
the net effect that there will be unapplied/unutilized inputs VAT for a
given quarter. It does not proceed further to the fact that such
unapplied/unutilized input tax may be credited in the subsequent periods
as allowed by the carry-over provision of Section 110(B) or that it may
later on be refunded through a tax credit certificate under Section
112(B).

Therefore, petitioners argument must be rejected.

On the other hand, it appears that petitioner Garcia failed to
comprehend the operation of the 70% limitation on the input tax.
According to petitioner, the limitation on the creditable input tax in
effect allows VAT-registered establishments to retain a portion of the
taxes they collect, which violates the principle that tax collection and
revenue should be for public purposes and expenditures

As earlier stated, the input tax is the tax paid by a person, passed
on to him by the seller, when he buys goods. Output tax meanwhile is
the tax due to the person when he sells goods. In computing the VAT
payable, three possible scenarios may arise:

First, if at the end of a taxable quarter the output taxes charged by
the seller are equal to the input taxes that he paid and passed on by the
suppliers, then no payment is required;

Second, when the output taxes exceed the input taxes, the person
shall be liable for the excess, which has to be paid to the Bureau of
Internal Revenue (BIR);
[69]
and

Third, if the input taxes exceed the output taxes, the excess shall be
carried over to the succeeding quarter or quarters. Should the input
taxes result from zero-rated or effectively zero-rated transactions, any
excess over the output taxes shall instead be refunded to the taxpayer or
credited against other internal revenue taxes, at the taxpayers option.
[70]

Section 8 of R.A. No. 9337 however, imposed a 70% limitation on
the input tax. Thus, a person can credit his input tax only up to the
extent of 70% of the output tax. In laymans term, the value-added taxes
that a person/taxpayer paid and passed on to him by a seller can only be
credited up to 70% of the value-added taxes that is due to him on a
taxable transaction. There is no retention of any tax collection because
the person/taxpayer has already previously paid the input tax to a seller,
and the seller will subsequently remit such input tax to the BIR. The
party directly liable for the payment of the tax is the seller.
[71]
What
only needs to be done is for the person/taxpayer to apply or credit these
input taxes, as evidenced by receipts, against his output taxes.

Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also
argue that the input tax partakes the nature of a property that may not be
confiscated, appropriated, or limited without due process of law.

The input tax is not a property or a property right within the
constitutional purview of the due process clause. A VAT-registered
persons entitlement to the creditable input tax is a mere statutory
privilege.

The distinction between statutory privileges and vested rights must
be borne in mind for persons have no vested rights in statutory
privileges. The state may change or take away rights, which were
created by the law of the state, although it may not take away property,
which was vested by virtue of such rights.
[72]

Under the previous system of single-stage taxation, taxes paid at
every level of distribution are not recoverable from the taxes payable,
although it becomes part of the cost, which is deductible from the gross
revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10%
multi-stage tax on all sales, it was then that the crediting of the input tax
paid on purchase or importation of goods and services by VAT-
registered persons against the output tax was introduced.
[73]
This was
adopted by the Expanded VAT Law (R.A. No. 7716),
[74]
and The Tax
Reform Act of 1997 (R.A. No. 8424).
[75]
The right to credit input tax as
against the output tax is clearly a privilege created by law, a privilege
that also the law can remove, or in this case, limit.

Petitioners also contest as arbitrary, oppressive, excessive and
confiscatory, Section 8 of R.A. No. 9337, amending Section 110(A) of
the NIRC, which provides:

SEC. 110. Tax Credits.

(A) Creditable Input Tax.

Provided, That the input tax on goods purchased or
imported in a calendar month for use in trade or business for
which deduction for depreciation is allowed under this Code,
shall be spread evenly over the month of acquisition and the
fifty-nine (59) succeeding months if the aggregate acquisition
cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000.00): Provided,
however, That if the estimated useful life of the capital goods
is less than five (5) years, as used for depreciation purposes,
then the input VAT shall be spread over such a shorter
period:Provided, finally, That in the case of purchase of
services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or license upon payment of
the compensation, rental, royalty or fee.

The foregoing section imposes a 60-month period within which to
amortize the creditable input tax on purchase or importation of capital
goods with acquisition cost of P1 Million pesos, exclusive of the VAT
component. Such spread out only poses a delay in the crediting of the
input tax. Petitioners argument is without basis because the taxpayer is
not permanently deprived of his privilege to credit the input tax.

It is worth mentioning that Congress admitted that the spread-out
of the creditable input tax in this case amounts to a 4-year interest-free
loan to the government.
[76]
In the same breath, Congress also justified
its move by saying that the provision was designed to raise an annual
revenue of 22.6 billion.
[77]
The legislature also dispelled the fear that the
provision will fend off foreign investments, saying that foreign investors
have other tax incentives provided by law, and citing the case of China,
where despite a 17.5% non-creditable VAT, foreign investments were
not deterred.
[78]
Again, for whatever is the purpose of the 60-month
amortization, this involves executive economic policy and legislative
wisdom in which the Court cannot intervene.

With regard to the 5% creditable withholding tax imposed on
payments made by the government for taxable transactions, Section 12
of R.A. No. 9337, which amended Section 114 of the NIRC, reads:

SEC. 114. Return and Payment of Value-added Tax.

(C) Withholding of Value-added Tax. The
Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned
or controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods and services
which are subject to the value-added tax imposed in Sections
106 and 108 of this Code, deduct and withhold a final value-
added tax at the rate of five percent (5%) of the gross
payment thereof: Provided, That the payment for lease or use
of properties or property rights to nonresident owners shall be
subject to ten percent (10%) withholding tax at the time of
payment. For purposes of this Section, the payor or person in
control of the payment shall be considered as the withholding
agent.

The value-added tax withheld under this Section
shall be remitted within ten (10) days following the end of
the month the withholding was made.

Section 114(C) merely provides a method of collection, or as
stated by respondents, a more simplified VAT withholding system. The
government in this case is constituted as a withholding agent with
respect to their payments for goods and services.

Prior to its amendment, Section 114(C) provided for different rates
of value-added taxes to be withheld -- 3% on gross payments for
purchases of goods; 6% on gross payments for services supplied by
contractors other than by public works contractors; 8.5% on gross
payments for services supplied by public work contractors; or 10% on
payment for the lease or use of properties or property rights to
nonresident owners. Under the present Section 114(C), these different
rates, except for the 10% on lease or property rights payment to
nonresidents, were deleted, and a uniform rate of 5% is applied.

The Court observes, however, that the law the used the word final.
In tax usage, final, as opposed to creditable, means full. Thus, it is
provided in Section 114(C): final value-added tax at the rate of five
percent (5%).

In Revenue Regulations No. 02-98, implementing R.A. No. 8424
(The Tax Reform Act of 1997), the concept of final withholding tax on
income was explained, to wit:

SECTION 2.57. Withholding of Tax at Source

(A) Final Withholding Tax. Under the final
withholding tax system the amount of income tax withheld
by the withholding agent is constituted as full and final
payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily
on the payor as a withholding agent. Thus, in case of his
failure to withhold the tax or in case of underwithholding, the
deficiency tax shall be collected from the payor/withholding
agent.

(B) Creditable Withholding Tax. Under the
creditable withholding tax system, taxes withheld on certain
income payments are intended to equal or at least
approximate the tax due of the payee on said income.
Taxes withheld on income payments covered by the
expanded withholding tax (referred to in Sec. 2.57.2 of these
regulations) and compensation income (referred to in Sec.
2.78 also of these regulations) are creditable in nature.

As applied to value-added tax, this means that taxable transactions
with the government are subject to a 5% rate, which constitutes as full
payment of the tax payable on the transaction. This represents the net
VAT payable of the seller. The other 5% effectively accounts for the
standard input VAT (deemed input VAT), in lieu of the actual input
VAT directly or attributable to the taxable transaction.
[79]

The Court need not explore the rationale behind the provision. It is
clear that Congress intended to treat differently taxable transactions with
the government.
[80]
This is supported by the fact that under the old
provision, the 5% tax withheld by the government remains creditable
against the tax liability of the seller or contractor, to wit:

SEC. 114. Return and Payment of Value-added Tax.

(C) Withholding of Creditable Value-added Tax.
The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned
or controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods from sellers
and services rendered by contractors which are subject to the
value-added tax imposed in Sections 106 and 108 of this
Code, deduct and withhold the value-added tax due at the rate
of three percent (3%) of the gross payment for the purchase
of goods and six percent (6%) on gross receipts for services
rendered by contractors on every sale or installment payment
which shall be creditable against the value-added tax
liability of the seller or contractor: Provided, however,
That in the case of government public works contractors, the
withholding rate shall be eight and one-half percent (8.5%):
Provided, further, That the payment for lease or use of
properties or property rights to nonresident owners shall be
subject to ten percent (10%) withholding tax at the time of
payment. For this purpose, the payor or person in control of
the payment shall be considered as the withholding agent.

The valued-added tax withheld under this Section
shall be remitted within ten (10) days following the end of
the month the withholding was made. (Emphasis supplied)

As amended, the use of the word final and the deletion of the
word creditable exhibits Congresss intention to treat transactions with
the government differently. Since it has not been shown that the class
subject to the 5% final withholding tax has been unreasonably narrowed,
there is no reason to invalidate the provision. Petitioners, as petroleum
dealers, are not the only ones subjected to the 5% final withholding tax.
It applies to all those who deal with the government.

Moreover, the actual input tax is not totally lost or uncreditable, as
petitioners believe. Revenue Regulations No. 14-2005 or the
Consolidated Value-Added Tax Regulations 2005 issued by the BIR,
provides that should the actual input tax exceed 5% of gross payments,
the excess may form part of the cost. Equally, should the actual input
tax be less than 5%, the difference is treated as income.
[81]

Petitioners also argue that by imposing a limitation on the
creditable input tax, the government gets to tax a profit or value-added
even if there is no profit or value-added.

Petitioners stance is purely hypothetical, argumentative, and
again, one-sided. The Court will not engage in a legal joust where
premises are what ifs, arguments, theoretical and facts, uncertain. Any
disquisition by the Court on this point will only be, as Shakespeare
describes life in Macbeth,
[82]
full of sound and fury, signifying
nothing.

Whats more, petitioners contention assumes the proposition that
there is no profit or value-added. It need not take an astute businessman
to know that it is a matter of exception that a business will sell goods or
services without profit or value-added. It cannot be overstressed that a
business is created precisely for profit.

The equal protection clause under the Constitution means that no
person or class of persons shall be deprived of the same protection of
laws which is enjoyed by other persons or other classes in the same
place and in like circumstances.
[83]

The power of the State to make reasonable and natural
classifications for the purposes of taxation has long been established.
Whether it relates to the subject of taxation, the kind of property, the
rates to be levied, or the amounts to be raised, the methods of
assessment, valuation and collection, the States power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with
such power absent a clear showing of unreasonableness, discrimination,
or arbitrariness.
[84]

Petitioners point out that the limitation on the creditable input tax
if the entity has a high ratio of input tax, or invests in capital equipment,
or has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.

The argument is pedantic, if not outright baseless. The law does
not make any classification in the subject of taxation, the kind of
property, the rates to be levied or the amounts to be raised, the methods
of assessment, valuation and collection. Petitioners alleged distinctions
are based on variables that bear different consequences. While the
implementation of the law may yield varying end results depending on
ones profit margin and value-added, the Court cannot go beyond what
the legislature has laid down and interfere with the affairs of business.

The equal protection clause does not require the universal
application of the laws on all persons or things without distinction. This
might in fact sometimes result in unequal protection. What the clause
requires is equality among equals as determined according to a valid
classification. By classification is meant the grouping of persons or
things similar to each other in certain particulars and different from all
others in these same particulars.
[85]

Petitioners brought to the Courts attention the introduction of
Senate Bill No. 2038 by Sens. S.R. Osmea III and Ma. Ana Consuelo
A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric
D. Singson. The proposed legislation seeks to amend the 70% limitation
by increasing the same to 90%. This, according to petitioners, supports
their stance that the 70% limitation is arbitrary and confiscatory. On this
score, suffice it to say that these are still proposed legislations. Until
Congress amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.

B. Uniformity and Equitability of Taxation

Article VI, Section 28(1) of the Constitution reads:

The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation.

Uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. Different
articles may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times.
[86]

In this case, the tax law is uniform as it provides a standard rate of
0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of
R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of
the NIRC, provide for a rate of 10% (or 12%) on sale of goods and
properties, importation of goods, and sale of services and use or lease of
properties. These same sections also provide for a 0% rate on certain
sales and transaction.

Neither does the law make any distinction as to the type of industry
or trade that will bear the 70% limitation on the creditable input tax, 5-
year amortization of input tax paid on purchase of capital goods or the
5% final withholding tax by the government. It must be stressed that the
rule of uniform taxation does not deprive Congress of the power to
classify subjects of taxation, and only demands uniformity within the
particular class.
[87]

R.A. No. 9337 is also equitable. The law is equipped with a
threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply
to sales of goods or services with gross annual sales or receipts not
exceeding P1,500,000.00.
[88]
Also, basic marine and agricultural food
products in their original state are still not subject to the tax,
[89]
thus
ensuring that prices at the grassroots level will remain accessible. As
was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng
Pilipinas, Inc. vs. Tan:
[90]

The disputed sales tax is also equitable. It is imposed
only on sales of goods or services by persons engaged in
business with an aggregate gross annual sales
exceeding P200,000.00. Small cornersari-sari stores are
consequently exempt from its application. Likewise exempt
from the tax are sales of farm and marine products, so that
the costs of basic food and other necessities, spared as they
are from the incidence of the VAT, are expected to be
relatively lower and within the reach of the general public.

It is admitted that R.A. No. 9337 puts a premium on businesses
with low profit margins, and unduly favors those with high profit
margins. Congress was not oblivious to this. Thus, to equalize the
weighty burden the law entails, the law, under Section 116, imposed a
3% percentage tax on VAT-exempt persons under Section 109(v), i.e.,
transactions with gross annual sales and/or receipts not exceeding P1.5
Million. This acts as a equalizer because in effect, bigger businesses
that qualify for VAT coverage and VAT-exempt taxpayers stand on
equal-footing.

Moreover, Congress provided mitigating measures to cushion the
impact of the imposition of the tax on those previously exempt. Excise
taxes on petroleum products
[91]
and natural gas
[92]
were reduced.
Percentage tax on domestic carriers was removed.
[93]
Power producers
are now exempt from paying franchise tax.
[94]

Aside from these, Congress also increased the income tax rates of
corporations, in order to distribute the burden of taxation. Domestic,
foreign, and non-resident corporations are now subject to a 35% income
tax rate, from a previous 32%.
[95]
Intercorporate dividends of non-
resident foreign corporations are still subject to 15% final withholding
tax but the tax credit allowed on the corporations domicile was
increased to 20%.
[96]
The Philippine Amusement and Gaming
Corporation (PAGCOR) is not exempt from income taxes anymore.
[97]

Even the sale by an artist of his works or services performed for the
production of such works was not spared.

All these were designed to ease, as well as spread out, the burden
of taxation, which would otherwise rest largely on the consumers. It
cannot therefore be gainsaid that R.A. No. 9337 is equitable.

C. Progressivity of Taxation

Lastly, petitioners contend that the limitation on the creditable
input tax is anything but regressive. It is the smaller business with
higher input tax-output tax ratio that will suffer the consequences.

Progressive taxation is built on the principle of the taxpayers
ability to pay. This principle was also lifted from Adam
Smiths Canons of Taxation, and it states:

I. The subjects of every state ought to contribute
towards the support of the government, as nearly as
possible, in proportion to their respective abilities; that
is, in proportion to the revenue which they respectively
enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the
resources of the person affected.
[98]

The VAT is an antithesis of progressive taxation. By its very
nature, it is regressive. The principle of progressive taxation has no
relation with the VAT system inasmuch as the VAT paid by the
consumer or business for every goods bought or services enjoyed is the
same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether
big or small. The disparity lies in the income earned by a person or
profit margin marked by a business, such that the higher the income or
profit margin, the smaller the portion of the income or profit that is eaten
by VAT. A converso, the lower the income or profit margin, the bigger
the part that the VAT eats away. At the end of the day, it is really the
lower income group or businesses with low-profit margins that is always
hardest hit.

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

The Constitution does not really prohibit the imposition
of indirect taxes which, like the VAT, are regressive. What it
simply provides is that Congress shall evolve a progressive
system of taxation. The constitutional provision has been
interpreted to mean simply that direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be
minimized. (E. FERNANDO, THE CONSTITUTION OF
THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the
mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which
perhaps are the oldest form of indirect taxes, would have
been prohibited with the proclamation of Art. VIII, 17 (1) of
the 1973 Constitution from which the present Art. VI, 28 (1)
was taken. Sales taxes are also regressive.

Resort to indirect taxes should be minimized but not
avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by
providing for zero rating of certain transactions (R.A. No.
7716, 3, amending 102 (b) of the NIRC), while granting
exemptions to other transactions. (R.A. No. 7716, 4
amending 103 of the NIRC)
[99]

CONCLUSION

It has been said that taxes are the lifeblood of the government. In
this case, it is just an enema, a first-aid measure to resuscitate an
economy in distress. The Court is neither blind nor is it turning a deaf
ear on the plight of the masses. But it does not have the panacea for the
malady that the law seeks to remedy. As in other cases, the Court
cannot strike down a law as unconstitutional simply because of its
yokes.

Let us not be overly influenced by the plea that for
every wrong there is a remedy, and that the judiciary should
stand ready to afford relief. There are undoubtedly many
wrongs the judicature may not correct, for instance, those
involving political questions. . . .

Let us likewise disabuse our minds from the notion that
the judiciary is the repository of remedies for all political or
social ills; We should not forget that the Constitution has
judiciously allocated the powers of government to three
distinct and separate compartments; and that judicial
interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the
prerogatives of each, knowing full well that one is not the
guardian of the others and that, for official wrong-doing, each
may be brought to account, either by impeachment, trial or
by the ballot box.
[100]

The words of the Court in Vera vs. Avelino
[101]
holds true then, as it
still holds true now. All things considered, there is no raison d'tre for
the unconstitutionality of R.A. No. 9337.

WHEREFORE, Republic Act No. 9337 not being unconstitutional,
the petitions in G.R. Nos. 168056, 168207, 168461, 168463, and
168730, are hereby DISMISSED.

There being no constitutional impediment to the full enforcement
and implementation of R.A. No. 9337, the temporary restraining order
issued by the Court on July 1, 2005 is LIFTED upon finality of herein
decision.

SO ORDERED.
June 8, 1993
G.R. No. 88291
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive
Secretary, Office of the President, HON. VICENTE JAYME, ETC.,
ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell
Petroleum Corporation. Siguion Reyna, Montecillo & Ongsiako for
Caltex.
Nocon, J .:
Just like lightning which does strike the same place twice in some
instances, this matter of indirect tax exemption of the private respondent
National Power Corporation (NPC) is brought to this Court a second
time. Unfazed by the Decision We promulgated on May 31, 1991 1
petitioner Ernesto Maceda asks this Court to reconsider said Decision.
Lest We be criticized for denying due process to the petitioner. We have
decided to take a second look at the issues. In the process, a hearing was
held on July 9, 1992 where all parties presented their respective
arguments. Etched in this Court's mind are the paradoxical claims by
both petitioner and private respondents that their respective positions are
for the benefit of the Filipino people.
I
A Chronological review of the relevant NPC laws, specially with respect
to its tax exemption provisions, at the risk of being repetitious is,
therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted
creating the National Power Corporation, a public corporation, mainly to
develop hydraulic power from all water sources in the Philippines. 2 The
sum of P250,000.00 was appropriated out of the funds in the Philippine
Treasury for the purpose of organizing the NPC and conducting its
preliminary work. 3 The main source of funds for the NPC was the
flotation of bonds in the capital markets 4 and these bonds
. . . issued under the authority of this Act shall be exempt from the
payment of all taxes by the Commonwealth of the Philippines, or by any
authority, branch, division or political subdivision thereof and subject to
the provisions of the Act of Congress, approved March 24, 1934,
otherwise known as the Tydings McDuffle Law, which facts shall be
stated upon the face of said bonds. . . . . 5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00
the funds needed for the initial operations of the NPC and reiterating the
provision of the flotation of bonds as soon as the first construction of
any hydraulic power project was to be decided by the NPC Board. 6 The
provision on tax exemption in relation to the issuance of the NPC bonds
was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was enacted removing the
provision on the payment of the bond's principal and interest in "gold
coins" but adding that payment could be made in United States dollars. 7
The provision on tax exemption in relation to the issuance of the NPC
bonds was neither amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted authorizing the
President of the Philippines to guarantee, absolutely and
unconditionally, as primary obligor, the payment of any and all NPC
loans. 8 He was also authorized to contract on behalf of the NPC with
the International Bank for Reconstruction and Development (IBRD) for
NPC loans for the accomplishment of NPC's corporate objectives 9 and
for the reconstruction and development of the economy of the country.
10 It was expressly stated that:
Any such loan or loans shall be exempt from taxes, duties, fees, imposts,
charges, contributions and restrictions of the Republic of the Philippines,
its provinces, cities and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the
NPC, for the first time, to incur other types of indebtedness, aside from
indebtedness incurred by flotation of bonds. 12 As to the pertinent tax
exemption provision, the law stated as follows:
To facilitate payment of its indebtedness, the National Power
Corporation shall be exempt from all taxes, duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines, its provinces,
cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in
that, aside from the IBRD, the President of the Philippines was
authorized to negotiate, contract and guarantee loans with the Export-
Import Bank of of Washigton, D.C., U.S.A., or any other international
financial institution. 14 The tax provision for repayment of these loans,
as stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw
NPC's tax exemption for real estate taxes. As enacted, the law states as
follows:
To facilitate payment of its indebtedness, the National Power
Corporation shall be exempt from all taxes, except real property tax, and
from all duties, fees, imposts, charges, and restrictions of the Republic of
the Philippines, its provinces, cities, and municipalities. 15
On September 8, 1955, R.A. No. 1397 was enacted directing that the
NPC projects to be funded by the increased indebtedness 16 should bear
the National Economic Council's stamp of approval. The tax exemption
provision related to the payment of this total indebtedness was not
amended nor deleted.
On June 13, 1958, R.A. No. 2055 was enacted increasing the total
amount of foreign loans NPC was authorized to incur to
US$100,000,000.00 from the US$50,000,000.00 ceiling inR.A. No. 357.
17 The tax provision related to the repayment of these loans was not
amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life
of NPC to December 31, 2000. 18 All laws or provisions of laws and
executive orders contrary to said R.A. No. 2058 were expressly
repealed. 19
On June 18, 1960, R.A. No 2641 was enacted converting the NPC from
a public corporation into a stock corporation with an authorized capital
stock of P100,000,000.00 divided into 1,000.000 shares having a par
value of P100.00 each, with said capital stock wholly subscribed to by
the Government. 20 No tax exemption was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-
mentioned authorized capital stock to P250,000,000.00 with the increase
to be wholly subscribed by the Government. 21 No tax provision was
incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was
increased again to P300,000,000.00, the increase to be wholly
subscribed by the Government. No tax provision was incorporated in
said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter
of the NPC, C.A. No. 120, as amended. Declared as primary objectives
of the nation were:
Declaration of Policy. - Congress hereby declares that (1) the
comprehensive development, utilization and conservation of Philippine
water resources for all beneficial uses, including power generation, and
(2) the total electrification of the Philippines through the development of
power from all sources to meet the needs of industrial development and
dispersal and the needs of rural electrification are primary objectives of
the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government, including the financial
institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided
into sections 8 (a) (Authority to incur Domestic Indebtedness) and
Section 8 (b) (Authority to Incur Foreign Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section
8(a), states as follows:
The bonds issued under the authority of this subsection shall be exempt
from the payment of all taxes by the Republic of the Philippines, or by
any authority, branch, division or political subdivision thereof which
facts shall be stated upon the face of said bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph
No. 5, Section 8(b), states as follows:
The loans, credits and indebtedness contracted under this subsection and
the payment of the principal, interest and other charges thereon, as well
as the importation of machinery, equipment, materials and supplies by
the Corporation, paid from the proceeds of any loan, credit or
indebtedeness incurred under this Act, shall also be exempt from all
taxes, fees, imposts, other charges and restrictions, including import
restrictions, by the Republic of the Philippines, or any of its agencies
and political subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A.
No. 6395, which declares the non-profit character and tax exemptions of
NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from
its capital investment, as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby declared
exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges costs
and service fees in any court or administrative proceedings in which it
may be a party, restrictions and duties to the Republic of the Philippines,
its provinces, cities, and municipalities and other government agencies
and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to
the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax,
and wharfage fees on import of foreign goods required for its operations
and projects; and
(d) From all taxes, duties, fees, imposts and all other charges its
provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in
the generation, transmission, utilization, and sale of electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued declaring
that the electrification of the entire country was one of the primary
concerns of the country. And in connection with this, it was specifically
stated that:
The setting up of transmission line grids and the construction of
associated generation facilities in Luzon, Mindanao and major islands of
the country, including the Visayas, shall be the responsibility of the
National Power Corporation (NPC) as the authorized implementing
agency of the State. 27
xxx xxx xxx
It is the ultimate objective of the State for the NPC to own and operate
as a single integrated system all generating facilities supplying electric
power to the entire area embraced by any grid set up by the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to
the NPC to enable it to fulfill its role under aforesaid P.D. No. 40. Its
authorized capital stock was raised to P2,000,000,000.00, 29 its total
domestic indebtedness was pegged at a maximum of P3,000,000,000.00
at any one time, 30 and the NPC was authorized to borrow a total of
US$1,000,000,000.00 31 in foreign loans.
The relevant tax exemption provision for these foreign loans states as
follows:
as the importation of machinery, equipment, materials, supplies and
services, by the Corporation, paid from the proceeds of any loan, credit
or indebtedness incurred under this Act, shall also be exempt from all
direct and indirect taxes, fees, imposts, other charges and restrictions,
including import restrictions previously and presently imposed, and to
be imposed by the Republic of the Philippines, or any of its agencies and
political subdivisions. 32 (Emphasis supplied)
Section 13(a) and 13(d) of R.A. No 6395 were amended to read as
follows:
(a) From the payment of all taxes, duties, fees, imposts, charges and
restrictions to the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities
including the taxes, duties, fees, imposts and other charges provided for
under the Tariff and Customs Code of the Philippines, Republic Act
Numbered Nineteen Hundred Thirty-Seven, as amended, and as further
amended by Presidential Decree No. 34 dated October 27, 1972,
and Presidential Decree No. 69, dated November 24, 1972, and costs and
service fees in any court or administrative proceedings in which it may
be a party;
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges imposed
directly or indirectly by the Republic of the Philippines, its provinces,
cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in
the generation, transmission, utilization and sale of electric power. 33
(Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing certain
restrictions in the NPC's sale of electricity to its different customers. 34
No tax exemption provision was amended, deleted or added.
On July 31, 1975, P.D. No. 758 was issued directing that
P200,000,000.00 would be appropriated annually to cover the unpaid
subscription of the Government in the NPC authorized capital stock,
which amount would be taken from taxes accruing to the General Funds
of the Government, proceeds from loans, issuance of bonds, treasury
bills or notes to be issued by the Secretary of Finance for this particular
purpose. 35
On May 27, 1976 P.D. No. 938 was issued
(I)n view of the accelerated expansion programs for generation and
transmission facilities which includes nuclear power generation, the
present capitalization of National Power Corporation (NPC) and the
ceilings for domestic and foreign borrowings are deemed insufficient; 36
xxx xxx xxx
(I)n the application of the tax exemption provisions of the Revised
Charter, the non-profit character of NPC has not been fully utilized
because of restrictive interpretation of the taxing agencies of the
government on said provisions; 37
xxx xxx xxx
(I)n order to effect the accelerated expansion program and attain the
declared objective of total electrification of the country, further
amendments of certain sections of Republic Act No. 6395, as amended
by Presidential Decrees Nos. 380, 395 and 758, have become
imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total
domestic indebtedness ceiling was increased to P12,000,000,000.00, 40
the total foreign loan ceiling was raised to US$4,000,000,000.00 41 and
Section 13 of R.A. No. 6395, was amended to read as follows:
its capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay to its indebtedness and
enunciated in Section one of this Act, the Corporation, including its
subsidiaries, is hereby declared exempt from the payment of all forms of
taxes, duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. 42
II
On the other hand, the pertinent tax laws involved in this controversy are
P.D. Nos. 882, 1177, 1931 and Executive Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax
exemption of NPC with regard to imports as follows:
WHEREAS, importations by certain government agencies, including
government-owned or controlled corporation, are exempt from the
payment of customs duties and compensating tax; and
WHEREAS, in order to reduce foreign exchange spending and to protect
domestic industries, it is necessary to restrict and regulate such tax-free
importations.
NOW THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the Constitution,
and do hereby decree and order the following:
Sec. 1. All importations of any government agency, including
government-owned or controlled corporations which are exempt from
the payment of customs duties and internal revenue taxes, shall be
subject to the prior approval of an Inter-Agency Committee which shall
insure compliance with the following conditions:
(a) That no such article of local manufacture are available in sufficient
quantity and comparable quality at reasonable prices;
(b) That the articles to be imported are directly and actually needed and
will be used exclusively by the grantee of the exemption for its
operations and projects or in the conduct of its functions; and
(c) The shipping documents covering the importation are in the name of
the grantee to whom the goods shall be delivered directly by customs
authorities.
xxx xxx xxx
Sec. 3. The Committee shall have the power to regulate and control the
tax-free importation of government agencies in accordance with the
conditions set forth in Section 1 hereof and the regulations to be
promulgated to implement the provisions of this Decree. Provided,
however, That any government agency or government-owned or
controlled corporation, or any local manufacturer or business firm
adversely affected by any decision or ruling of the Inter-Agency
Committee may file an appeal with the Office of the President within ten
days from the date of notice thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar
provisions of all general and special laws and decrees are hereby
amended accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it was
. . . declared the policy of the State to formulate and implement a
National Budget that is an instrument of national development, reflective
of national objectives, strategies and plans. The budget shall be
supportive of and consistent with the socio-economic development plan
and shall be oriented towards the achievement of explicit objectives and
expected results, to ensure that funds are utilized and operations are
conducted effectively, economically and efficiently. The national budget
shall be formulated within a context of a regionalized government
structure and of the totality of revenues and other receipts, expenditures
and borrowings of all levels of government-owned or controlled
corporations. The budget shall likewise be prepared within the context of
the national long-term plan and of a long-term budget program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or controlled
corporations, shall pay income taxes, customs duties and other taxes and
fees are imposed under revenues laws: provided, that organizations
otherwise exempted by law from the payment of such taxes/duties may
ask for a subsidy from the General Fund in the exact amount of
taxes/duties due: provided, further, that a procedure shall be established
by the Secretary of Finance and the Commissioner of the Budget,
whereby such subsidies shall automatically be considered as both
revenue and expenditure of the General Fund. 44
The law also declared that -
[A]ll laws, decrees, executive orders, rules and regulations or parts
thereof which are inconsistent with the provisions of the Decree are
hereby repealed and/or modified accordingly. 45
On July 11, 1984, most likely due to the economic morass the
Government found itself in after the Aquino assassination, P.D. No.
1931 was issued to reiterate that:
WHEREAS, Presidential Decree No. 1177 has already expressly
repealed the grant of tax privileges to any government-owned or
controlled corporation and all other units of government; 46
and since there was a
. . . need for government-owned or controlled corporations and all other
units of government enjoying tax privileges to share in the requirements
of development, fiscal or otherwise, by paying the duties, taxes and
other charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on general law to the contrary
notwithstanding, all exemptions from the payment of duties, taxes, fees,
imposts and other charges heretofore granted in favor of government-
owned or controlled corporations including their subsidiaries, are hereby
withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of Finance,
upon the recommendation of the Fiscal Incentives Review Board created
under Presidential Decree No. 776, is hereby empowered to restore,
partially or totally, the exemptions withdrawn by Section 1 above, any
applicable tax and duty, taking into account, among others, any or all of
the following:
1) The effect on the relative price levels;
2) The relative contribution of the corporation to the revenue generation
effort;
3) The nature of the activity in which the corporation is engaged in; or
4) In general the greater national interest to be served.
xxx xxx xxx Sec. 5. The provisions of Presidential Decree No. 1177 as
well as all other laws, decrees, executive orders, administrative orders,
rules, regulations or parts thereof which are inconsistent with this Decree
are hereby repealed, amended or modified accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to
correct presidential restoration or grant of tax exemption to other
government and private entities without benefit of review by the Fiscal
Incentives Review Board, to wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11,
1984 and October 14, 1984, respectively, withdrew the tax and duty
exemption privileges, including the preferential tax treatment, of
government and private entities with certain exceptions, in order that the
requirements of national economic development, in terms of fiscals and
other resources, may be met more adequately; xxx xxx xxx WHEREAS,
in addition to those tax and duty exemption privileges were restored by
the Fiscal Incentives Review Board (FIRB), a number of affected
entities, government and private, had their tax and duty exemption
privileges restored or granted by Presidential action without benefit or
review by the Fiscal Incentives Review Board (FIRB); xxx xxx xxx
Since it was decided that:
[A]ssistance to government and private entities may be better provided
where necessary by explicit subsidy and budgetary support rather than
tax and duty exemption privileges if only to improve the fiscal
monitoring aspects of government operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the contrary
notwithstanding, all tax and duty incentives granted to government and
private entities are hereby withdrawn, except: a) those covered by the
non-impairment clause of the Constitution; b) those conferred by
effective internation agreement to which the Government of the
Republic of the Philippines is a signatory; c) those enjoyed by
enterprises registered with:
(i) the Board of Investment pursuant to Presidential Decree No. 1789, as
amended; (ii) the Export Processing Zone Authority, pursuant
to Presidential Decree No. 66 as amended; (iii) the Philippine Veterans
Investment Development Corporation Industrial Authority pursuant
to Presidential Decree No. 538, was amended.
d) those enjoyed by the copper mining industry pursuant to the
provisions of Letter of Instructions No. 1416; e) those conferred under
the four basic codes namely:
(i) the Tariff and Customs Code, as amended; (ii) the National Internal
Revenue Code, as amended; (iii) the Local Tax Code, as amended; (iv)
the Real Property Tax Code, as amended; f) those approved by the
President upon the recommendation of the Fiscal Incentives Review
Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential
Decree No. 776, as amended, is hereby authorized to: a) restore tax
and/or duty exemptions withdrawn hereunder in whole or in part; b)
revise the scope and coverage of tax and/or duty exemption that may be
restored; c) impose conditions for the restoration of tax and/or duty
exemption; d) prescribe the date of period of effectivity of the
restoration of tax and/or duty exemption; e) formulate and submit to the
President for approval, a complete system for the grant of subsidies to
deserving beneficiaries, in lieu of or in combination with the restoration
of tax and duty exemptions or preferential treatment in taxation,
indicating the source of funding therefor, eligible beneficiaries and the
terms and conditions for the grant thereof taking into consideration the
international commitment of the Philippines and the necessary
precautions such that the grant of subsidies does not become the basis
for countervailing action. Sec. 3. In the discharge of its authority
hereunder, the Fiscal Incentives Review Board shall take into account
any or all of the following considerations: a) the effect on relative price
levels; b) relative contribution of the beneficiary to the revenue
generation effort; c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served. xxx xxx xxx Sec.
5. All laws, orders, issuances, rules and regulations or parts thereof
inconsistent with this Executive Order are hereby repealed or modified
accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation
of the rules and regulations, to be issued by the Ministry of Finance. 49
Said rules and regulations were promulgated and published in the
Official Gazette on February 23, 1987. These became effective on the
15th day after promulgation 50 in the Official Gasetter, 51 which 15th
day was March 10, 1987.
III
Now to some definitions. We refer to the very simplistic approach that
all would-be lawyers, learn in their TAXATION I course, which fro
convenient reference, is as follows: Classifications or kinds of Taxes:
According to Persons who pay or who bear the burden: a. Direct Tax -
the where the person supposed to pay the tax really pays it. WITHOUT
transferring the burden to someone else. Examples: Individual income
tax, corporate income tax, transfer taxes (estate tax, donor's tax),
residence tax, immigration tax b. Indirect Tax - that where the tax is
imposed upon goods BEFORE reaching the consumer who ultimately
pays for it, not as a tax, but as a part of the purchase price. Examples: the
internal revenue indirect taxes (specific tax, percentage taxes, (VAT)
and the tariff and customs indirect taxes (import duties, special import
tax and other dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for
reconsideration can be reduced to the following: (1) What kind of tax
exemption privileges did NPC have? (2) For what periods in time were
these privileges being enjoyed? (3) If there are taxes to be paid, who
shall pay for these taxes?
V
Petitioner contends that P.D. No. 938 repealed the indirect tax
exemption of NPC as the phrase "all forms of taxes etc.," in its section
10, amending Section 13, R.A. No. 6395, as amended by P.D. No. 380,
does not expressly include "indirect taxes." His point is not well-taken.
A chronological review of the NPC laws will show that it has been the
lawmaker's intention that the NPC was to be completely tax exempt
from all forms of taxes - direct and indirect. NPC's tax exemptions at
first applied to the bonds it was authorized to float to finance its
operations upon its creation by virtue of C.A. No. 120. When the NPC
was authorized to contract with the IBRD for foreign financing, any
loans obtained were to be completely tax exempt. After the NPC was
authorized to borrow from other sources of funds - aside issuance of
bonds - it was again specifically exempted from all types of taxes "to
facilitate payment of its indebtedness." Even when the ceilings for
domestic and foreign borrowings were periodically increased, the tax
exemption privileges of the NPC were maintained. NPC's tax exemption
from real estate taxes was, however, specifically withdrawn by Rep. Act
No. 987, as above stated. The exemption was, however, restored by R.A.
No. 6395. Section 13, R.A. No. 6395, was very comprehensive in its
enumeration of the tax exemptions allowed NPC. Its section 13(d) is the
starting point of this bone of contention among the parties. For easy
reference, it is reproduced as follows:
[T]he Corporation is hereby declared exempt: xxx xxx xxx (d) From all
taxes, duties, fees, imposts and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission,
utilization, and sale of electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d),
which now reads as follows:
xxx xxx xxx (d) From all taxes, duties, fees, imposts, and all other
charges imposed directly or indirectly by the Republic of the
Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization and sale of
electric power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into
one very simple paragraph as follows:
its capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and
enunciated in Section one of this Act, the Corporation, including its
subsidiaries, is hereby declared exempt from the payment of ALL
FORMS OF taxes, duties, fees, imposts as well as costs and service fees
including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. (Emphasis supplied)
Petitioner reminds Us that:
[I]t must be borne in mind that Presidential Decree Nos. 380 and 938
were issued by one man, acting as such the Executive and Legislative.
53 xxx xxx xxx [S]ince both presidential decrees were made by the same
person, it would have been very easy for him to retain the same or
similar language used in P.D. No. 380 P.D. No. 938 if his intention were
to preserve the indirect tax exemption of NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then President
Marcos no matter what his fault were. It should be noted that section
13, R.A. No. 6395, provided for tax exemptions for the following items:
13(a) : court or administrative proceedings; 13(b) : income, franchise,
realty taxes; 13(c) : import of foreign goods required for its operations
and projects; 13(d) : petroleum products used in generation of electric
power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL
FORMS OF TAXES, ETC.,", included 13(a) under the "as well as"
clause and added PNOC subsidiaries as qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC
laws in the order of enactment or issuance as narrated above in part I
hereof. President Marcos must have considered all the NPC statutes
from C.A. No. 120up to its latest amendments, P.D. No. 380, P.D. No.
395 and P.D. No. 759, AND came up 55 with a very simple Section
13, R.A. No. 6395, as amended by P.D. No. 938. One common theme in
all these laws is that the NPC must be enable to pay its indebtedness 56
which, as of P.D. No. 938, was P12 Billion in total domestic
indebtedness, at any one time, and U$4 Billion in total foreign loans at
any one time. The NPC must be and has to be exempt from all forms of
taxes if this goal is to be achieved. By virtue of P.D. No. 938 NPC's
capital stock was raised to P8 Billion. It must be remembered that to pay
the government share in its capital stock P.D. No. 758 was issued
mandating that P200 Million would be appropriated annually to cover
the said unpaid subscription of the Government in NPC's authorized
capital stock. And significantly one of the sources of this annual
appropriation of P200 million is TAX MONEY accruing to the General
Fund of the Government. It does not stand to reason then that former
President Marcos would order P200 Million to be taken partially or
totally from tax money to be used to pay the Government subscription in
the NPC, on one hand, and then order the NPC to pay all its indirect
taxes, on the other. The above conclusion that then President Marcos
lumped up Sections 13 (b), 13 (c) and (d) into the phrase "All FORMS
OF" is supported by the fact that he did not do the same for the tax
exemption provision for the foreign loans to be incurred. The tax
exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads
as follows:
as the importation of machinery, equipment, materials and supplies by
the Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt from all
taxes, fees, imposts, other charges and restrictions, including import
restrictions, by the Republic of the Philippines, or any of its agencies
and political subdivisions. 57
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness contracted this subsection and the
payment of the principal, interest and other charges thereon, as well as
the importation of machinery, equipment, materials, supplies and
services, by the Corporation, paid from the proceeds of any loan, credit
or indebtedness incurred under this Act, shall also be exempt from all
direct and indirect taxes, fees, imposts, other charges and restrictions,
including import restrictions previously and presently imposed, and to
be imposed by the Republic of the Philippines, or any of its agencies and
political subdivisions. 58 (Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax exemption
provision in Section 8 (b), R.A. No. 6395, as amended by P.D. No. 380,
still stands. Since the subject matter of this particular Section 8 (b) had
to do only with loans and machinery imported, paid for from the
proceeds of these foreign loans, THERE WAS NO OTHER SUBJECT
MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as
is - with the express mention of "direct and indirect" tax exemptions.
And this "direct and indirect" tax exemption privilege extended to
"taxes, fees, imposts, other charges . . . to be imposed" in the future -
surely, an indication that the lawmakers wanted the NPC to be exempt
from ALL FORMS of taxes - direct and indirect. It is crystal clear,
therefore, that NPC had been granted tax exemption privileges for both
direct and indirect taxes under P.D. No. 938.
VI
Five (5) years on into the now discredited New Society, the Government
decided to rationalize government receipts and expenditures by
formulating and implementing a National Budget. 60 The NPC, being a
government owned and controlled corporation had to be shed off its tax
exemption status privileges under P.D. No. 1177. It was, however,
allowed to ask for a subsidy from the General Fund in the exact amount
of taxes/duties due. Actually, much earlier, P.D. No. 882 had already
repealed NPC's tax-free importation privileges. It allowed, however,
NPC to appeal said repeal with the Office of the President and to avail of
tax-free importation privileges under its Section 1, subject to the prior
approval of an Inter-Agency Committed created by virtue of saidP.D.
No. 882. It is presumed that the NPC, being the special creation of the
State, was allowed to continue its tax-free importations. This Court notes
that petitioner brought to the attention of this Court, the matter of the
abolition of NPC's tax exemption privileges by P.D. No. 1177 61 only in
his Common Reply/Comment to private Respondents' "Opposition" and
"Comment" to Motion for Reconsideration, four (4) months AFTER the
motion for Reconsideration had been filed. During oral arguments heard
on July 9, 1992, he proceeded to discuss this tax exemption withdrawal
as explained by then Secretary of Justice Vicente Abad Santos in
opinion No. 133 (S '77). 62 A careful perusal of petitioner's senate Blue
Ribbon Committee Report No. 474, the basis of the petition at bar, fails
to yield any mention of said P.D. No. 1177's effect on NPC's tax
exemption privileges. 63 Applying by analogy Pulido vs. Pablo, 64 the
court declares that the matter of P.D. No. 1177 abolishing NPC's tax
exemption privileges was not seasonably invoked 65 by the petitioner.
Be that as it may, the Court still has to discuss the effect of P.D. No.
1177 on the NPC tax exemption privileges as this statute has been
reiterated twice in P.D. No. 1931. The express repeal of tax privileges of
any government-owned or controlled corporation (GOCC). NPC
included, was reiterated in the fourth whereas clause of P.D. No. 1931's
preamble. The subsidy provided for in Section 23, P.D. No. 1177, being
inconsistent with Section 2, P.D. No. 1931, was deemed repealed as the
Fiscal Incentives Revenue Board was tasked with recommending the
partial or total restoration of tax exemptions withdrawn by Section
1, P.D. No. 1931. The records before Us do not indicate whether or not
NPC asked for the subsidy contemplated in Section 23, P.D. No. 1177.
Considering, however, that under Section 16 of P.D. No. 1177, NPC had
to submit to the Office of the President its request for the P200 million
mandated by P.D. No. 758 to be appropriated annually by the
Government to cover its unpaid subscription to the NPC authorized
capital stock and that under Section 22, of the same P.D. No. NPC had
to likewise submit to the Office of the President its internal operating
budget for review due to capital inputs of the government (P.D. No. 758)
and to the national government's guarantee of the domestic and foreign
indebtedness of the NPC, it is clear that NPC was covered by P.D. No.
1177. There is reason to believe that NPC availed of subsidy granted to
exempt GOCC's that suddenly found themselves having to pay taxes. It
will be noted that Section 23, P.D. No. 1177, mandated that the
Secretary of Finance and the Commissioner of the Budget had to
establish the necessary procedure to accomplish the tax payment/tax
subsidy scheme of the Government. In effect, NPC, did not put any cash
to pay any tax as it got from the General Fund the amounts necessary to
pay different revenue collectors for the taxes it had to pay. In his
memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC
lost all its duty and tax exemptions, whether direct or indirect. And so
there was nothing to be withdrawn or to be restored under P.D. No.
1931, issued on June 11, 1984. This is evident from sections 1 and 2 of
said P.D. No. 1931, which reads:
"Section 1. The provisions of special or general law to the contrary
notwithstanding, all exemptions from the payment of duties, taxes, fees,
imports and other charges heretofore granted in favor of government-
owned or controlled corporations including their subsidiaries are hereby
withdrawn." Sec. 2. The President of the Philippines and/or the Minister
of Finance, upon the recommendation of the Fiscal Incentives Review
Board created under P.D. No. 776, is hereby empowered to restore
partially or totally, the exemptions withdrawn by section 1 above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change NPC's
status. Since it had already lost all its tax exemptions privilege with the
issuance of P.D. No. 1177 seven (7) years earlier or on July 30, 1977,
there were no tax exemptions to be withdrawn by section 1 which could
later be restored by the Minister of Finance upon the recommendation of
the FIRB under Section 2 of P.D. No. 1931. Consequently, FIRB
resolutions No. 10-85, and 1-86, were all illegally and validly issued
since FIRB acted beyond their statutory authority by creating and not
merely restoring the tax exempt status of NPC. The same is true for
FIRB Res. No. 17-87 which restored NPC's tax exemption under E.O.
No. 93 which likewise abolished all duties and tax exemptions but
allowed the President upon recommendation of the FIRB to restore those
abolished.
The Court disagrees. Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or
substantially the same terms the provisions of the act or acts so revised
and consolidated, the revision and consolidation shall be taken to be a
continuation of the former act or acts, although the former act or acts
may be expressly repealed by the revised and consolidated act; and all
rights and liabilities under the former act or acts are preserved and may
be enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its
Section 1 the first half of Section 23, P.D. No. 1177, on withdrawal of
tax exemption privileges of all GOCC's said Section 1, P.D. No.
1931 was deemed to be a continuation of the first half of Section
23, P.D. No. 1177, although the second half of Section 23, P.D. No. 177,
on the subsidy scheme for former tax exempt GOCCs had been
expressly repealed by Section 2 with its institution of the FIRB
recommendation of partial/total restoration of tax exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were,
therefore, the same NPC tax exemption privileges withdrawn by Section
23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it
had to pay. It could, however, under P.D. No. 1931, ask for a total
restoration of its tax exemption privileges, which, it did, and the same
were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as
approved by the Minister of Finance. Consequently, contrary to
petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were
both legally and validly issued by the FIRB pursuant to P.D. No. 1931.
FIRB did not created NPC's tax exemption status but merely restored it.
69 Some quarters have expressed the view that P.D. No. 1931 was
illegally issued under the now rather infamous Amendment No. 6 70 as
there was no showing that President Marcos' encroachment on
legislative prerogatives was justified under the then prevailing condition
that he could legislate "only if the Batasang Pambansa 'failed or was
unable to act inadequately on any matter that in his judgment required
immediate action' to meet the 'exigency'. 71 Actually under said
Amendment No. 6, then President Marcos could issue decrees not only
when the Interim Batasang Pambansa failed or was unable to act
adequately on any matter for any reason that in his (Marcos') judgment
required immediate action, but also when there existed a grave
emergency or a threat or thereof. It must be remembered that said
Presidential Decree was issued only around nine (9) months after the
Philippines unilaterally declared a moratorium on its foreign debt
payments 72 as a result of the economic crisis triggered by loss of
confidence in the government brought about by the Aquino
assassination. The Philippines was then trying to reschedule its debt
payments. 73 One of the big borrowers was the NPC 74 which had a
US$ 2.1 billion white elephant of a Bataan Nuclear Power Plant on its
back. 75 From all indications, it must have been this grave emergency of
a debt rescheduling which compelled Marcos to issue P.D. No. 1931,
under his Amendment 6 power. 76 The rule, therefore, that under the
1973 Constitution "no law granting a tax exemption shall be passed
without the concurrence of a majority of all the members of the
Batasang Pambansa" 77 does not apply as said P.D. No. 1931 was not
passed by the Interim Batasang Pambansa but by then President Marcos
under His Amendment No. 6 power. P.D. No. 1931 was, therefore,
validly issued by then President Marcos under his Amendment No. 6
authority. Under E.O No. 93 (S'86) NPC's tax exemption privileges were
again clipped by, this time, President Aquino. Its section 2 allowed the
NPC to apply for the restoration of its tax exemption privileges. The
same was granted under FIRB Resolution No. 17-87 78 dated June 24,
1987 which restored NPC's tax exemption privileges effective, starting
March 10, 1987, the date of effectivity of E.O. No. 93 (S'86). FIRB
Resolution No. 17-87 was approved by the President on October 5,
1987. 79 There is no indication, however, from the records of the case
whether or not similar approvals were given by then President Marcos
for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters
to believe that a "travesty of justice" might have occurred when the
Minister of Finance approved his own recommendation as Chairman of
the Fiscal Incentives Review Board as what happened in Zambales
Chromate vs. Court of Appeals 80 when the Secretary of Agriculture
and Natural Resources approved a decision earlier rendered by him
when he was the Director of Mines, 81 and in Anzaldo vs. Clave 82
where Presidential Executive Assistant Clave affirmed, on appeal to
Malaca?ang, his own decision as Chairman of the Civil Service
Commission. 83 Upon deeper analysis, the question arises as to whether
one can talk about "due process" being violated when FIRB Resolutions
Nos. 10-85 and 1-86 were approved by the Minister of Finance when the
same were recommended by him in his capacity as Chairman of the
Fiscal Incentives Review Board. 84 In Zambales Chromite and Anzaldo,
two (2) different parties were involved: mining groups and scientist-
doctors, respectively. Thus, there was a need for procedural due process
to be followed. In the case of the tax exemption restoration of NPC,
there is no other comparable entity - not even a single public or private
corporation - whose rights would be violated if NPC's tax exemption
privileges were to be restored. While there might have been a
MERALCO before Martial Law, it is of public knowledge that the
MERALCO generating plants were sold to the NPC in line with the
State policy that NPC was to be the State implementing arm for the
electrification of the entire country. Besides, MERALCO was limited to
Manila and its environs. And as of 1984, there was no more MERALCO
- as a producer of electricity - which could have objected to the
restoration of NPC's tax exemption privileges. It should be noted that
NPC was not asking to be granted tax exemption privileges for the first
time. It was just asking that its tax exemption privileges be restored. It is
for these reasons that, at least in NPC's case, the recommendation and
approval of NPC's tax exemption privileges under FIRB Resolution Nos.
10-85 and 1-86, done by the same person acting in his dual capacities as
Chairman of the Fiscal Incentives Review Board and Minister of
Finance, respectively, do not violate procedural due process. While as
above-mentioned, FIRB Resolution No. 17-87 was approved by
President Aquino on October 5, 1987, the view has been expressed that
President Aquino, at least with regard to E.O. 93 (S'86), had no authority
to sub-delegate to the FIRB, which was allegedly not a delegate of the
legislature, the power delegated to her thereunder. A misconception
must be cleared up. When E.O No. 93 (S'86) was issued, President
Aquino was exercising both Executive and Legislative powers. Thus,
there was no power delegated to her, rather it was she who was
delegating her power. She delegated it to the FIRB, which, for purposes
of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was
not sub-delegating her power. And E.O. No. 93 (S'86), as a delegating
law, was complete in itself - it set forth the policy to be carried out 85
and it fixed the standard to which the delegate had to conform in the
performance of his functions, 86 both qualities having been enunciated
by this Court in Pelaez vs. Auditor General. 87 Thus, after all has been
said, it is clear that the NPC had its tax exemption privileges restored
from June 11, 1984 up to the present.
VII
The next question that projects itself is - who pays the tax? The answer
to the question could be gleamed from the manner by which the
Commissaries of the Armed Forces of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the
Philippines, and their defendants but groceries and other goods free of
all taxes and duties if bought from any AFP Commissaries. In practice,
the AFP Commissary suppliers probably treat the unchargeable
specific, ad valorem and other taxes on the goods earmarked for AFP
Commissaries as an added cost of operation and distribute it over the
total units of goods sold as it would any other cost. Thus, even the
ordinary supermarket buyer probably pays for the specific, ad
valorem and other taxes which theses suppliers do not charge the AFP
Commissaries. 89 IN MUCH THE SAME MANNER, it is clear that
private respondents-oil companies have to absorb the taxes they add to
the bunker fuel oil they sell to NPC. It should be stated at this juncture
that, as early as May 14, 1954, the Secretary of Justice renders an
opinion, 90 wherein he stated and We quote:
xxx xxx xxx Republic Act No. 358 exempts the National Power
Corporation from "all taxes, duties, fees, imposts, charges, and
restrictions of the Republic of the Philippines and its provinces, cities,
and municipalities." This exemption is broad enough to include all taxes,
whether direct or indirect, which the National Power Corporation may
be required to pay, such as the specific tax on petroleum products. That
it is indirect or is of no amount [should be of no moment], for it is the
corporation that ultimately pays it. The view which refuses to accord the
exemption because the tax is first paid by the seller disregards realities
and gives more importance to form than to substance. Equity and law
always exalt substance over from. xxx xxx xxx Tax exemptions are
undoubtedly to be construed strictly but not so grudgingly as knowledge
that many impositions taxpayers have to pay are in the nature of indirect
taxes. To limit the exemption granted the National Power Corporation to
direct taxes notwithstanding the general and broad language of the statue
will be to thwrat the legislative intention in giving exemption from all
forms of taxes and impositions without distinguishing between those that
are direct and those that are not. (Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil
companies which supply bunker fuel oil to NPC have to pay the taxes
imposed upon said bunker fuel oil sold to NPC. By the very nature of
indirect taxation, the economic burden of such taxation is expected to be
passed on through the channels of commerce to the user or consumer of
the goods sold. Because, however, the NPC has been exempted from
both direct and indirect taxation, the NPC must beheld exempted from
absorbing the economic burden of indirect taxation. This means, on the
one hand, that the oil companies which wish to sell to NPC absorb all or
part of the economic burden of the taxes previously paid to BIR, which
could they shift to NPC if NPC did not enjoy exemption from indirect
taxes. This means also, on the other hand, that the NPC may refuse to
pay the part of the "normal" purchase price of bunker fuel oil which
represents all or part of the taxes previously paid by the oil companies to
BIR. If NPC nonetheless purchases such oil from the oil companies -
because to do so may be more convenient and ultimately less costly for
NPC than NPC itself importing and hauling and storing the oil from
overseas - NPC is entitled to be reimbursed by the BIR for that part of
the buying price of NPC which verifiably represents the tax already paid
by the oil company-vendor to the BIR. It should be noted at this point in
time that the whole issue of who WILL pay these indirect taxes HAS
BEEN RENDERED moot and academic by E.O. No. 195 issued on June
16, 1987 by virtue of which the ad valorem tax rate on bunker fuel oil
was reduced to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as
follows:
EXECUTIVE ORDER NO. 195 AMENDING PARAGRAPH (b) OF
SECTION 128 OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED BY REVISING THE EXCISE TAX RATES OF
CERTAIN PETROLEUM PRODUCTS. xxx xxx xxx Sec. 1. Paragraph
(b) of Section 128 of the National Internal Revenue Code, as amended,
is hereby amended to read as follows: Par. (b) - For products subject
to ad valorem tax only: PRODUCT AD VALOREM TAX RATE 1. . . .
2. . . . 3. . . . 4. Fuel oil, commercially known as bunker oil and on
similar fuel oils having more or less the same generating power 0% xxx
xxx xxx Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our
Lord, nineteen hundred and eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without
having to worry about who is going to bear the economic burden of
the ad valorem taxes. What this Court will now dispose of are
petitioner's complaints that some indirect tax money has been illegally
refunded by the Bureau of Internal Revenue to the NPC and that more
claims for refunds by the NPC are being processed for payment by the
BIR. A case in point is the Tax Credit Memo issued by the Bureau of
Internal Revenue in favor of the NPC last July 7, 1986 for
P58.020.110.79 which were for "erroneously paid specific and ad
valorem taxes during the period from October 31, 1984 to April 27,
1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as
the PNC did not have indirect tax exemptions with the enactment of P.D.
No. 938. As We have already ruled otherwise, the only questions left are
whether NPC Is entitled to a tax refund for the tax component of the
price of the bunker fuel oil purchased from Caltex (Phils.) Inc. and
whether the Bureau of Internal Revenue properly refunded the amount to
NPC. After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs - NPC included, it was only on May 8,
1985 when the BIR issues its letter authority to the NPC authorizing it to
withdraw tax-free bunker fuel oil from the oil companies pursuant to
FIRB Resolution No. 10-85. 92 Since the tax exemption restoration was
retroactive to June 11, 1984 there was a need. therefore, to recover said
amount as Caltex (PhiIs.) Inc. had already paid the BIR the specific
and ad valorem taxes on the bunker oil it sold NPC during the period
above indicated and had billed NPC correspondingly. 93 It should be
noted that the NPC, in its letter-claim dated September 11, 1985 to the
Commissioner of the Bureau of Internal Revenue DID NOT
CATEGORICALLY AND UNEQUIVOCALLY STATE that itself paid
the P58.020,110.79 as part of the bunker fuel oil price it purchased from
Caltex (Phils) Inc. 94 The law governing recovery of erroneously or
illegally, collected taxes is section 230 of the National Internal Revenue
Code of 1977, as amended which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected. - No suit or
proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been
excessive or in any Manner wrongfully collected. until a claim for
refund or credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or
sum has been paid under protest or duress. In any case, no such suit or
proceeding shall be begun after the expiration of two years from the date
of payment of the tax or penalty regardless of any supervening cause
that may arise after payment; Provided, however, That the
Commissioner may, even without a written claim therefor, refund or
credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly, to have been erroneously paid. xxx
xxx xxx
Inasmuch as NPC filled its claim for P58.020,110.79 on September 11,
1985, 95 the Commissioner correctly issued the Tax Credit Memo in
view of NPC's indirect tax exemption. Petitioner, however, asks Us to
restrain the Commissioner from acting favorably on NPC's claim for
P410.580,000.00 which represents specific and ad valoremtaxes paid by
the oil companies to the BIR from June 11, 1984 to the early part of
1986. 96 A careful examination of petitioner's pleadings and annexes
attached thereto does not reveal when the alleged claim for a
P410,580,000.00 tax refund was filed. It is only stated In paragraph No.
2 of the Deed of Assignment 97 executed by and between NPC and
Caltex (Phils.) Inc., as follows:
That the ASSIGNOR(NPC) has a pending tax credit claim with the
Bureau of Internal Revenue amounting to P442,887,716.16.
P58.020,110.79 of which is due to Assignor's oil purchases from the
Assignee (Caltex [Phils.] Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican
standoff." We cannot restrain the BIR from refunding said amount
because of Our ruling that NPC has both direct and indirect tax
exemption privileges. Neither can We order the BIR to refund said
amount to NPC as there is no pending petition for review
on certiorari of a suit for its collection before Us. At any rate, at this
point in time, NPC can no longer file any suit to collect said amount
EVEN IF lt has previously filed a claim with the BIR because it is time-
barred under Section 230 of the National Internal Revenue Code of
1977. as amended, which states:
In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or penalty
REGARDLESS of any supervening cause that may arise after payment. .
. . (Emphasis supplied)
The date of the Deed of Assignment is June 6. 1986. Even if We were to
assume that payment by NPC for the amount of P410,580,000.00 had
been made on said date. it is clear that more than two (2) years had
already elapsed from said date. At the same time, We should note that
there is no legal obstacle to the BIR granting, even without a suit by
NPC, the tax credit or refund claimed by NPC, assuming that NPC's
claim had been made seasonably, and assuming the amounts covered
had actually been paid previously by the oil companies to the BIR.
WHEREFORE, in view of all the foregoing, the Motion for
Reconsideration of petitioner is hereby DENIED for lack of merit and
the decision of this Court promulgated on May 31, 1991 is hereby
AFFIRMED. SO ORDERED. Narvasa, C.J., Feliciano, Bidin, Regalado,
Romero, Bellosillo and Melo, JJ., concur. Padilla and Quiason, JJ. took
no part. # Footnotes
1 Penned by Justice Gancayo, concurred in by Justices Narvasa,
Melencio-Herrera, Feliciano, Bidin, Medialdea, and Regalado; separate
dissenting opinions by Justices Cruz, Paras, and Sarmiento, with justices
Gri?o-Aquino and Davide joining in the dissent of Justice Sarmiento
while Justice Gutierrez joined in the dissents. Chief Justice Gutierrez
joined in the dissents. Chief Justice Fernan and Justice Padilla took no
part. 2Com. Act No. 120, secs. 1, & 2 (g). 3 Com. Act No. 120, sec. 11.
4 Com. Act No. 120, sec. 2(k). 5 Com. Act No. 120, sec. 4, par. 3.
6 Com. Act No. 344, sec. 1. 7 Com. Act No. 495, sec. 1. 8 Rep. Act No.
357, sec. 3. 9 Rep. Act No. 357, sec. 1. 10 Rep. Act No. 357, sec. 2.
11 Rep. Act No. 357, sec. 8. 12 Rep. Act No. 358, sec. 1. 13 Rep. Act
No. 358, sec. 2. 14 Rep. Act No. 813, sec. 1. 15 Rep. Act No. 987, sec.
2. 16 Increased to P500,000,000.00 from P170,500,000.00 in Rep. Act
No. 358 (Rep. Act No. 1397, sec. 1). 17 Rep Act No. 2055, secs. 1 and
2. 18 Rep Act No. 2058, sec. 1. 19 Rep Act No. 2058, sec. 2. 20 Rep Act
No. 2641, sec. 1. 21 Rep Act No. 3043, sec. 1. 22 Rep Act No. 4897,
sec. 1. 23 Rep Act No. 6395, sec. 2. 24 Rep Act No. 6395, sec. 8(a). 25
Rep Act No. 6395, sec. 8(b). 26 Rep Act No. 6395, sec. 13. 27 Pres.
Dec. No. 40, par. 2. 28 Pres. Dec. No. 40, par. 5. 29 Pres. Dec. No. 380,
sec. 5. 30 Pres. Dec. No. 380, sec. 8. 31 Pres. Dec. No. 380, sec. 9, par.
1. 32 Pres. Dec. No. 380, sec. 9, par. 4. 33 Pres. Dec. No. 380, sec. 10.
34 Pres. Dec. No. 395, par. 1. 35 Pres. Dec. No. 758, sec. 1. 36 Pres.
Dec. No. 938, 1st Whereas clause. 37 Pres. Dec. No. 938, 4th Whereas
clause. 38 Pres. Dec. No. 938, 6th Whereas clause. 39 Pres. Dec. No.
938, sec. 5. 40 Pres. Dec. No. 938, sec. 6. 41 Pres. Dec. No. 938, sec. 8.
42 Pres. Dec. No. 938, sec. 10. 43 Pres. Dec. No. 1177, sec. 4. 44 Pres.
Dec. No. 1177, sec. 23. 45 Pres. Dec. No. 1177, sec. 90. 46 Pres. Dec.
No. 1931, Fourth Whereas clause. 47 Pres. Dec. No. 1931, Fifth
Whereas clause. 48 Exec. Order No. 93 (S'86). sec. 6. 49 Exec. Order
No. 93, sec. 4. 50 Rule V, Rules and Regulations to Implement Exec.
Order No. 93. 51 83 O.G. 8, pp. 722-725. 52 PARAS, TAXATION
FUNDAMENTALS, 24-25 (1966) 53 Rollo, p. 687; Motion for
Reconsideration, p. 12. 54 Rollo, p. 688; Motion for Reconsideration, p.
13. 55 "Statutes are considered to be in pari materia - to pertain to the
same subject matter - when they relate to the same person or thing, or to
the same class of persons of things, or have the same purpose or object.
They may be independent or amendatory in form; they may be complete
enactments dealing with a single, limited subject matter or sections of
code or revision; or they may be combination of these. (2 Sutherland
Statutory Construction, 2nd Ed., sec. 5202, p. 535) xxx xxx xxx Statutes
in pari materia, although some may be special and some general, in the
event one of them is ambiguous or uncertain, are to be construed
together, even if the various statutes have not been enacted
simultaneously, and do not refer to each other expressly, and although
some of them have been repealed or have expired, or held
unconstitutional, or invalid. (Crawford, Statutory Construction, sec. 231,
p. 431.) xxx xxx xxx The reasons which support this rule are twofold. In
the first place, all the enactments of the same legislature on the general
subject-matter are to be regarded as parts of one uniform system. Later
statutes are considered as supplementary or complementary to the earlier
enactments. In the passage of each act, the legislative body must be
supposed to have had in mind and in contemplation the existing
legislation on the same subject, and to have shaped its new enactment
with reference thereto. Secondly, the rule derives support from the
principle which requires the interpretation of a statute shall be such, if
possible, as to avoid any repugnancy or inconsistency between different
enactments of the same legislature. To achieve this result, it is necessary
to consider all previous acts relating to the same matters, and to construe
the act in hand so as to avoid, as far as it may be possible, any conflict
between them. Hence for example, when the legislature has used a word
in a statute in one sense and with one meaning, and subsequently uses
the same word in legislating on the same subject matter, it will be
understood as using the word in the same sense, unless there is
something in the context or in the nature of things to indicate that it
intended a different meaning thereby. (Black on Interpretation of Laws,
2nd Ed., pp. 232-234) FRANCISCO, STATUTORY
CONSTRUCTION, 287-288 (1986). 56 The NPC is the implementing
arm of the State in its policy of electrification of the entire country. Its
authorized capital stock and total local and foreign debt ceiling have,
therefore, been regularly raised to provide NPC with massive fund flows
to achieve said policy. 57 Rep. Act No. 6395. sec. 8 (b), par. 5. 58 Rep.
Act No. 6395, sec. 8 (b), par. 5. was deleted and paragraph 5, sec. 8(b)
became paragraph 4, Section 8(b), as amended by Pres. Dec. 380. 59
"Sec. 8. The first paragraph of Section 8(b) of the same Act is hereby
further amended and a new paragraph shall be inserted between the third
and fourth paragraph of said section which shall both read as follows: . .
.." 60 See Pres. Dec. No. 1177, sec. 4. 61 Rollo, p. 783. 62 T.S.N., July
9, 1992, pp. 19-21. 63 Rollo, pp. 53-119. In the report submitted to the
Senate Blue Ribbon Committee, the discussion centered on NPC's tax
exemption privileges being abolished by Pres. Dec. No. 1931 in
paragraphs 11, 37, 81, 83.1 and F.1 Pres. Dec. No. 1177 was mentioned
in paragraph C(2) in the Recommendation portion but only by way of its
state policy being made a model for a future bill to be filled by the
Senators involved in the investigation. 64 117 SCRA 16(1980). 65 In
this case, Judge Magno Pulido of then CFI of Alaminos, Pangasinan,
Branch XIII, promulgated a decision on May 17, 1974 in Criminal Case
No. 266-A entitled "People vs. Bantolino." Bantolino filed a complaint
against the judge charging him with ignorance of the law because his
sentence was "with subsidiary imprisonment." The case dismissed after
respondent judge therein state that he had corrected "with" to "without"
but Bantolino's lawyer, Atty. Pulido, refused to return his (Atty. Pulido)
copy for a corrected copy. Later, Atty. Pulido filed another charge
against Judge Pablo, this time, for falsifying a Court of Appeals'
decision (re Bantolino's appeal with the Com. Act No.) and minutes of
court hearings as well as insertions in the record of a false commitment
order. Respondent judge pleaded, among others, res adjudicata. The
Court made a distinction between the two administrative complaints and
concluded that there was no res adjudicata. On the procedural aspect
involved, the Court stated: "Furthermore, the defense of res
adjudicata was not seasonably invoked. "It may be noted that
respondent Judge initially raised the defense of res adjudicata only in
the motion for reconsideration dated November 8, 1981. Atty. Pulido
filed this complaint on April 6, 1978. Respondent failed to set up the
defense of res adjudicata when he filed his comment dated June 19,
1974 in compliance with the first indorsement dated June 3, 1974 of the
then Assistant to the Judicial Consultant, now Deputy Court
Administrator Arturo B. Buena. Such failure to interpose the defense
of res adjudicata at the earliest opportunity is fatal as it deemed
waived." 66 73 Am Jur 2d 518, sec. 410, citing United States v. Grainger
346 US 235, 97 L Ed 1575, 73 S Ct 1069; State v Bean 159 Me 455, 195
A2d 68; States v. Holland, 202 Or 656, 277 P2d 386. For example, State
vs. Bean was an action by the State ton recover for goods and services
rendered an inmate of a state hospital. The defendant was committed to
the Augusta State Hospital on September 21, 1949 by order of court
after he had been found not guilty of the commission of a crime by
reason of insanity. The defendant was confined when the prevailing laws
were R.S. Ch. 27, Sec. 121 which provided that the person so committed
shall be there supported at his own expense, if he has sufficient means;
otherwise at the expense of the State,' and R.S. Ch. 27 Sec. 139 which
provided that "The state may recover from the insane, if able, or from
persons legally liable for his support, the reasonable expenses of his
support in either insane hospital.' R.S. Ch. 27, Sec 121, was expressly
repealed by P.L. 1961, Ch. 304, Sec 17 while R.S. Ch. 27, Sec. 139 was
expressly repealed by P.L. 1961, Ch. 304, Sec. 26. However, by P.L.
1961, Ch. 304, Secs. 4 and 5, the legislature simultaneously enacted
amendments which in the case of Sec. 4 thereof charged the Department
of Mental Health and Corrections with the duty of determining the
ability of the patient to pay for his support and of establishing rates and
fees therefor, and in the case of sec. 5, it provided that "such fees
charges shall be a debt of the patient or any person legally liable for his
support." It was only on January 20,1960 that the hospital billed the
defendant for his stay from September 21, 1949 in the amount of
$6651.72. Plaintiff filed on October 26, 1962 a case to recover said
amount. Defendant disclaimed liability by arguing that the enactment of
P.L. 1961, Ch. 304 was to terminate his liability for board and care
furnished prior to its enactment. The State of Maine's Supreme Judicial
Court rebuffed the defendant and held that: "[I]n the instant case P.L.
1961, Ch. 304 was intended to be a revision and condensation of the
statutes relating to the Department of Mental Health and Corrections by
which the substance of the right of the State of Maine to reimbursement
for care and support from the criminally insane in accordance with
"means" or "ability" to pay remained undisturbed. We are satisfied that it
was the intention of the Legislature that there should be no moment
when the right to such reimbursement did not exist. We think, the
governing principle was well stated in 50 Am. Jur. 559, Sec. 555; "It is a
general rule of law that where a statute is repealed and all or some of its
provisions are not the same time re-enacted, the re-enactment is
considered a reaffirmance of the old law, and a neutralization of the
repeal, so that the provisions of the repealed act which are thus re-
enacted continue in force without interruption, and all rights and
liabilities incurred thereunder are preserved and may be enforced.
Similarly, the rule of construction applicable to acts which revise and
consolidate other acts is, that when the revised and consolidated act re-
enacts in the same or substantially the same terms the provisions of the
act or acts so revised and consolidated, the revision and consolidation
shall be taken to be a continuation of the former act or acts, although the
former act or acts may be expressly repealed by the revised and
consolidated act; and all rights and liabilities under the former act or acts
are preserved and may be enforced." (State vs. Bean, 195 A2d 68, 71,
72; Emphasis supplied) 67 BE IT RESOLVED, AS IT HEREBY
RESOLVED, That: 1. Effective June 11, 1984, the tax and duty
exemption privileges enjoyed by the National Power Corporation under
Com. Act No. No. 120 as amended are restored up to June 30, 1985. 2.
Provided, That this restoration does not apply to the following: a.
importations of fuel oil (crude equivalent) and coal as per FIRB
Resolutions No. 1-84; b. commercially-funded importations; and c.
interest income derived from any investment source. 3. Provided further,
That in the case of importations funded by international financing
agreements, the NPC is hereby required to furnish the FIRB on a
periodic basis the particulars of items received or to be received through
such arrangements, for purposes of tax and duty exemption privileges.
(SGD.) ALFREDO PIO DE RODA, JR. Acting Minister of Finance
Acting Chairman, FIRB
SUBJECT: National Power Corporation (NPC)"
68 BE IT RESOLVED, AS IT IS HEREBY RESOLVED: That 1.
Effective July 1, 1985, the tax and duty exemption privileges enjoyed by
the National Power Corporation (NPC) under Commonwealth Act No.
120, as amended, are restored; Provided, That importations of fuel oil
(crude oil equivalent) and coal of the herein grantee shall be subject to
the basic and additional imports duties; Provided, further, That the
following shall remain fully taxable: a. Commercially funded
importations; and b. Interest income derived by said grantee from bank
deposits and yield or any other monetary benefits from deposits
substitutes, trust funds and other similar arrangements. 2. The NPC as a
government corporation is exempt from the real property tax on land and
improvements owned by it provided that the beneficial use of the
property is not transferred to another pursuant to the provisions of Sec.
10(a) of the Real Property Tax Code, as amended.
(SGD.) CESAR E.A. VIRATA Minister of Finance Chairman, FIRB
SUBJECT: National Power Corporation." 69 Note should be taken that
FIRB Resolution No. 10-85 covered the period from June 11, 1984 up to
June 30, 1985 while FIRB Resolution No. 1-86 covered the period from
July 1, 1985 up to March 10, 1987. 70 "Whenever in the judgment of the
President, there exists a grave emergency or a threat or imminence
thereof, or whenever the interim Batasang Pambansa or the regular
National Assembly fails or is unable to act adequately on any matter for
any reason that in his judgment requires immediate action, he may in
order to meet the exigency, issued the necessary decrees, orders, or
letters of instruction, which shall form part of the law of the land." 71
Rollo, p. 652. 72 "The Philippines and International Monetary Fund
(IMF) have failed in talks here to finalize an agreement on a $630
million standby credit badly needed by the Philippines, informed sources
close to the talks told Reuters yesterday. xxx xxx xxx "Talks on the
credit began in October when the Philippines declared a moratorium on
repayments on its $26-billion foreign debt and asked creditor banks to
reschedule some of the debt." (Times Journal, June 21, 1984) 73 The
Philippines will not default in the payment of its $25-billion foreign debt
because it could be branded as an outlaw in the international community,
President Marcos said yesterday." (Times Journal, June 18, 1984) 74
WASHINGTON, D.C. - The Philippines and a consortium of
international banks have signed in New York an agreement restructuring
$2.9 billion in maturing short and medium terms loans of the Central
Bank and six other government corporations. "The amount restructed
represents 90 percent of the public sector loans to be restructured with
international banks. Included in the restructuring were the loans of the
Philippine National Bank (PNB), National Investment Development
Corp. (NIDC), Development Bank of the Philippines (DBP), Philippine
National Oil Corp. (PNOC), National Power Corporation (NAPOCOR)
and Philippine Airlines (PAL)." (Express, January 12, 1986) 75 "The
$2.1-billion BNPP, nestled on a plateau hugging the South China Sea, is
planned to generate 620 megawatts for the Luzon grid. The 'people
power' revolt in 1986, however, toppled the plant's proponent, then
President Marcos, from power. "So many technical defects were said to
have been discovered in the plant, and this "most prodigious" project of
the government-owned National Power Corp. was mothballed and has
remained so up to the present. It is a "white elephant" and the country
continues to pay a huge interests to its builder, Westinghouse, every
month." (Manila Bulletin, July 15, 1992) 76 President Marcos issued for
decrees yesterday, among them Decree No. 1934 (should be 1939
amending Rep. Act No. 4850 (should be Rep. Act No. 4850 (should be
Rep. Act. No. 4860) to allow an increase in the ceiling on direct foreign
borrowings of the government from $5 billion to $10 billion. "It would
allow him to exclude specific categories of external debt from the debt
service limitation whenever necessary in connection with the general
rescheduling or refinancing of foreign credits. "The decree also increases
the ceiling on the government's guarantee from the present $2.5 billion
to $7.5 billion. "It authorizes the government's guarantee of external
debts of government corporations. "He also issued: 1. Decree No. 1932
(should be No. 1937) amending the Central Bank Charter to allow it
greater flexibility in administering the monetary, banking and credit
system and to give a policy direction in the areas of money, banking and
credit. 2. Decree No 1933 (should be no. 1938) clothing the government
with expanded authority to guarantee foreign loans of the Central Bank.
3. Decree no. 1936 (should be No. 1939) authorizing the Credit
Information Bureau, to secure credit information on individuals and
institutions in the possession of government and private entities. (Manila
Bulletin, June 29, 1984) 77 "Section 17(4), Article VIII, 1973
Constitution. 78 "BE IT RESOLVED, AS IT IS HEREBY RESOLVED,
That the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of
petroleum and petroleum products, granted under the terms and
conditions of Commonwealth Act No. 120 (Creating the National Power
Corporation, defining its powers, objectives and functions, and for other
purposes), as amended, are restored effective March 10, 1987, subject to
the following conditions: 1. The restoration of the tax and duty
exemption privileges does not apply to the following: 1.1. Importations
of fuel oil (crude equivalent) and coal; 1.2. Commercially-funded
importations (i.e., importations which include but are not limited to
those financed by the NPC's own internal funds, domestic borrowings
from any source whatsoever, borrowings from foreign-based private
financial institutions, etc.); and 1.3. Interest income derived from any
source. 2. The NPC shall submit to the FIRB a report of its expansion of
relieved program, including details of disposition of relieved tax and
duty payments for such expansion on an annual basis or as often as the
FIRB may require it to do so. This report shall be in addition to the usual
FIRB reporting requirements on incentive availment.
(SGD.) ALFREDO PIO DE RODA, JR. Acting Secretary of Finance
Chairman, FIRB"
79 Rollo, p. 233; Annex "M" of the Petition. 80 94 SCRA 261 (1974).
81 In order that the review of the decision of a subordinate officer might
not turn out to be a farce, the reviewing officer must perforce be other
than the officer whose decision is under review; otherwise, there could
be no different view or there would be no real view of the case. The
decision of the reviewing officer would be biased view; inevitably, it
would be the same view since being human, he would not admit that he
was mistaken in his first view of the case." (Ibid., p. 267) 82 119 SCRA
353 (1982). 83 "Due process of law means fundamental fairness It is not
fair to Doctor Anzaldo that Presidential Executive Assistant Clave
should decide whether his own recommendation as Chairman of the
Civil Service Commission, as to who between Doctor Anzaldo and
Doctor Venzon should be appointed Science Research Supervisor II,
should be adopted by the President of the Philippines." (Ibid. p. 357). 84
"A Fiscal Incentive Review Board is hereby created for the purpose of
determining what subsidies and tax exemptions should be modified,
withdrawn, revoked and suspended, which shall be composed of the
following officials:
Chairman - Secretary of Finance Members - Secretary of Industry -
Director General of the National Economic and Development Authority
- Commissioner of Internal Revenue - Commissioner of Customs
"The Board may recommend to the President of the Philippines and for
reasons of compatibility with the declared economic policy, the
withdrawal, modification revocation or suspension of the enforceability
of any of the above-cited statutory or tax exemption grants, except those
granted by the Constitution. To attain its objectives, the Board may
require the assistance of any appropriate government agency or entity.
The Board shall meet once a month, or oftener at the call of Secretary of
Finance." (Sec. 2, Pres. Dec. No. 776) 85 WITHDRAWING ALL TAX
AND DUTY INCENTIVES, SUBJECT TO CERTAIN EXCEPTIONS,
EXPANDING THE POWERS OF THE FISCAL INCENTIVES
REVIEW BOARD AND FOR OTHER PURPOSES." 86 In the
discharge of its authority hereunder the Fiscal Incentives Review Board
shall take into account or any of the following considerations:
a) the effect on relative price levels; b) relative contribution of the
beneficiary to the revenue generation effort; c) nature of the activity the
beneficiary is engaged; and d) in general, the greater national interest to
be served."
87 15 SCRA 569 (1965). 88 "WHEREAS, pursuant to Proclamation No.
1081, dated September 21, 1972, martial law is in effect throughout the
land; "WHEREAS, in order to extend further assistance to the Veterans
of the Philippines in World War II, and their windows and orphans, as
well as to the members of the Armed Forces of the Philippines (who are
now carrying the greater part of the burden of suppressing the activities
of groups of men actively engaged in a criminal conspiracy to seize
political and state powers in the Philippines and of eradicating
lawlessness, anarchy, disorder and wanton destruction of lives and
property) and their dependents, I ordered the Philippine Veterans Bank
to set aside the sum of five million pesos (P5,000,000.00) in Letter of
Instruction No. 31, October 23, 1972, as amended, for the operation and
maintenance of commissary and PX facilities for the aforementioned
veterans, their widows and orphans, and the members of the Armed
Forces of the Philippines and their dependents; "WHEREAS, to better
realize the objectives of the aforementioned Leter Instructions and in
order to render fuller meaning to said objectives, it is necessary that
certain commodities which are to be sold by the commissary from local
producers, manufacturers or suppliers be free of all taxes, duties and/or
charges imposed by the Government; NOW, THEREFORE, I,
FERDINAND E. MARCOS, President of the Philippines, by virtue of
the powers in me vested by the Constitution as Commander-in-Chief of
all the Armed Forces of the Philippines, and pursuant to the Letter of
Instruction cited above, do hereby promulgate and decree as part of the
law of the land that all purchases from local sources, manufacturers,
suppliers and producers of commodities or items decided by the AFP
Exchange and Commissary Service to be sold to persons entitled to
commissary and PX privileges under Letter of Instruction No. 31, dated
October 23, 1972, as amended, shall be free of all taxes, duties and other
charges prescribed for similar commodities or items under existing
revenue and other laws and regulations. The Chief of Staff, AFP, with
approval of December, in the year of Our Lord, nineteen hundred and
seventy-two." (Emphasis Supplied) 89 Footnote No. 15 Philippine
Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA
1056, at 1064: "In the long run a sales tax is probably shifted to the
consumer, but during the period when supply is being adjusted to
changes in demand it must be in part absorbed. In practice the business
man will treat the levy as an added cost of operation and distribute it
over his sales as he would any other cost, increasing by more than the
amount of tax prices of goods demand for which will be least affected
and leaving other prices unchanged." [47 Harv. Ld. Rev. 860, 869
(1934)]. 90 Opinion No. 106, S'54. 91 Rollo, p. 212; Petition, Annex
"F". 92 Rollo, p. 124 Petition, Annex "D" of Annex "A". 93 Rollo, p.
156; Petition, Annex "N-1" of Annex "A". 94 Rollo, p. 128; Petition,
Annex "G" of Annex "A". 95 Ibid. 96 Rollo, p. 12. 97 Rollo, p. 213,
Petition, Annex "G".
G.R. No. L-24265 December 28, 1979
PROCTER & GAMBLE PHILIPPINE MANUFACTURING
CORPORATION, plaintiff-appellant,
vs.
THE MUNICIPALITY OF JAGNA, PROVINCE OF
BOHOL, defendant-appellee.
Picazo, Agcaoili, Santayana, Reyes & Tayao for appellant.
Joel P. Tiangco and Jesus N. Borromeo for appellee.

MELENCIO-HERRERA, J .:
A direct appeal by plaintiff company from the judgment of the
Court of First Instance of Manila, Branch VI, upholding the validity
of Ordinance No. 4, Series of 1957, enacted by defendant
Municipality, which imposed "storage fees on all exportable copra
deposited in the bodega within the jurisdiction of the Municipality
of Jagna Bohol.
Plaintiff-appellant is a domestic corporation with principal offices
in Manila. lt is a consolidated corporation of Procter &
Gamble Trading Company and Philippine Manufacturing
Company, which later became Procter & Gamble Trading
Company, Philippines. It is engaged in the manufacture of soap,
edible oil, margarine and other similar products, and for this
purpose maintains a "bodega" in defendant Municipality where it
stores copra purchased in the municipality and therefrom ships
the same for its manufacturing and other operations.
On December 13, 1957, the Municipal Council of Jagna enacted
Municipal Ordinance No. 4, Series of 1957, quoted hereinbelow:
AN ORDINANCE IMPOSING STORAGE FEES OF ALL
EXPORTABLE COPRA DEPOSITED IN THE BODEGA
WITHIN THE JURISDlCTI0N OF THE MUNICIPALITY
OF JAGNA BOHOL.
Be it ordained by the Municipal Council of Jagna Bohol,
that:
SECTION 1. Any person, firm or corporation having
a deposit of exportable copra in the bodega, within the
jurisdiction of the Municipality of Jagna Bohol, shall pay
to the Municipal Treasury a storage fee of TEN (P0.10)
CENTAVOS FOR EVERY HUNDRED (100) kilos;
SECTION 2. All exportable copra deposited in the
bodega within the Municipality of Jagna Bohol, is part of
the surveillance and lookout of the Municipal
Authorities;
SECTION 3. Any person, firm or corporation found
violating the provision of the preceding section of this
Ordinance shall be punished by a fine of not less than
TWO HUNDRED (P 200.00) PESOS, nor more than
FOUR HUNDRED (P400.00) PESOS, or an
imprisonment of hot less than ONE MONTH, nor more
than THREE MONTHS, or both fines and imprisonment
at the discretion of the court.
SECTION 4. This Ordinance shall take effect on
January 1, 1958.
APPROVED December 13,1957.
(Sgd.) TEODORO B. GALACAR Municipal Mayor
1

For a period of six years, from 1958 to 1963, plaintiff paid
defendant Municipality, allegedly under protest, storage fees in
the total sum of 1142,265.13, broken down as follows:
Procter & Gamble Trading Co. Procter &
Gamble Philippine Manufacturing Corp.
19
5
8
5,
072.
13
_______
____

1
9
5
9
7,
076.
00
_______
____

1
9
9,
950.
_______
____

6
0
00
1
9
6
1
7,
830.
00
_______
____

1
9
6
2
3,
648.
00
P5,
279.00

1
9
6
3
___
___
P3, 410.
00

P33
,
576.
13
P8,
689.00

TO
TAL
CLA
IM
P42
,
265.
13
2

On March 3, 1964, plaintiff filed this suit in the Court of First
Instance of Manila, Branch VI, wherein it prayed that 1) Ordinance
No. 4 be declared inapplicable to it, or in the alter. native, that it
be pronounced ultra-vires and void for being beyond the power of
the Municipality to enact; and 2) that defendant Municipality be
ordered to refund to it the amount of P42,265.13 which it had paid
under protest; and costs.
For its part, defendant Municipality upheld its power to enact the
Ordinance in question; questioned the jurisdiction of the trial
Court to take cognizance of the action under section 44(h) of the
Judiciary Act in that it seeks to enjoin the enforcement of a
Municipal Ordinance; and pleaded prescription and laches for
plaintiff's failure to timely question the validity of the said
Ordinance.
After the parties had agreed to submit the case for judgment on
the pleadings, the trial Court upheld its jurisdiction as well as
defendant Municipality's power to enact the Ordinance in question
under section 2238 of the Revised Administrative Code, otherwise
known as the general welfare clause, and declared that plaintiff's
right of action had prescribed under the 5-year period provided for
by Article 1149 of the Civil Code.
In this appeal, plaintiff interposes the following Assignments of
Error:
I
THE TRIAL COURT ERRED IN HOLDING THAT
ORDINANCE NO. 4, SERIES OF 1957, ENACTED BY
THE DEFENDANT MUNICIPALITY OF JAGNA
BOHOL, IS A VALID, LEGAL AND ENFORCEABLE
ORDINANCE AGAINST THE PLAINTIFF.
II
THE TRIAL COURT ERRED IN HOLDING
THAT PAYMENT OF THE TAX UNDER ORDINANCE
NO. 4, SERIES OF 1957 WAS NOT DONE UNDER
PROTEST.
III
THE TRIAL COURT ERRED IN HOLDING THAT THE
ACTION OF THE PLAINTIFF TO ANNUL AND TO
DECLARE ORDINANCE NO. 4, SERIES OF 1957 OF
THE DEFENDANT HAS ALREADY PRESCRIBED.
IV
AND, FINALLY, THE TRIAL COURT ERRED IN NOT
HOLDING ORDINANCE NO. 4. SERIES OF 1957
ULTRA-VIRES AND VOID AND IN NOT ORDERING
THE REFUND OF TAXES PAID THEREUNDER.
3

It is plaintiff's submission that the subject Ordinance is
inapplicable to it as it is not engaged in the business or trade of
storing copra for others for compensation or profit and that the
only copra it stores is for its exclusive use in connection with its
business as manufacturer of soap, edible oil, margarine and other
similar products; that the levy is intended as an "export tax" as it
is collected on "exportable copra' , and, therefore, beyond the
power of the Municipality to enact; and that the fee of P0.10 for
every 100 kilos of copra stored in the bodega is excessive,
unreasonable and oppressive and is imposed more for revenue
than as a regulatory fee.
The main question to determine is whether defendant Municipality
was authorized to impose and collect the storage fee provided for
in the challenged Ordinance under the laws then prevailing.
The validity of the Ordinance must be upheld pursuant to the
broad authority conferred upon municipalities by Commonwealth
Act No. 472, approved on June 16, 1939, which was the
prevailing law when the Ordinance was enacted (Procter &
Gamble Trading Co. vs. Municipality of Medina, 43 SCRA 130
11972]). Section 1 thereof reads:
Section 1. A municipal council or municipal district
council shall have the authority to impose municipal
license taxes upon persons engaged in any occupation
or business, or exercising privileges in the municipality
or municipal district, by requiring them to secure
licenses at rates fixed by the municipal council, or
municipal district council, and to collect fees and
charges for services rendered by the municipality or
municipal district and shall otherwise have power to
levy for public local purposes, and for school purposes,
including teachers' salaries, just and uniform taxes
other than percentage taxes and taxes on specified
articles.
Under the foregoing provision, a municipality is authorized to
impose three kinds of licenses: (1) a license for regulation of
useful occupation or enterprises; (2) license for restriction or
regulation of non-useful occupations or enterprises; and (3)
license for revenue.
4
It is thus unnecessary, as plaintiff would
have us do, to determine whether the subject storage fee is
a tax for revenue purposes or a license fee to reimburse
defendant Municipality for service of supervision because
defendant Municipality is authorized not only to impose a license
fee but also to tax for revenue purposes.
The storage fee imposed under the question Ordinance is actually
a municipal license tax or fee on persons, firms and corporations,
like plaintiff, exercising the privilege of storing copra in a bodega
within the Municipality's territorial jurisdiction. For the term
"license tax" has not acquired a fixed meaning. It is often used
indiseriminately to designate impositions exacted for the exercise
of various privileges. In many instances, it refers to revenue-
raising exactions on privileges or activities.
5

Not only is the imposition of the storage fee authorized by the
general grant of authority under section 1 of CA No. 472. Neither
is the storage fee in question prohibited nor beyond the power of
the municipal councils and municipal district councils to impose,
as listed in section 3 of said CA No. 472.
6

Moreover, the business of buying and selling and storing copra is
property the subject of regulation within the police power granted
to municipalities under section 2238 of the Revised Administrative
Code or the "general welfare clause", which we quote hereunder:
Section 2238. General power of council to enact
ordinances and make regulations. The municipal
council shall enact such ordinances and make such
regulations, not repugnant to law, as may be necessary
to carry into effect and discharge the powers and duties
conferred upon it by law and such as shall seem
necessary and proper to provide for the health and
safety, promote the prosperity, improve the morals,
peace, good order, comfort, and convenience of the
municipality and the inhabitants thereof, and for the
protection of property therein.
For it has been held that a warehouse used for keeping or storing
copra is an establishment likely to endanger the public safety or
likely to give rise to conflagration because the oil content of the
copra when ignited is difficult to put under control by water and
the use of chemicals is necessary to put out the fire.
7
And as the
Ordinance itself states, all exportable copra deposited within the
municipality is "part of the surveillance and lookout of municipal
authorities.
Plaintiff's argument that the imposition of P0.10 per 100 kilos of
copra stored in a bodega within defendant's territory is beyond the
cost of regulation and surveillance is not well taken. As
enunciated in the case of Victorias Milling Co. vs. Municipality of
Victorias, supra.
The cost of regulation cannot be taken as a gauge, if
the municipality really intended to enact a revenue
ordinance. For, 'if the charge exceeds the expense of
issuance of a license and costs of regulation, it is a tax'.
And if it is, and it is validly imposed, 'the rule that
license fees for regulation must bear a reasonable
relation to the expense of the regulation has no
application'.
Municipal corporations are allowed wide discretion in determining
the rates of imposable license fees even in cases of purely police
power measures. In the absence of proof as to municipal
conditions and the nature of the business being taxed as well as
other factors relevant to the issue of arbitrariness or
unreasonableness of the questioned rates, Courts will go slow in
writing off an Ordinance.
8
In the case at bar, appellant has not
sufficiently shown that the rate imposed by the questioned
Ordinance is oppressive, excessive and prohibitive.
Plaintiff's averment that the Ordinance, even if presumed valid, is
inapplicable to it because it is not engaged in the business or
occupation of buying or selling of copra but is only storing copra in
connection with its main business of manufacturing soap and
other similar products, and that to be compelled to pay the
storage fees would amount to double taxation, does not inspire
assent. The question of whether appellant is engaged in that
business or not is irrelevant because the storage fee, as
previously mentioned, is an imposition on the privilege of storing
copra in a bodega within defendant municipality by persons, firms
or corporations. Section 1 of the Ordinance in question does not
state that said persons, firms or corporations should be engaged
in the business or occupation of buying or selling copra.
Moreover, by plaintiff's own admission that it is a consolidated
corporation with its trading company, it will be hard to segregate
the copra it uses for trading from that it utilizes for manufacturing.
Thus, it can be said that plaintiff's payment of storage fees
imposed by the Ordinance in question does not amount to double
taxation. For double taxation to exist, the same property must be
taxed twice, when it should be taxed but once. Double taxation
has also been defined as taxing the same person twice by the
same jurisdiction for the same thing.
9
Surely, a tax on plaintiff's
products is different from a tax on the privilege of storing copra in
a bodega situated within the territorial boundary of defendant
municipality.
Plaintiff's further contention that the storage fee imposed by the
Ordinance is actually intended to be an export tax, which is
expressly prohibited by section 2287 of the Revised
Administrative Code, is without merit. Said provision reads as
follows:
Section 2287 ...
It shall not be in the power of the municipal council to
impose a tax in any form whatever upon goods and
merchandise carried into the municipality, or out of the
same, and any attempt to impose an import or export
tax upon such goods in the guise of an unreasonable
charge for wharfage use of bridges or otherwise, shall
be void.
xxx xxx xxx
We have held that only where there is a clear showing that what
is being taxed is an export to any foreign country would the
prohibition come into play.
10
When the Ordinance itself speaks of
"exportable" copra, the meaning conveyed is not exclusively
export to a foreign country but shipment out of the municipality.
The storage fee impugned is not a tax on export because it is
imposed not only upon copra to be exported but also upon copra
sold and to be used for domestic purposes if stored in any
warehouse in the Municipality and the weight thereof is 100 kilos
or more.
11

Thus finding the Ordinance in question to be valid, legal and
enforceable, we find it unnecessary to discuss the ascribed error
that the Court a quo erred in declaring that appellant had not paid
the taxes under protest.
However, we find merit in plaintiff's contention that the lower
Court erred in ruling that its action has prescribed under Article
1149 of the Civil Code, which provides for a period of five years
for all actions whose periods are not fixed in that Code. The case
of Municipality of Opon vs. Caltex Phil.,
12
is authority for the view
that the period for prescription of actions to recover municipal
license taxes is six years under Article 1145(2) of the Civil Code.
Thus, plaintiff's action brought within six years from the time the
right of action first accrued in 1958 has not yet prescribed.
WHEREFORE, affirming the judgment appealed, from, we sustain
the validity of Ordinance No. 4, Series of 1957, of defendant
Municipality of Jagna Bohol, under the laws then prevailing.
Costs against plaintiff-appellant.
SO ORDERED.
G.R. No. 115349 April 18, 1997
vs.
THE COURT OF APPEALS, THE COURT OF TAX APPEALS
and ATENEO DE MANILA UNIVERSITY,respondents.

PANGANIBAN, J .:
In conducting researches and studies of social organizations and
cultural values thru its Institute of Philippine Culture, is the Ateneo
de Manila University performing the work of an independent
contractor and thus taxable within the purview of then Section 205
of the National Internal Revenue Code levying a three percent
contractor's tax? This question is answer by the Court in the
negative as it resolves this petition assailing the Decision
1
of the
Respondent Court of Appeals
2
in CA-G.R. SP No. 31790
promulgated on April 27, 1994 affirming that of the Court of Tax
Appeals.
3

The Antecedent Facts
The antecedents as found by the Court of Appeals are
reproduced hereinbelow, the same being largely undisputed by
the parties.
Private respondent is a non-stock, non-profit
educational institution with auxiliary units and branches
all over the Philippines. One such auxiliary unit is the
Institute of Philippine Culture (IPC), which has no legal
personality separate and distinct from that of private
respondent. The IPC is a Philippine unit engaged in
social science studies of Philippine society and culture.
Occasionally, it accepts sponsorships for its research
activities from international organizations, private
foundations and government agencies.
On July 8, 1983, private respondent received from
petitioner Commissioner of Internal Revenue a demand
letter dated June 3, 1983, assessing private respondent
the sum of P174,043.97 for alleged deficiency
contractor's tax, and an assessment dated June 27,
1983 in the sum of P1,141,837 for alleged deficiency
income tax, both for the fiscal year ended March 31,
1978. Denying said tax liabilities, private respondent
sent petitioner a letter-protest and subsequently filed
with the latter a memorandum contesting the validity of
the assessments.
On March 17, 1988, petitioner rendered a letter-
decision canceling the assessment for deficiency
income tax but modifying the assessment for deficiency
contractor's tax by increasing the amount due to
P193,475.55. Unsatisfied, private respondent requested
for a reconsideration or reinvestigation of the modified
assessment. At the same time, it filed in the respondent
court a petition for review of the said letter-decision of
the petitioner. While the petition was pending before the
respondent court, petitioner issued a final decision
dated August 3, 1988 reducing the assessment for
deficiency contractor's tax from P193,475.55 to
P46,516.41, exclusive of surcharge and interest.
On July 12, 1993, the respondent court rendered the
questioned decision which dispositively reads:
WHEREFORE, in view of the foregoing,
respondent's decision is SET ASIDE. The
deficiency contractor's tax assessment in the
amount of P46,516.41 exclusive of surcharge
and interest for the fiscal year ended March
31, 1978 is hereby CANCELED. No
pronouncement as to cost.
SO ORDERED.
Not in accord with said decision, petitioner has come to this
Court via the present petition for review raising the following
issues:
1) WHETHER OR NOT PRIVATE
RESPONDENT FALLS UNDER THE
PURVIEW OF INDEPENDENT
CONTRACTOR PURSUANT TO SECTION
205 OF THE TAX CODE; and
2) WHETHER OR NOT PRIVATE
RESPONDENT IS SUBJECT TO 3%
CONTRACTOR'S TAX UNDER SECTION
205 OF THE TAX CODE.
The pertinent portions of Section 205 of the National Internal
Revenue Code, as amended, provide:
Sec. 205. Contractor, proprietors or operators of
dockyards, and others. A contractor's tax of threeper
centum of the gross receipts is hereby imposed on the
following:
xxx xxx xxx
(16) Business agents and other independent
contractors except persons, associations and
corporations under contract for embroidery
and apparel for export, as well as their agents
and contractors and except gross receipts of
or from a pioneer industry registered with the
Board of Investments under Republic Act No.
5186:
xxx xxx xxx
The term "independent contractors" include
persons (juridical or natural) not enumerated
above (but not including individuals subject to
the occupation tax under Section 12 of the
Local Tax Code) whose activity consists
essentially of the sale of all kinds of services
for a fee regardless of whether or not the
performance of the service calls for the
exercise or use of the physical or mental
faculties of such contractors or their
employees.
xxx xxx xxx
Petitioner contends that the respondent court erred in
holding that private respondent is not an "independent
contractor" within the purview of Section 205 of the Tax
Code. To petitioner, the term "independent contractor",
as defined by the Code, encompasses all kinds of
services rendered for a fee and that the only exceptions
are the following:
a. Persons, association and corporations under contract
for embroidery and apparel for export and gross
receipts of or from pioneer industry registered with the
Board of Investment under R.A. No. 5186;
b. Individuals occupation tax under Section 12 of the
Local Tax Code (under the old Section 182 [b] of the
Tax Code); and
c. Regional or area headquarters established in the
Philippines by multinational corporations, including their
alien executives, and which headquarters do not earn
or derive income from the Philippines and which act as
supervisory, communication and coordinating centers
for their affiliates, subsidiaries or branches in the Asia
Pacific Region (Section 205 of the Tax Code).
Petitioner thus submits that since private respondent
falls under the definition of an "independent contractor"
and is not among the aforementioned exceptions,
private respondent is therefore subject to the 3%
contractor's tax imposed under the same Code.
4

The Court of Appeals disagreed with the Petitioner Commissioner
of Internal Revenue and affirmed the assailed decision of the
Court of Tax Appeals. Unfazed, petitioner now asks us to reverse
the CA through this petition for review.
The Issues
Petitioner submits before us the following issues:
1) Whether or not private respondent falls under the
purview of independent contractor pursuant to Section
205 of the Tax Code.
2) Whether or not private respondent is subject to 3%
contractor's tax under Section 205 of the Tax Code.
5

In fine, these may be reduced to a single issue: Is Ateneo de
Manila University, through its auxiliary unit or branch the
Institute of Philippine Culture performing the work of an
independent contractor and, thus, subject to the three percent
contractor's tax levied by then Section 205 of the National Internal
Revenue Code?
The Court's Ruling
The petition is unmeritorious.
Interpretation of Tax Laws
The parts of then Section 205 of the National Internal Revenue
Code germane to the case before us read:
Sec. 205. Contractors, proprietors or operators of
dockyards, and others. A contractor's tax of
three per centum of the gross receipts is hereby
imposed on the following:
xxx xxx xxx
(16) Business agents and other independent
contractors, except persons, associations and
corporations under contract for embroidery and apparel
for export, as well as their agents and contractors, and
except gross receipts of or from a pioneer industry
registered with the Board of Investments under the
provisions of Republic Act No. 5186;
xxx xxx xxx
The term "independent contractors" include persons
(juridical or natural) not enumerated above (but not
including individuals subject to the occupation tax under
Section 12 of the Local Tax Code) whose activity
consists essentially of the sale of all kinds of services
for a fee regardless of whether or not the performance
of the service calls for the exercise or use of the
physical or mental faculties of such contractors or their
employees.
The term "independent contractor" shall not include
regional or area headquarters established in the
Philippines by multinational corporations, including their
alien executives, and which headquarters do not earn
or derive income from the Philippines and which act as
supervisory, communications and coordinating centers
for their affiliates, subsidiaries or branches in the Asia-
Pacific Region.
The term "gross receipts" means all amounts received
by the prime or principal contractor as the total contract
price, undiminished by amount paid to the
subcontractor, shall be excluded from the taxable gross
receipts of the subcontractor.
Petitioner Commissioner of Internal Revenue contends that
Private Respondent Ateneo de Manila University "falls within the
definition" of an independent contractor and "is not one of those
mentioned as excepted"; hence, it is properly a subject of the
three percent contractor's tax levied by the foregoing provision of
law.
6
Petitioner states that the "term 'independent contractor' is
not specifically defined so as to delimit the scope thereof, so
much so that any person who . . . renders physical and mental
service for a fee, is now indubitably considered an independent
contractor liable to 3% contractor's tax."
7
According to petitioner,
Ateneo has the burden of proof to show its exemption from the
coverage of the law.
We disagree. Petitioner Commissioner of Internal Revenue erred
in applying the principles of tax exemption without first applying
the well-settled doctrine of strict interpretation in the imposition of
taxes. It is obviously both illogical and impractical to determine
who are exempted without first determining who are covered by
the aforesaid provision. The Commissioner should have
determined first if private respondent was covered by Section
205, applying the rule of strict interpretation of laws imposing
taxes and other burdens on the populace, before asking Ateneo
to prove its exemption therefrom. The Court takes this occasion to
reiterate the hornbook doctrine in the interpretation of tax laws
that "(a) statute will not be construed as imposing a tax unless it
does so clearly, expressly, and unambiguously . . . (A) tax cannot
be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter
in construing statutes applies with peculiar strictness to tax
laws and the provisions of a taxing act are not to be extended by
implication."
8
Parenthetically, in answering the question of who is
subject to tax statutes, it is basic that "in case of doubt, such
statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because
burdens are not to be imposed nor presumed to be imposed
beyond what statutes expressly and clearly import."
9

To fall under its coverage, Section 205 of the National Internal
Revenue Code requires that the independent contractor be
engaged in the business of selling its services. Hence, to impose
the three percent contractor's tax on Ateneo's Institute of
Philippine Culture, it should be sufficiently proven that the private
respondent is indeed selling its services for a fee in pursuit of an
independent business. And it is only after private respondent has
been found clearly to be subject to the provisions of Sec. 205 that
the question of exemption therefrom would arise. Only after such
coverage is shown does the rule of construction that tax
exemptions are to be strictly construed against the taxpayer
come into play, contrary to petitioner's position. This is the main
line of reasoning of the Court of Tax Appeals in its
decision,
10
which was affirmed by the CA.
The Ateneo de Manila University Did Not Contract
for the Sale of the Service of its Institute of Philippine Culture
After reviewing the records of this case, we find no evidence that
Ateneo's Institute of Philippine Culture ever sold its services for a
fee to anyone or was ever engaged in a business apart from and
independently of the academic purposes of the university.
Stressing that "it is not the Ateneo de Manila University per
se which is being taxed," Petitioner Commissioner of Internal
Revenue contends that "the tax is due on its activity of conducting
researches for a fee. The tax is due on the gross receipts made in
favor of IPC pursuant to the contracts the latter entered to
conduct researches for the benefit primarily of its clients. The tax
is imposed on the exercise of a taxable activity. . . . [T]he sale of
services of private respondent is made under a contract and the
various contracts entered into between private respondent and its
clients are almost of the same terms, showing, among others, the
compensation and terms of payment."
11
(Emphasis supplied.)
In theory, the Commissioner of Internal Revenue may be correct.
However, the records do not show that Ateneo's IPC in fact
contracted to sell its research services for a fee. Clearly then, as
found by the Court of Appeals and the Court of Tax Appeals,
petitioner's theory is inapplicable to the established factual milieu
obtaining in the instant case.
In the first place, the petitioner has presented no evidence to
prove its bare contention that, indeed, contracts for sale of
services were ever entered into by the private respondent. As
appropriately pointed out by the latter:
An examination of the Commissioner's Written Formal
Offer of Evidence in the Court of Tax Appeals shows
that only the following documentary evidence was
presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiner's Field Audit Report
3 Adjustments to Sales/Receipts
4 Letter-decision of BIR
Commissioner Bienvenido A. Tan
Jr.
None of the foregoing evidence even comes close to
purport to be contracts between private respondent and
third parties.
12

Moreover, the Court of Tax Appeals accurately and correctly
declared that the " funds received by the Ateneo de Manila
University are technically not a fee. They may however fall as gifts
or donations which are tax-exempt" as shown by private
respondent's compliance with the requirement of Section 123 of
the National Internal Revenue Code providing for the exemption
of such gifts to an educational institution.
13

Respondent Court of Appeals elucidated on the ruling of the Court
of Tax Appeals:
To our mind, private respondent hardly fits into the
definition of an "independent contractor".
For one, the established facts show that IPC, as a unit
of the private respondent, is not engaged in business.
Undisputedly, private respondent is mandated by law to
undertake research activities to maintain its university
status. In fact, the research activities being carried out
by the IPC is focused not on business or profit but on
social sciences studies of Philippine society and
culture. Since it can only finance a limited number of
IPC's research projects, private respondent
occasionally accepts sponsorship for unfunded IPC
research projects from international organizations,
private foundations and governmental
agencies. However, such sponsorships are subject to
private respondent's terms and conditions, among
which are, that the research is confined to topics
consistent with the private respondent's academic
agenda; that no proprietary or commercial purpose
research is done; and that private respondent retains
not only the absolute right to publish but also the
ownership of the results of the research conducted by
the IPC. Quite clearly, the aforementioned terms and
conditions belie the allegation that private respondent is
a contractor or is engaged in business.
For another, it bears stressing that private respondent
is a non-stock, non-profit educational corporation. The
fact that it accepted sponsorship for IPC's unfunded
projects is merely incidental. For, the main function of
the IPC is to undertake research projects under the
academic agenda of the private respondent. Moreover
the records do not show that in accepting sponsorship
of research work, IPC realized profits from such work.
On the contrary, the evidence shows that for about 30
years, IPC had continuously operated at a loss, which
means that sponsored funds are less than actual
expenses for its research projects. That IPC has been
operating at a loss loudly bespeaks of the fact that
education and not profit is the motive for undertaking
the research projects.
Then, too, granting arguendo that IPC made profits
from the sponsored research projects, the fact still
remains that there is no proof that part of such earnings
or profits was ever distributed as dividends to any
stockholder, as in fact none was so distributed because
they accrued to the benefit of the private respondent
which is a non-profit educational institution.
14

Therefore, it is clear that the funds received by Ateneo's Institute
of Philippine Culture are not given in the concept of a fee or price
in exchange for the performance of a service or delivery of an
object. Rather, the amounts are in the nature of an endowment or
donation given by IPC's benefactors solely for the purpose of
sponsoring or funding the research with no strings attached. As
found by the two courts below, such sponsorships are subject to
IPC's terms and conditions. No proprietary or commercial
research is done, and IPC retains the ownership of the results of
the research, including the absolute right to publish the same. The
copyrights over the results of the research are owned by
Ateneo and, consequently, no portion thereof may be reproduced
without its permission.
15
The amounts given to IPC, therefore,
may not be deemed, it bears stressing as fees or gross receipts
that can be subjected to the three percent contractor's tax.
It is also well to stress that the questioned transactions of
Ateneo's Institute of Philippine Culture cannot be deemed either
as a contract of sale or a contract of a piece of work. "By the
contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its
equivalent."
16
By its very nature, a contract of sale requires a
transfer of ownership. Thus, Article 1458 of the Civil Code
"expressly makes the obligation to transfer ownership as an
essential element of the contract of sale, following modern codes,
such as the German and the Swiss. Even in the absence of this
express requirement, however, most writers, including Sanchez
Roman, Gayoso, Valverde, Ruggiero, Colin and Capitant, have
considered such transfer of ownership as the primary purpose of
sale. Perez and Alguer follow the same view, stating that the
delivery of the thing does not mean a mere physical transfer, but
is a means of transmitting ownership. Transfer of title or an
agreement to transfer it for a price paid or promised to be paid is
the essence of sale."
17
In the case of a contract for a piece of
work, "the contractor binds himself to execute a piece of work for
the employer, in consideration of a certain price or compensation.
. . . If the contractor agrees to produce the work from materials
furnished by him, he shall deliver the thing produced to the
employer and transfer dominion over the thing, . . ."
18
Ineludably,
whether the contract be one of sale or one for a piece of work, a
transfer of ownership is involved and a party necessarily walks
away with an object.
19
In the case at bench, it is clear from the
evidence on record that there was no sale either of objects or
services because, as adverted to earlier, there was no transfer of
ownership over the research data obtained or the results of
research projects undertaken by the Institute of Philippine Culture.
Furthermore, it is clear that the research activity of the Institute of
Philippine Culture is done in pursuance of maintaining Ateneo's
university status and not in the course of an independent
business of selling such research with profit in mind. This is clear
from a reading of the regulations governing universities:
31. In addition to the legal requisites an institution must
meet, among others, the following requirements before
an application for university status shall be considered:
xxx xxx xxx
(e) The institution must undertake research and operate
with a competent qualified staff at least three graduate
departments in accordance with the rules and
standards for graduate education. One of the
departments shall be science and technology. The
competence of the staff shall be judged by their
effective teaching, scholarly publications and research
activities published in its school journal as well as their
leadership activities in the profession.
(f) The institution must show evidence of adequate and
stable financial resources and support, a reasonable
portion of which should be devoted to institutional
development and research. (emphasis supplied)
xxx xxx xxx
32. University status may be withdrawn, after due
notice and hearing, for failure to maintain satisfactorily
the standards and requirements therefor.
20

Petitioner's contention that it is the Institute of Philippine Culture
that is being taxed and not the Ateneo is patently erroneous
because the former is not an independent juridical entity that is
separate and distinct form the latter.
Factual Findings and Conclusions of the Court of Tax
Appeals Affirmed by the Court of Appeals Generally
Conclusive
In addition, we reiterate that the "Court of Tax Appeals is a highly
specialized body specifically created for the purpose of reviewing
tax cases. Through its expertise, it is undeniably competent to
determine the issue of whether"
21
Ateneo de Manila University
may be deemed a subject of the three percent contractor's tax
"through the evidence presented before it." Consequently, "as a
matter of principle, this Court will not set aside the conclusion
reached by . . . the Court of Tax Appeals which is, by the very
nature of its function, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an
expertise on the subject unless there has been an abuse or
improvident exercise of authority . . ."
22
This point becomes more
evident in the case before us where the findings and conclusions
of both the Court of Tax Appeals and the Court of Appeals appear
untainted by any abuse of authority, much less grave abuse of
discretion. Thus, we find the decision of the latter affirming that of
the former free from any palpable error.
Public Service, Not Profit, is the Motive
The records show that the Institute of Philippine Culture
conducted its research activities at a huge deficit of
P1,624,014.00 as shown in its statements of fund and
disbursements for the period 1972 to 1985.
23
In fact, it was
Ateneo de Manila University itself that had funded the research
projects of the institute, and it was only when Ateneo could no
longer produce the needed funds that the institute sought funding
from outside. The testimony of Ateneo's Director for Accounting
Services, Ms. Leonor Wijangco, provides significant insight on the
academic and nonprofit nature of the institute's research activities
done in furtherance of the university's purposes, as follows:
Q Now it was testified to earlier by Miss Thelma Padero
(Office Manager of the Institute of Philippine Culture)
that as far as grants from sponsored research it is
possible that the grant sometimes is less than the
actual cost. Will you please tell us in this case when the
actual cost is a lot less than the grant who shoulders
the additional cost?
A The University.
Q Now, why is this done by the University?
A Because of our faculty development program as a
university, because a university has to have its own
research institute.
24

So, why is it that Ateneo continues to operate and conduct
researches through its Institute of Philippine Culture when it
undisputedly loses not an insignificant amount in the process?
The plain and simple answer is that private respondent is not a
contractor selling its services for a fee but an academic institution
conducting these researches pursuant to its commitments to
education and, ultimately, to public service. For the institute to
have tenaciously continued operating for so long despite its
accumulation of significant losses, we can only agree with both
the Court of Tax Appeals and the Court of Appeals that
"education and not profit is [IPC's] motive for undertaking the
research
projects."
25

WHEREFORE, premises considered, the petition is DENIED and
the assailed Decision of the Court of Appeals is hereby
AFFIRMED in full.
SO ORDERED.
[G.R. No. 80276 : December 21, 1990.]
192 SCRA 604
HYDRO RESOURCES CONTRACTORS CORPORATION,
Petitioner, vs. THE COURT OF TAX APPEALS and
THE HON. DEPUTY MINISTER OF FINANCE,
ALFREDO PIO DE RODA, Respondents.

D E C I S I O N

PARAS, J.:

This is a special civil action of Certiorari instituted by
petitioner Hydro Resources Contractors Corporation
against respondents Court of Tax Appeals and Deputy
Minister of Finance which seeks to set aside the decisions
of both public respondents holding petitioner liable for a
3% ad valorem duty in the amount of P281,591.00.
It appears that the National Irrigation Administration
(referred to hereinafter as NIA for brevity) a government
owned and controlled corporation, entered into an
agreement, sometime in August 1978, with petitioner
Hydro Resources Contractors Corporation (Hydro for
short), for the construction of the Magat River
Multipurpose Project in Isabela.
Under the aforesaid contract, designated as Contract No.
MPI-C-1, petitioner was allowed to procure new
construction equipment, spare parts and tools from
abroad, the payment for which was advanced by NIA
under a financing plan embodied in the contract, as
follows:
a) Procurement Petitioner is required to submit to NIA
for approval a list of new construction equipment, spare
parts and tools which it intends to acquire from abroad.
Petitioner shall procure these items as an agent of NIA as
all invoices shall be in the name of said government
agency. NIA undertakes to pay all import taxes, duties
and all fees, imposts and other charges that may be due
on said importations.: nad
b) Ownership and delivery The equipment and spare
parts imported from abroad shall be owned by NIA and
delivered to its construction site in Isabela.
c) Repayment Petitioner shall repay NIA the costs of
the above procurement and the manner of repayment
shall be through deductions from each monthly or
periodic progress payment due to petitioner.
d) Transfer of Ownership Ownership shall be
transferred to petitioner only upon complete payment of
the costs above mentioned.
The equipment imported by NIA in 1978 and 1979 for
Hydro's use are
DESCRIPTION OF EQUIPMENT NET BOOK VALUE
1 Tamrock Hyd. Jumbo Drill
Ser. #18153 P1,566,116.55
3 units Cat Drill Toyo TYPR 120 278,264.25
1 unit Tamrock Hyd. Drill
16 units Air Leg Drills Toyo 1,493,834.29
1 unit Toyo Reinforcing Bar 12,000.92
3 units Toyo TYCD 10 CY Cralwer 265,421.35
2 units Scheele K-60 Pump 624,772.80
2 units New Reed Gun Mdl. IAS 67,349.90
1 unit Prota Tunnel Profile 43,340.26
2 units Wild Theodolite Surveying
Equipment 28,545.93
1 unit Toyo Mud Sub Pump 201,108.01
2 units Aichi Skymaster Truck
mounted Boom 93,622.78
2 units Grindex Sub Type Pump 140,518.35
6 units K/Worth C500 Truck Mixer 1,690,054.60
1 unit Putamesitor 201,863.77
6 units Sullair Air Comp. 588,940.53
2 units Well Air Driven Grout 20,582.40
10 units Stancom VHF Radio Tran. 32,537.70
4 units Cummins 1,055,209.20
By the terms of the contract (quoted earlier) NIA
undertakes payment of all the import duties and taxes
incident to the importations deductible from the proceeds
of the contract price. HYDRO shall repay NIA in full the
value of the construction equipment out of the same
proceeds before eventual transfer or taking ownership of
subject construction equipment upon termination of the
contract.
NIA reneged and failed in the compliance of its tax
obligations. In the meantime, HYDRO had fully repaid the
value of the construction equipment in the amount of
P14,537,783.63 (US$1,991,477.21) so much so that on
December 6, 1982 and March 24, 1983, NIA executed
deeds of sale covering the same and transferring the
ownership thereof in favor of petitioner.
Upon the transfer of the ownership of the said equipment
HYDRO was assessed by the Bureau of Customs the
corresponding customs duty and compensating tax,
respectively, as follows:
Customs Duty P1,214,010.00
Compensating Tax 1,089,368.63

P2,303,378.63
=========
This amount was paid by HYDRO to the Bureau of
Customs.
In addition, HYDRO was assessed additional 3% ad
valorem duty in the amount of P281,591.00 prescribed in
Executive Order 860. HYDRO also paid this amount but
this time under protest.:-cralaw
The Collector of Customs acted favorably on petitioner's
protest and ordered the refund of the amount paid for
the ad valorem duty in the form of tax credit, ruling that

"The foregoing scheme entered into between NIA and
HYDRO had generated a contract and it will be unfair to
involve new proposal as in the imposition of 3%
additional duty ad valorem which was not obtaining at
the time of the agreement nor at the time of arrival and
release of the shipment from the piers. For one thing, the
scheme may be viewed in the same light as sales of
commodities to be delivered at some future date, whose
price or prices at the time of delivery may be way above
or below the sale price or prices. For another thing,
HYDRO may not be deprived of rights vested before the
promulgation of Executive Order 860 prescribing 3%
additional duty ad valorem." (p. 22, Rollo)
The Acting Commissioner of Customs affirmed the ruling
of the Collector of Customs. In his 2nd Indorsement
dated June 25, 1984, (p. 25, Rollo) Acting Commissioner
Ramon Farolan stated
"This Office shares the view of the Collector of Customs
to the effect that the various equipment and parts in
question which the National Irrigation Administration
imported in 1978 and 1979 and subsequently sold to
Hydro Resources Construction Corporation by virtue of a
previous agreement, are subject to duties and taxes but
not the additional 3% ad valorem duty under Executive
Order No. 860 which took effect only on December 21,
1982. Moreover, the Deputy Minister of Finance, in his
1st Indorsement to the Central Bank dated March 26,
1983, which was then reproduced by the Central Bank
Governor in a circular letter to all authorized agent
banks, clarified to all authorized agent banks, clarified
that
Letters of Credit opened prior to the effectivity of P.D.
1853 and E.O. 860 are not subject to the provisions
thereof even if they are amended after the effectivity
thereof.
(p. 15, Rollo).
These findings of the Collector of Customs as well as the
Acting Customs Commissioner were reversed by the
Deputy Minister of Finance.
Petitioner appealed to the Court of Tax Appeals but in its
Decision dated May 22, 1987, the said court (with a
dissenting opinion) affirmed the ruling of the Deputy
Minister of Finance denying petitioner's claim for refund.
Hence, the present recourse, after petitioner's motion for
reconsideration was denied.
In this petition, Hydro presents the following issues
I
THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OR
IN EXCESS OF ITS JURISDICTION OR WITH GRAVE
ABUSE OF DISCRETION IN REFUSING TO CONSIDER THE
FACT THAT THE SALE OF THE NIA-FINANCED EQUIPMENT
TOOK PLACE IN 1978.
II
THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OR
ABUSE OF DISCRETION IN APPLYING EXECUTIVE ORDER
NO. 860 RETROACTIVELY.
III
THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OF
ABUSE OF DISCRETION IN FAILING TO CONSIDER THAT
THE IMPOSITION OF THE 3% AD VALOREM TAX ON
IMPORTATIONS MADE PRIOR TO ITS ISSUANCE IS
VIOLATIVE OF THE CONSTITUTION.

IV
THE PUBLIC RESPONDENT CTA HAS ACTED WITHOUT OF
ABUSE OF DISCRETION IN IMPOSING THE AD VALOREM
TAX SANS STATUTORY AND LEGAL BASIS.
The petition is meritorious.
Executive Order No. 860 which was the basis for the
imposition of the 3% ad valorem duty upon the said
importations, took effect on December 21, 1982. The
importations were effected in 1978 and 1979 by NIA.
Nonetheless, respondent Court of Tax Appeals denied
petitioner's claim for refund because
"When NIA transferred the equipment in question
supposedly 'after its (HYDRO's) use for a number of
years', it cannot be doubted that these equipment were
sold and transferred presumably 'several years' after the
equipment's importation in 1978 and 1979. It is obvious
therefore that the sale or transfer of the ownership of the
equipment to petitioner HYDRO were unquestionably
made after the effectivity of PD 882 on January 20, 1976,
undisputably said sale or transfer thereof was (sic)
governed by Section 4 of PD 882 and was correctly
applied by respondent. We take particular note of the fact
that we cannot pinpoint with definiteness or exactitude
from the evidence, when or what years after the years
1978 and 1979 importations were the equipment sold or
transferred by NIA to petitioner HYDRO so that we can
determine outright whether the sale or transfers are
covered by the mandatory provision of Executive Order
860 effective on December 21, 1982 imposing 3%
additional ad valorem duty on such importations. Such
that if the sale or transfer of the ownership of the
equipment were effected to petitioner HYDRO after
December 21, 1982, the effective date of Executive Order
No. 860, the 3% ad valorem duty is imposable as said
Executive Order 860 was applied prospectively and
rightly. If the sale or transfer of the ownership of the
equipment to HYDRO were (sic) prior to the effectivity of
Executive Order No. 860, then said Executive Order 860
is inapplicable, and petitioner is not liable to pay the 3%
ad valorem duty of P281,591.00 and is entitled to the
refund thereof.
As a rule and principle, it was incumbent upon petitioner-
taxpayer HYDRO to have shown that the sale or transfer
of said equipment to it were made before December 21,
1982, when the Executive Order No. 860 was effective in
order that it shall not be subject to the imposition of 3%
additional ad valorem duty. Failing thus, its claim for
refund in the amount of P281,591.00 unquestionably
fails." (pp. 37-38; Rollo).:- nad
The foregoing conclusion is erroneous. The subsequent
executions of the Deeds of Sale of the equipment in
question on December 6, 1982 and March 24, 1983 are
not relevant and material in the consideration of the
application of Executive Order No. 860 because said
Deeds of Sale were mere formalities in the
implementation of Contract No. MPI-C-1 executed on
August 1978, which should be reckoned and construed as
the actual date of sale. This must be so because the
contract of purchase and sale of the NIA-financed/owned
equipment to Hydro took place in 1978 when Contract
No. MPI-C-1 was signed by NIA and HYDRO wherein the
contracting parties provided for their financing,
procurement, delivery, repayment, transfer of possession
and ownership. The said scheme contemplated a Contract
of Sale within the purview of Art. 1458 of the Civil Code
which provides
"Art. 1458. By the contract of sale, one of the contracting
parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay
thereafter a price certain in money or its equivalent.
"A contract of sale may be absolute or conditional." (p.
11, Rollo)
This view is shared by the Collector of Customs in his
decision when he declared that there being a meeting of
the minds between NIA and HYDRO upon the object of
the contract of sale and upon the price, the contract of
sale of the equipment between them was perfected in
1978. It is a perfected contract of sale subject to a
suspensive condition, the full payment by HYDRO of the
consideration for the subject of the contract is the
operative act to compel NIA to effect the transfer of
absolute ownership thereof to HYDRO. And under Art.
1187 of the Civil Code, the effectivity of said contract
reverts back to the constitution of the contract, in this
case August 1978.
"ART. 1187. The effects of a conditional obligation to
give, once the condition has been fulfilled, shall retroact
to the day of the constitution of the obligation." (p. 12,
Rollo)
It is a cardinal rule that laws shall have no retroactive
effect, unless the contrary is provided. (Art. 4, Civil
Code) Except for a statement providing for its immediate
execution, Executive Order No. 860 does not provide for
its retroactivity. Moreover, the Deputy Minister of Finance
in his 1st Indorsement to the Central Bank dated March
26, 1983 which was reproduced by the Central Bank
Governor in a circular letter to all authorized agent
banks, clarified that letters of credit opened prior to the
effectivity of E.O. 860 are not subject to the provisions
thereof. Consequently, the importations in question
which arrived in 1977 and 1978 are not subject to the
3% additional ad valorem duty, the same being imposed
only on those whose letter of credit were opened after
the promulgation of Executive Order 860. In this regard
Judge Alex Reyes in his dissenting opinion correctly
observed
"Let it suffice that the procurement of the equipment, as
earlier stated, was not on a tax exempt basis as the
import liabilities thereon have been secured to be paid
under the terms of the financial scheme in the contract.
The formality of vesting of title over the equipment was
not an unwarranted expectation but a matter of an
implementation of a pre-existing agreement, hence, the
imported articles can only be subject to the rates of
import duties/taxes prevailing at the time of entry or
withdrawal from customs' custody (Sec. 205, TCC) in
1978 and 1979, thus foreclosing any retroactive
application of the 1982 Executive Order.:-cralaw
"Taken in the above light, it would be unfair and
incongruous to hold petitioner to an additional levy sans
any statutory basis. The majority could have fumbled into
a precipitate action in taking an adverse position on
petitioner's right to a refund." (pp. 44-45, Rollo)
IN VIEW OF THE FOREGOING CONSIDERATIONS, the
petition is GRANTED; the assailed Decisions of
respondents Court of Tax Appeals and Deputy Minister of
Finance are SET ASIDE and another one rendered
ordering the refund of the amount of P281,591.00
representing 3% additional ad valorem duty to petitioner
Hydro Resources Contractors Corporation in the form of
tax credit.
SO ORDERED.
COMMISSIONER OF G.R. Nos. 134587 & 134588
INTERNAL REVENUE,
Petitioner, Present:

PUNO, J.,
Chairman,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
BENGUET CORPORATION,
Respondent.
Promulgated:

July 8, 2005
x-------------------------------------------------------------------x

D E C I S I O N

TINGA, J.:

This is a petition for the review of a
consolidated Decision of the Former Fourteenth Division of
the Court of Appeals
[1]
ordering the Commissioner of
Internal Revenue to award tax credits to Benguet
Corporation in the amount corresponding to the input
value added taxes that the latter had incurred in relation to
its sale of gold to the Central Bank during the period of 01
August 1989 to 31 July 1991.

Petitioner is the Commissioner of Internal Revenue
(petitioner) acting in his official capacity as head of the
Bureau of Internal Revenue (BIR), an attached agency of
the Department of Finance,
[2]
with the authority, inter alia,
to determine claims for refunds or tax credits as provided
by law.
[3]

Respondent Benguet Corporation (respondent) is a
domestic corporation organized and existing by virtue of
Philippine laws, engaged in the exploration, development
and operation of mineral resources, and the sale or
marketing thereof to various entities.
[4]
Respondent is
avalue added tax (VAT) registered enterprise.
[5]

The transactions in question occurred during the
period between 1988 and 1991. Under Sec. 99 of the
National Internal Revenue Code (NIRC),
[6]
as amended
by Executive Order (E.O.) No. 273 s. 1987, then in
effect, any person who, in the course of trade or business,
sells, barters or exchanges goods, renders services, or
engages in similar transactions and any person who
imports goods is liable for output VAT at rates of either
10% or 0% (zero-rated) depending on the classification of
the transaction under Sec. 100 of the NIRC. Persons
registered under the VAT system
[7]
are allowed to recognize
input VAT, or the VAT due from or paid by it in the course
of its trade or business on importation of goods or local
purchases of goods or service, including lease or use of
properties, from a VAT-registered person.
[8]

In January of 1988, respondent applied for and was
granted by the BIR zero-rated status on its sale of gold to
Central Bank.
[9]
On 28 August 1988, Deputy
Commissioner of Internal Revenue Eufracio D. Santos
issued VAT Ruling No. 3788-88, which declared that [t]he
sale of gold to Central Bank is considered as export sale
subject to zero-rate pursuant to Section 100[
[10]
] of the Tax
Code, as amended by Executive Order No. 273. The BIR
came out with at least six (6) other issuances
[11]
reiterating
the zero-rating of sale of gold to the Central Bank, the
latest of which is VAT Ruling No. 036-90 dated 14 February
1990.
[12]

Relying on its zero-rated status and the above
issuances, respondent sold gold to the Central Bank
during the period of 1 August 1989 to 31 July 1991 and
entered into transactions that resulted in input VAT
incurred in relation to the subject sales of gold. It then
filed applications for tax refunds/credits corresponding to
input VAT for the amounts
[13]
of P46,177,861.12,
[14]

P19,218,738.44,
[15]
and P84,909,247.96.
[16]
Respondents
applications were either unacted upon or expressly
disallowed by petitioner.
[17]
In addition, petitioner issued a
deficiency assessment against respondent when, after
applying respondents creditable input VAT costs against
the retroactive 10% VAT levy, there resulted a balance of
excess output VAT.
[18]

The express disallowance of respondents application
for refunds/credits and the issuance of deficiency
assessments against it were based on a BIR rulingBIR
VAT Ruling No. 008-92 dated 23 January 1992that was
issued subsequent to the consummation of the subject
sales of gold to the Central Bank which provides that sales
of gold to the Central Bank shall not be considered
as export sales and thus, shall be subject to 10% VAT. In
addition, BIR VAT Ruling No. 008-92 withdrew, modified,
and superseded all inconsistent BIR issuances. The
relevant portions of the ruling provides, thus:

1. In general, for purposes of the term export
sales only direct export sales and foreign
currency denominated sales, shall be qualified for
zero-rating.

. . . .

4. Local sales of goods, which by fiction of law
are considered export sales (e.g., the Export Duty
Law considers sales of gold to the Central Bank of
the Philippines, as export sale). This
transaction shall not be considered as export sale
for VAT purposes.

. . . .

[A]ll Orders and Memoranda issued by
this Office inconsistent herewith are considered
withdrawn, modified or superseded. (Emphasis
supplied)

The BIR also issued VAT Ruling No. 059-92 dated 28
April 1992 and Revenue Memorandum Order No. 22-92
which decreed that the revocation of VAT Ruling No. 3788-
88 by VAT Ruling No. 008-92 would not unduly
prejudice mining companies and, thus, could be applied
retroactively.
[19]

Respondent filed three separate petitions for review
with the Court of Tax Appeals (CTA), docketed as CTA Case
No. 4945, CTA Case No. 4627, and the consolidated cases
of CTA Case Nos. 4686 and 4829.

In the three cases, respondent argued that a
retroactive application of BIR VAT Ruling No. 008-92 would
violate Sec. 246 of the NIRC, which mandates the non-
retroactivity of rulings or circulars issued by the
Commissioner of Internal Revenue that would operate to
prejudice the taxpayer. Respondent then discussed in
detail the manner and extent by which it was prejudiced by
this retroactive application.
[20]
Petitioner on the other
hand, maintained that BIR VAT Ruling No. 008-92 is,
firstly, not void and entitled to great respect, having been
issued by the body charged with the duty of administering
the VAT law, and secondly, it may validly be given
retroactive effect since it was not prejudicial to respondent.

In three separate decisions,
[21]
the CTA dismissed
respondents respective petitions. It held, with Presiding
Judge Ernesto D. Acosta dissenting, that no prejudice had
befallen respondent by virtue of the retroactive application
of BIR VAT Ruling No. 008-92, and that, consequently, the
application did not violate Sec. 246 of the NIRC.
[22]

The CTA decisions were appealed by respondent to the
Court of Appeals. The cases were docketed therein as CA-
G.R. SP Nos. 37205, 38958, and 39435, and thereafter
consolidated. The Court of Appeals, after evaluating the
arguments of the parties, rendered the
questionedDecision reversing the Court of Tax Appeals
insofar as the latter had ruled that BIR VAT Ruling No.
008-92 did not prejudice the respondent and that the same
could be given retroactive effect.

In its Decision, the appellate court held that
respondent suffered financial damage equivalent to the
sum of the disapproved claims. It stated that had
respondent known that such sales were subject to 10%
VAT, which rate was not the prevailing rate at the time of
the transactions, respondent would have passed on the
cost of the input taxes to the Central Bank. It also ruled
that the remedies which the CTA supposed would eliminate
any resultant prejudice to respondent were not sufficient
palliatives as the monetary values provided in the
supposed remedies do not approximate the monetary
values of the tax credits that respondent lost after the
implementation of the VAT ruling in question. It cited

Manila Mining Corporation v. Commissioner of Internal
Revenue,
[23]
in which the Court of Appeals held
[24]
that BIR
VAT Ruling No. 008-92 cannot be given retroactive effect.
Lastly, the Court of Appeals observed that R.A. 7716, the
The New Expanded VAT Law, reveals the intent of the
lawmakers with regard to the treatment of sale of gold to
the Central Bank since the amended version therein of Sec.
100 of the NIRC expressly provides that the sale of gold to
the Bangko Sentral ng Pilipinas is an export sale subject to
0% VAT rate. The appellate court thus allowed
respondents claims, decreeing in its dispositive
portion, viz:

WHEREFORE, the appealed decision is hereby
REVERSED. The respondent Commissioner of
Internal Revenue is ordered to award the following
tax credits to petitioner.
1) In CA-G.R. SP No. 37209 P49,611,914.00
2) in CA-G.R. SP No. 38958 - P19,218,738.44
3) in CA-G.R. SP No. 39435 - P84,909,247.96
[25]

Dissatisfied with the above ruling, petitioner filed the
instant Petition for Review questioning the determination of
the Court of Appeals that the retroactive application of the
subject issuance was prejudicial to respondent and could
not be applied retroactively.

Apart from the central issue on the validity of the
retroactive application of VAT Ruling No. 008-92, the
question of the validity of the issuance itself has been
touched upon in the pleadings, including a reference made
by respondent to a Court of Appeals Decision holding that
the VAT Ruling had no legal basis.
[26]
For its part, as the
party that raised this issue, petitioner spiritedly defends
the validity of the issuance.
[27]
Effectively, however, the
question is a non-issue and delving into it would be a
needless exercise for, as respondent emphatically pointed
out in its Comment, unlike petitioners formulation of the
issues, the only real issue in this case is whether VAT
Ruling No. 008-92 which revoked previous rulings of the
petitioner which respondent heavily relied upon . . . may be
legally applied retroactively to respondent.
[28]
This Court
need not invalidate the BIR issuances, which have the force
and effect of law, unless the issue of validity is so crucially
at the heart of the controversy that the Court cannot
resolve the case without having to strike down the
issuances. Clearly, whether the subject VAT ruling may
validly be given retrospective effect is the lis mota in the
case. Put in another but specific fashion, the sole issue to
be addressed is whether respondents sale of gold to the
Central Bank during the period when such was classified
by BIR issuances as zero-rated could be taxed validly at a
10% rate after the consummation of the transactions
involved.

In a long line of cases,
[29]
this Court has affirmed that
the rulings, circular, rules and regulations promulgated by
the Commissioner of Internal Revenue would have no
retroactive application if to so apply them would be
prejudicial to the taxpayers. In fact, both petitioner
[30]
and
respondent
[31]
agree that the retroactive application of VAT
Ruling No. 008-92 is valid only if such application would
not be prejudicial to the respondent pursuant to the
explicit mandate under Sec. 246 of the NIRC, thus:

Sec. 246. Non-retroactivity of rulings.- Any
revocation, modification or reversal of any of the
rules and regulations promulgated in accordance
with the preceding Section or any of the rulings or
circulars promulgated by the Commissioner shall
not be given retroactive application if the
revocation, modification or reversal will be
prejudicial to the taxpayers except in the following
cases: (a) where the taxpayer deliberately
misstates or omits material facts from his return
on any document required of him by the Bureau
of Internal Revenue; (b) where the facts
subsequently gathered by the Bureau of Internal
Revenue are materially different form the facts on
which the ruling is based; or (c) where the
taxpayer acted in bad faith. (Emphasis supplied)

In that regard, petitioner submits that respondent
would not be prejudiced by a retroactive application;
respondent maintains the contrary. Consequently, the
determination of the issue of retroactivity hinges on
whether respondent would suffer prejudice from the
retroactive application of VAT Ruling No. 008-92.

We agree with the Court of Appeals and the
respondent.

To begin with, the determination of whether
respondent had suffered prejudice is a factual issue. It is
an established rule that in the exercise of its power of
review, the Supreme Court is not a trier of facts. Moreover,
in the exercise of the Supreme Courts power of review, the
findings of facts of the Court of Appeals are conclusive and
binding on the Supreme Court.
[32]
An exception to this rule
is when the findings of fact a quo are conflicting,
[33]
as is in
this case.

VAT is a percentage tax imposed at every stage of the
distribution process on the sale, barter, exchange or lease
of goods or properties and rendition of services in the
course of trade or business, or the importation of goods.
[34]

It is an indirect tax, which may be shifted to the buyer,
transferee, or lessee of the goods, properties, or
services.
[35]
However, the party directly liable for the
payment of the tax is the seller.
[36]

In transactions taxed at a 10% rate, when at the end
of any given taxable quarter the output VAT exceeds the
input VAT, the excess shall be paid to the government;
when the input VAT exceeds the output VAT, the excess
would be carried over to VAT liabilities for the succeeding
quarter or quarters.
[37]
On the other hand, transactions
which are taxed at zero-rate do not result in any output
tax. Input VAT attributable to zero-rated sales could be
refunded or credited against other internal
revenue taxes at the option of the taxpayer.
[38]

To illustrate, in a zero-rated transaction, when a VAT-
registered person (taxpayer) purchases materials from his
supplier at P80.00,P7.30
[39]
of which was passed on to him
by his supplier as the latters 10% output VAT, the
taxpayer is allowed to recover P7.30 from the BIR, in
addition to other input VAT he had incurred in relation to
the zero-rated transaction, through tax credits or refunds.
When the taxpayer sells his finished product in a zero-
rated transaction, say, for P110.00, he is not required to
pay any output VAT thereon. In the case of a transaction
subject to 10% VAT, the taxpayer is allowed to recover both
the input VAT of P7.30 which he paid to his supplier and
his output VAT of P2.70 (10% the P30.00 value he has
added to the P80.00 material) by passing on both costs to
the buyer. Thus, the buyer pays the total 10% VAT cost,
in this case P10.00 on the product.

In both situations, the taxpayer has the option not to
carry any VAT cost because in the zero-rated transaction,
the taxpayer is allowed to recover input tax from the BIR
without need to pay output tax, while in 10% rated VAT,
the taxpayer is allowed to pass on both input and output
VAT to the buyer. Thus, there is an elemental similarity
between the two types of VAT ratings in that the taxpayer
has the option not to take on any VAT payment for his
transactions by simply exercising his right to pass on the
VAT costs in the manner discussed above.

Proceeding from the foregoing, there appears to be no
upfront economic difference in changing the sale of gold to
the Central Bank from a 0% to 10% VAT rate provided that
respondent would be allowed the choice to pass on its VAT
costs to the Central Bank. In the instant case, the
retroactive application of VAT Ruling No. 008-92
unilaterally forfeited or withdrew this option of respondent.
The adverse effect is that respondent became the
unexpected and unwilling debtor to the BIR of the amount
equivalent to the total VAT cost of its product, a liability it
previously could have recovered from the BIR in a zero-
rated scenario or at least passed on to the Central Bank
had it known it would have been taxed at a 10% rate.
Thus, it is clear that respondent suffered economic
prejudice when its consummated sales of gold to the
Central Bank were taken out of the zero-rated category.
The change in the VAT rating of respondents transactions
with the Central Bank resulted in the twin loss of its
exemption from payment of output VAT and its opportunity
to recover input VAT, and at the same time subjected it to
the 10% VAT sans the option to pass on this cost to the
Central Bank, with the total prejudice in money terms
being equivalent to the 10% VAT levied on its sales of gold
to the Central Bank.

Petitioner had made its position hopelessly untenable
by arguing that the deficiency 10% that may be assessable
will only be equal to 1/11
th
of the amount billed to the
[Central Bank] rather than 10% thereof. In short,
[respondent] may only be charged based on the tax amount
actually and technically passed on to the [Central Bank] as
part of the invoiced price.
[40]
To the Court, the aforequoted
statement is a clear recognition that respondent would
suffer prejudice in the amount actually and technically
passed on to the [Central Bank] as part of the invoiced
price. In determining the prejudice suffered by
respondent, it matters little how the amount charged
against respondent is computed,
[41]
the point is that the
amount (equal to 1/11
th
of the amount billed to the Central
Bank) was charged against respondent, resulting
in damage to the latter.

Petitioner posits that the retroactive application of BIR
VAT Ruling No. 008-92 is stripped of any prejudicial effect
when viewed in relation to several available options to
recoup whatever liabilities respondent may have
incurred, i.e., respondents input VAT may still be used (1)
to offset its output VAT on the sales of gold to the Central
Bank or on its output VAT on other sales subject to 10%
VAT, and (2) as deductions on its income tax under Sec. 29
of the Tax Code.
[42]

On petitioners first suggested recoupment modality,
respondent counters that its other sales subject to 10%
VAT are so minimal that this mode is of little value.
Indeed, what use would a credit be where there is nothing
to set it off against? Moreover, respondent points out that
after having been imposed with 10% VAT sans the
opportunity to pass on the same to the Central Bank, it
was issued a deficiency tax assessment because its input
VAT tax credits were not enough to offset the retroactive
10% output VAT. The prejudice then experienced by
respondent lies in the fact that the tax refunds/credits that
it expected to receive had effectively disappeared by virtue
of its newfound output VAT liability against which
petitioner had offset the expected refund/credit.
Additionally, the prejudice to respondent would not simply
disappear, as petitioner claims, when a liability (which
liability was not there to begin with) is imposed
concurrently with an opportunity to reduce, not totally
eradicate, the newfound liability. In sum, contrary to
petitioners suggestion, respondents net income still
decreased corresponding to the amount it expected as its
refunds/credits and the deficiency assessments against it,
which when summed up would be the total cost of the 10%
retroactive VAT levied on respondent.

Respondent claims to have incurred further prejudice.
In computing its income taxes for the relevant years, the
input VAT cost that respondent had paid to its suppliers
was not treated by respondent as part of its cost of goods
sold, which is deductible from gross income for income tax
purposes, but as an asset which could be refunded or
applied as payment for other internal revenue taxes. In
fact, Revenue Regulation No. 5-87 (VAT Implementing
Guidelines), requires input VAT to be recorded not as part
of the cost of materials or inventory purchased but as a
separate entry called input taxes, which may then be
applied against output VAT, other internal revenue taxes,
or refunded as the case may be.
[43]
In being denied the
opportunity to deduct the input VAT from its gross income,
respondents net income was overstated by the amount of
its input VAT. This overstatement was assessed tax at the
32% corporate income tax rate, resulting in respondents
overpayment of income taxes in the corresponding
amount. Thus, respondent not only lost its right to
refund/ credit its input VAT and became liable for
deficiency VAT, it also overpaid its income tax in the
amount of 32% of its input VAT.

This leads us to the second recourse that petitioner
has suggested to offset any resulting prejudice to
respondent as a consequence of giving retroactive effect to
BIR VAT Ruling No. 008-92. Petitioner submits that
granting that respondent has no other sale subject to 10%
VAT against which its input taxes may be used in payment,
then respondent is constituted as the final entity against
which the costs of the tax passes-on shall legally stop;
hence, the input taxes may be converted as costs available
as deduction for income tax purposes.
[44]

Even assuming that the right to recover respondents
excess payment of income tax has not yet prescribed, this
relief would only address respondents overpayment of
income tax but not the other burdens discussed above.
Verily, this remedy is not a feasible option for respondent
because the very reason why it was issued a deficiency tax
assessment is that its input VAT was not enough to offset
its retroactive output VAT. Indeed, the burden of having to
go through an unnecessary and cumbersome refund
process is prejudice enough. Moreover, there is in fact
nothing left to claim as a deduction from income taxes.

From the foregoing it is clear that petitioners
suggested options by which prejudice would be eliminated
from a retroactive application of VAT Ruling No. 008-92 are
either simply inadequate or grossly unrealistic.

At the time when the subject transactions were
consummated, the prevailing BIR regulations relied upon
by respondent ordained that gold sales to the Central Bank
were zero-rated. The BIR interpreted Sec. 100 of the NIRC
in relation to Sec. 2 of E.O. No. 581 s. 1980 which
prescribed that gold sold to the Central Bank shall be
considered export and therefore shall be subject to the
export and premium duties. In coming out with this
interpretation, the BIR also considered Sec. 169 of Central
Bank Circular No. 960 which states that all sales of
gold to the Central Bank are considered

constructive exports.
[45]
Respondent should not be faulted
for relying on the BIRs interpretation of the said laws and
regulations.
[46]
While it is true, as petitioner alleges, that
government is not estopped from collecting taxes which
remain unpaid on account of the errors or mistakes of its
agents and/or officials and there could be no vested right
arising from an erroneous interpretation of law, these
principles must give way to exceptions based on and in
keeping with the interest of justice and fairplay, as has
been done in the instant matter. For, it is primordial that
every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith.
[47]

The case of ABS-CBN Broadcasting Corporation v. Court
of Tax Appeals
[48]
involved a similar factual milieu. There
the Commissioner of Internal Revenue issued
Memorandum Circular No. 4-71 revoking an earlier
circular for being erroneous for lack of legal basis. When
the prior circular was still in effect, petitioner therein relied
on it and consummated its transactions on the basis
thereof. We held, thus:

. . . .Petitioner was no longer in a position to
withhold taxes due from foreign corporations
because it had already remitted all film rentals
and no longer had any control over them when
the new Circular was issued. . . .

. . . .

This Court is not unaware of the well-
entrenched principle that the [g]overnment is
never estopped from collecting taxes because of
mistakes or errors on the part of its agents. But,
like other principles of law, this also admits of
exceptions in the interest of justice and fairplay. .
. .In fact, in the United States, . . . it has been
held that the Commissioner [of Internal Revenue]
is precluded from adopting a position inconsistent
with one previously taken where injustice would
result therefrom or where there has been a
misrepresentation to the taxpayer.
[49]

Respondent, in this case, has similarly been put on
the receiving end of a grossly unfair deal. Before
respondent was entitled to tax refunds or credits based on
petitioners own issuances. Then suddenly, it found itself
instead being made to pay deficiency taxes with petitioners
retroactive change in the VAT categorization of
respondents transactions with the Central Bank. This is
the sort of unjust treatment of a taxpayer which the law in
Sec. 246 of the NIRC abhors and forbids.

WHEREFORE, the petition is DENIED for lack of
merit. The Decision of the Court of Appeals is AFFIRMED.
No pronouncement as to costs.

SO ORDERED.

COMMISSIONER OF G.R. No. 153205
INTERNAL REVENUE,
Petitioner, Present:

QUISUMBING, J.
- versus - Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
BURMEISTER AND WAIN VELASCO, JR., JJ.
SCANDINAVIAN CONTRACTOR
MINDANAO, INC., Promulgated:
Respondent.
January 22, 2007

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

D E C I S I O N

CARPIO, J .:

The Case

This petition for review
[1]
seeks to set aside the 16 April
2002 Decision
[2]
of the Court of Appeals in CA-G.R. SP No. 66341
affirming the 8 August 2001 Decision
[3]
of the Court
of Tax Appeals (CTA). The CTA ordered the Commissioner of Internal
Revenue (petitioner) to issue a tax credit certificate for P6,994,659.67 in
favor of Burmeisterand Wain Scandinavian Contractor Mindanao, Inc.
(respondent).

The Antecedents

The CTA summarized the facts, which the Court of Appeals
adopted, as follows:

[Respondent] is a domestic corporation duly organized
and existing under and by virtue of the laws of
the Philippines with principal address located
at Daruma Building, Jose P. Laurel
Avenue,Lanang, Davao City.

It is represented that a foreign consortium
composed of Burmeister and Wain Scandinavian Contractor
A/S (BWSC-Denmark), Mitsui Engineering and
Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a
contract with the National Power Corporation (NAPOCOR)
for the operation and maintenance of [NAPOCORs] two
power barges. The Consortium appointed BWSC-Denmark
as its coordination manager.

BWSC-Denmark established [respondent] which
subcontracted the actual operation and maintenance
of NAPOCORs two power barges as well as the
performance of other duties and acts which necessarily have
to be done in the Philippines.

NAPOCOR paid capacity and energy fees to the
Consortium in a mixture of currencies (Mark, Yen, and
Peso). The freely convertible non-Peso component is
deposited directly to the Consortiums bank accounts
in Denmark and Japan, while the Peso-denominated
component is deposited in a separate and special
designated bank account in the Philippines. On the other
hand, the Consortium pays [respondent] in foreign
currency inwardly remitted to the Philippines through the
banking system.

In order to ascertain the tax implications of the above
transactions, [respondent] sought a ruling from the BIR
which responded with BIR Ruling No. 023-95 dated
February 14, 1995, declaringtherein that if [respondent]
chooses to register as a VAT person and the consideration for
its services is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas, the aforesaid services shall
be subject to VAT at zero-rate.

[Respondent] chose to register as a VAT taxpayer. On
May 26, 1995, the Certificate of Registration bearing RDO
Control No. 95-113-007556 was issued in favor of
[respondent] by the Revenue District Office No. 113
of Davao City.

For the year 1996, [respondent] seasonably filed its
quarterly Value-Added Tax Returns reflecting, among others,
a total zero-rated sales of P147,317,189.62 with VAT
input taxes ofP3,361,174.14, detailed as follows:
Qtr. Exh. Date Filed Zero-Rated
Sales VAT Input Tax
--------------------------------------------------------------------
--------------
1
st
E 04-18-
96 P 33,019,651.07 P608,953.48
2
nd
F 07-16-
96 37,108,863.33 756,802.66
3
rd
G 10-14-
96 34,196,372.35 930,279.14
4
th
H 01-20-
97 42,992,302.87 1,065,138.86
Totals P147,317,189.62 P3,
361,174.14

On December 29, 1997, [respondent] availed of the
Voluntary Assessment Program (VAP) of the BIR. It
allegedly misinterpreted Revenue Regulations No. 5-96
dated February 20, 1996 to be applicable to its
case. Revenue Regulations No. 5-96 provides in part thus:

SECTIONS 4.102-2(b)(2) and 4.103-
1(B)(c) of Revenue Regulations No. 7-95 are
hereby amended to read as follows:

Section 4.102-2(b)(2) Services other
than processing, manufacturing or repacking for
other persons doing business outside the
Philippines for goods which are subsequently
exported, as well as services by a resident to a
non-resident foreign client such as project
studies, information services, engineering
and architectural designs and other similar
services, the consideration for which is paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
BSP.

x x x x x x
x x x x.

In [conformity] with the aforecited Revenue
Regulations, [respondent] subjected its sale of services to the
Consortium to the 10% VAT in the total amount
of P103,558,338.11 representing April to December 1996
sales since said Revenue Regulations No. 5-96 became
effective only on April 1996. The sum of P43,893,951.07,
representing January to March 1996 sales was subjected to
zero rate. Consequently, [respondent] filed its 1996
amended VAT return consolidating therein the VAT output
and input taxes for the four calendar quarters of 1996. It paid
the amount of P6,994,659.67 throughBIRs collecting
agent, PCIBank, as its output tax liability for the year 1996,
computed as follows:

Amount subject to 10%
VAT P103,558,338.11
Multiply
by 10%
VAT Output
Tax P 10,355,833.81
Less: 1996 Input VAT P 3,361,174.14
VAT Output Tax
Payable P 6,994,659.67

On January 7,1999, [respondent] was able to secure
VAT Ruling No. 003-99 from the VAT Review Committee
which reconfirmed BIR Ruling No. 023-95 insofar as it held
that the services being rendered by BWSCMI is subject to
VAT at zero percent (0%).

On the strength of the aforementioned rulings,
[respondent] on April 22,1999, filed a claim for the issuance
of a tax credit certificate with Revenue District No. 113 of
the BIR. [Respondent] believed that it erroneously paid the
output VAT for 1996 due to its availment of the Voluntary
Assessment Program (VAP) of the BIR.
[4]

On 27 December 1999, respondent filed a petition for review with
the CTA in order to toll the running of the two-year prescriptive period
under the Tax Code.

The Ruling of the Court of Tax Appeals

In its 8 August 2001 Decision, the CTA ordered petitioner to issue
a tax credit certificate for P6,994,659.67 in favor of
respondent. The CTAs ruling stated:

[Respondents] sale of services to the Consortium [was]
paid for in acceptable foreign currency inwardly remitted to
the Philippines and accounted for in accordance with the
rules and regulations ofBangko Sentral ng Pilipinas. These
were established by various BPI Credit Memos showing
remittances in Danish Kroner (DKK) and US dollars (US$)
as payments for the specific invoices billed by [respondent]
to the consortium. These remittances were further certified
by the Branch Manager x x x of BPI-Davao Lanang Branch
to represent payments for sub-contract fees that came from
DenDanske Aktieselskab Bank-Denmark for the account of
[respondent]. Clearly, [respondents] sale of services to the
Consortium is subject to VAT at 0% pursuant to Section
108(B)(2) of the Tax Code.

x x x x

The zero-rating of [respondents] sale of services to
the Consortium was even confirmed by the [petitioner] in
BIR Ruling No. 023-95 dated February 15, 1995, and
later by VAT Ruling No. 003-99 dated January 7,1999, x x x.

Since it is apparent that the payments for the services
rendered by [respondent] were indeed subject to VAT at zero
percent, it follows that it mistakenly availed
of the Voluntary Assessment Program by paying output tax
for its sale of services. x x x

x x x Considering the principle
of solutio indebiti which requires the return of what has been
delivered by mistake, the [petitioner] is obligated to issue the
tax credit certificate prayed for by [respondent]. x x x
[5]

Petitioner filed a petition for review with the Court of Appeals,
which dismissed the petition for lack of merit and affirmed the CTA
decision.
[6]

Hence, this petition.

The Court of Appeals Ruling

In affirming the CTA, the Court of Appeals rejected petitioners
view that since respondents services are not destined for consumption
abroad, they are not of the same nature as project studies, information
services, engineering and architectural designs, and other similar
services mentioned in Section 4.102-2(b)(2) of Revenue Regulations No.
5-96
[7]
as subject to 0% VAT. Thus, according to petitioner,
respondents services cannot legally qualify for 0% VAT but are subject
to the regular 10% VAT.
[8]

The Court of Appeals found untenable petitioners contention that
under VAT Ruling No. 040-98, respondents services should be destined
for consumption abroad to enjoy zero-rating. Contrary to petitioners
interpretation, there are two kinds of transactions or services subject to
zero percent VAT under VAT Ruling No. 040-98. These are (a)
services other than repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported;
and (b) services by a resident to a non-resident foreign client, such as
project studies, information services, engineering and architectural
designs and other similar services, the consideration for which is paid
for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
[9]

The Court of Appeals stated that only the first classification is
required by the provision to be consumed abroad in order to be taxed at
zero rate. In x x x the absence of such express or implied stipulation in
the statute, the second classification need not be consumed abroad.
[10]

The Court of Appeals further held that assuming petitioners
interpretation of Section 4.102-2(b)(2) of Revenue Regulations No. 5-96
is correct, such administrative provision is void being an amendment to
the Tax Code. Petitioner went beyond merely providing the
implementing details by adding another requirement to zero-
rating. This is indicated by the additional phrase as well as services by
a resident to a non-resident foreign client, such as project studies,
information services and engineering and architectural designs and other
similar services. In effect, this phrase adds not just one but two
requisites: (a) services must be rendered by a resident to a non-resident;
and (b) these must be in the nature of project studies, information
services, etc.
[11]

The Court of Appeals explained that under Section 108(b)(2) of the
Tax Code,
[12]
for services which were performed in the Philippines to
enjoy zero-rating, these must comply only with two requisites, to
wit: (1) payment in acceptable foreign currency and (2) accounted for in
accordance with the rules of the BSP. Section 108(b)(2) of the Tax
Code does not provide that services must be destined for consumption
abroad in order to be VAT zero-rated.
[13]

The Court of Appeals disagreed with petitioners argument that our
VAT law generally follows the destination principle (i.e., exports
exempt, imports taxable).
[14]
The Court of Appeals stated that
if indeed the destination principle underlies and is the basis of the
VAT laws, then petitioners proper remedy would be to recommend an
amendment of Section 108(b)(2) to Congress. Without such
amendment, however, petitioner should apply the terms of the basic law.
Petitioner could not resort to administrative legislation, as what [he] had
done in this case.
[15]

The Issue

The lone issue for resolution is whether respondent is entitled to
the refund of P6,994,659.67 as erroneously paid output VAT for the year
1996.
[16]

The Ruling of the Court

We deny the petition.

At the outset, the Court declares that the denial of the instant
petition is not on the ground that respondents services are subject to 0%
VAT. Rather, it is based on the non-retroactivity of the prejudicial
revocation of BIR Ruling No. 023-95
[17]
and VAT Ruling No. 003-
99,
[18]
which held that respondents services are subject to 0% VAT and
which respondent invoked in applying for refund of the output VAT.

Section 102(b) of the Tax Code,
[19]
the applicable provision in
1996 when respondent rendered the services and paid the VAT in
question, enumerates which services are zero-rated, thus:

(b) Transactions subject to zero-
rate. The following services performed in
the Philippines by VAT-registered persons shall be subject to
0%:

(1) Processing, manufacturing or repacking goods for
other persons doing business outside the
Philippines which goods are subsequently exported, where
the services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP);

(2) Services other than those mentioned in the
preceding sub-paragraph, the consideration for which is
paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);

(3) Services rendered to persons or entities whose
exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects
the supply of such services tozero rate;

(4) Services rendered to vessels engaged exclusively in
international shipping; and

(5) Services performed by subcontractors and/or
contractors in processing, converting, or manufacturing
goods for an enterprise whose export sales exceed seventy
percent (70%) of total annual production. (Emphasis
supplied)

In insisting that its services should be zero-rated, respondent
claims that it complied with the requirements of the Tax Code for zero
rating under the second paragraph of Section 102(b). Respondent asserts
that (1) the payment of its service fees was in acceptable foreign
currency, (2) there was inward remittance of the foreign currency into
the Philippines, and (3) accounting of such remittance was in
accordance with BSP rules. Moreover, respondent contends that
its services which constitute the actual operation and management of
two (2) power barges in Mindanao are not even remotely similar to
project studies, information services and engineering and architectural
designs under Section 4.102-2(b)(2) of Revenue Regulations No. 5-96.
As such, respondents services need not be destined to be consumed
abroad in order to be VAT zero-rated.

Respondent is mistaken.

The Tax Code not only requires that the services be other than
processing, manufacturing or repacking of goods and that payment for
such services be in acceptable foreign currency accounted for in
accordance with BSP rules. Another essential condition for qualification
to zero-rating under Section 102(b)(2) is that the recipient of such
services is doing business outside the Philippines. While this
requirement is not expressly stated in the second paragraph of Section
102(b), this is clearly provided in the first paragraph of Section 102(b)
where the listed services must be for other persons doing business
outside the Philippines. The phrase for other persons doing business
outside the Philippines not only refers to the services enumerated in the
first paragraph of Section 102(b), but also pertains to the general term
services appearing in the second paragraph of Section 102(b). In short,
services other than processing, manufacturing, or repacking of goods
must likewise be performed for persons doing business outside the
Philippines.
This can only be the logical interpretation of Section 102(b)(2). If
the provider and recipient of the other services are both doing business
in the Philippines, the payment of foreign currency is
irrelevant. Otherwise, those subject to the regular VAT under Section
102(a) can avoid paying the VAT by simply stipulating payment in
foreign currency inwardly remitted by the recipient of services. To
interpret Section 102(b)(2) to apply to a payer-recipient of services
doing business in the Philippines is to make the payment of the regular
VAT under Section 102(a) dependent on the generosity of the
taxpayer. The provider of services can choose to pay the regular VAT
or avoid it by stipulating payment in foreign currency inwardly remitted
by the payer-recipient. Such interpretation removes Section 102(a) as a
tax measure in the Tax Code, an interpretation this Court cannot
sanction. A tax is a mandatory exaction, not a voluntary contribution.

When Section 102(b)(2) stipulates payment in acceptable foreign
currency under BSP rules, the law clearly envisions the payer-recipient
of services to be doing business outside the Philippines. Only those not
doing business in the Philippines can be required under BSP rules
[20]
to
pay in acceptable foreign currency for their purchase of goods or
services from the Philippines. In a domestic transaction, where the
provider and recipient of services are both doing business in the
Philippines, the BSP cannot require any party to make payment in
foreign currency.

Services covered by Section 102(b) (1) and (2) are in the nature of
export sales since the payer-recipient of services is doing business
outside the Philippines. Under BSP rules,
[21]
the proceeds of export
sales must be reported to the Bangko Sentral ng Pilipinas. Thus, there
is reason to require the provider of services under Section 102(b) (1) and
(2) to account for the foreign currency proceeds to the BSP. The same
rationale does not apply if the provider and recipient of the services are
both doing business in the Philippines since their transaction is not in the
nature of an export sale even if payment is denominated in foreign
currency.

Further, when the provider and recipient of services are both doing
business in the Philippines, their transaction falls squarely under Section
102(a) governing domestic sale or exchange of services. Indeed, this is
a purely local sale or exchange of services subject to the regular VAT,
unless of course the transaction falls under the other provisions of
Section 102(b).

Thus, when Section 102(b)(2) speaks of [s]ervices other than
those mentioned in the preceding subparagraph, the legislative
intent is that only the services are different between subparagraphs 1 and
2. The requirements for zero-rating, including the essential condition
that the recipient of services is doing business outside the Philippines,
remain the same under both subparagraphs.

Significantly, the amended Section 108(b)
[22]
[previously Section
102(b)] of the present Tax Code clarifies this legislative
intent. Expressly included among the transactions subject to 0% VAT
are [s]ervices other than those mentioned in the [first] paragraph [of
Section 108(b)] rendered to a person engaged in business conducted
outside the Philippines or to a nonresident person not engaged in
business who is outside the Philippines when the services are
performed, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations
of the BSP.

In this case, the payer-recipient of respondents services is the
Consortium which is a joint-venture doing business in the
Philippines. While the Consortiums principal members are non-
resident foreign corporations, the Consortium itself is doing business
in the Philippines. This is shown clearly in BIR Ruling No. 023-95
which states that the contract between the Consortium and NAPOCOR
is for a 15-year term, thus:

This refers to your letter dated January 14, 1994
requesting for a clarification of the tax implications of a
contract between a consortium composed
of Burmeister & Wain Scandinavian Contractor A/S
(BWSC), Mitsui Engineering & Shipbuilding, Ltd. (MES),
and Mitsui & Co., Ltd. (MITSUI), all referred to
hereinafter as the Consortium, and the National Power
Corporation (NAPOCOR)for the operation and
maintenance of two 100-Megawatt power barges (Power
Barges) acquired by NAPOCOR for a 15-year
term.
[23]
(Emphasis supplied)

Considering this length of time, the Consortiums operation and
maintenance of NAPOCORs power barges cannot be classified as a
single or isolated transaction. The Consortium does not fall under
Section 102(b)(2) which requires that the recipient of the services must
be a person doing business outside the Philippines. Therefore,
respondents services to the Consortium, not being supplied to a person
doing business outside the Philippines, cannot legally qualify for 0%
VAT.

Respondent, as subcontractor of the Consortium, operates and
maintains NAPOCORs power barges in the Philippines. NAPOCOR
pays the Consortium, through its non-resident partners, partly in foreign
currency outwardly remitted. In turn, the Consortium pays respondent
also in foreign currency inwardly remitted and accounted for in
accordance with BSP rules. This payment scheme does not entitle
respondent to 0% VAT. As the Court held in Commissioner of Internal
Revenue v. American Express International, Inc. (Philippine
Branch),
[24]
the place of payment is immaterial, much less is the place
where the output of the service is ultimately used. An essential
condition for entitlement to 0% VAT under Section 102(b)(1) and (2) is
that the recipient of the services is a person doing business outside the
Philippines. In this case, the recipient of the services is the
Consortium, which is doing business not outside, but within the
Philippines because it has a 15-year contract to operate and
maintainNAPOCORs two 100-megawatt power barges in
Mindanao.

The Court recognizes the rule that the VAT system generally
follows the destination principle (exports are zero-rated whereas
imports are taxed). However, as the Court stated in American
Express, there is an exception to this rule.
[25]
This exception refers to the
0% VAT on services enumerated in Section 102 and performed in the
Philippines. For services covered by Section 102(b)(1) and (2), the
recipient of the services must be a person doing business outside the
Philippines. Thus, to be exempt from the destination principle under
Section 102(b)(1) and (2), the services must be (a) performed in the
Philippines; (b) for a person doing business outside the Philippines; and
(c) paid in acceptable foreign currency accounted for in accordance with
BSP rules.

Respondents reliance on the ruling in American Express
[26]
is
misplaced. That case involved a recipient of services, specifically
American Express International, Inc. (Hongkong Branch), doing
business outside the Philippines. There, the Court stated:

Respondent [American Express International, Inc. (Philippine
Branch)] is a VAT-registered person that facilitates the
collection and payment of receivables belonging to its non-
resident foreign client[American Express International, Inc.
(Hongkong Branch)], for which it gets paid in acceptable
foreign currency inwardly remitted and accounted for in
accordance with BSP rules and regulations.
x x xx
[27]
(Emphasis supplied)

In contrast, this case involves a recipient of services the Consortium
which is doing business in the Philippines. Hence, American Express
services were subject to 0% VAT, while respondents services should be
subject to 10% VAT.

Nevertheless, in seeking a refund of its excess output tax,
respondent relied on VAT Ruling No. 003-99,
[28]
which reconfirmed
BIR Ruling No. 023-95
[29]
insofar as it held that the services being
rendered by BWSCMI is subject to VAT at zero percent
(0%). Respondents reliance on these BIR rulings binds petitioner.

Petitioners filing of his Answer before the CTA challenging
respondents claim for refund effectively serves as a revocation of VAT
Ruling No. 003-99 and BIR Ruling No. 023-95. However, such
revocation cannot be given retroactive effect since it will prejudice
respondent. Changing respondents status will deprive respondent of a
refund of a substantial amount representing excess output
tax.
[30]
Section 246 of the Tax Code provides that any revocation of a
ruling by the Commissioner of Internal Revenue shall not be given
retroactive application if the revocation will prejudice the
taxpayer. Further, there is no showing of the existence of any of the
exceptions enumerated in Section 246 of the Tax Code for the
retroactive application of such revocation.

However, upon the filing of petitioners Answer dated 2
March 2000 before the CTA contesting respondents claim for
refund, respondents services shall be subject to the regular 10%
VAT.
[31]
Such filing is deemed a revocation of VAT Ruling No. 003-99
and BIR Ruling No. 023-95.

WHEREFORE, the Court DENIES the petition.

SO ORDERED.
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES,
INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL
MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal
Bonifacio R Matol and Assistant Solicitor General Conrado T.
Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J .:
This is an appeal from the decision of the Court of First Instance
of Leyte in its Civil Case No. 3294, which was certified to Us by
the Court of Appeals on October 6, 1969, as involving only pure
questions of law, challenging the power of taxation delegated to
municipalities under the Local Autonomy Act (Republic Act No.
2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling
Company of the Philippines, Inc., commenced a complaint with
preliminary injunction before the Court of First Instance of Leyte
for that court to declare Section 2 of Republic Act No.
2264.
1
otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well
as to declare Ordinances Nos. 23 and 27, series of 1962, of the
municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts,
the material portions of which state that, first, both Ordinances
Nos. 23 and 27 embrace or cover the same subject matter and
the production tax rates imposed therein are practically the same,
and second, that on January 17, 1963, the acting Municipal
Treasurer of Tanauan, Leyte, as per his letter addressed to the
Manager of the Pepsi-Cola Bottling Plant in said municipality,
sought to enforce compliance by the latter of the provisions of
said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was
approved on September 25, 1962, levies and collects "from soft
drinks producers and manufacturers a tai of one-sixteenth (1/16)
of a centavo for every bottle of soft drink corked."
2
For the
purpose of computing the taxes due, the person, firm, company
or corporation producing soft drinks shall submit to the Municipal
Treasurer a monthly report, of the total number of bottles
produced and corked during the month.
3

On the other hand, Municipal Ordinance No. 27, which was
approved on October 28, 1962, levies and collects "on soft drinks
produced or manufactured within the territorial jurisdiction of this
municipality a tax of ONE CENTAVO (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity."
4
For the purpose of
computing the taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to the
Municipal Treasurer a monthly report of the total number of
gallons produced or manufactured during the month.
5

The tax imposed in both Ordinances Nos. 23 and 27 is
denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered
judgment "dismissing the complaint and upholding the
constitutionality of [Section 2, Republic Act No.
2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due under the
oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola
Bottling Company appealed to the Court of Appeals, which, in
turn, elevated the case to Us pursuant to Section 31 of the
Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue
delegation of power, confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double
taxation and impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of
sovereignty, belonging as a matter of right to every independent
government, without being expressly conferred by the people.
6
It
is a power that is purely legislative and which the central
legislative body cannot delegate either to the executive or judicial
department of the government without infringing upon the theory
of separation of powers. The exception, however, lies in the case
of municipal corporations, to which, said theory does not apply.
Legislative powers may be delegated to local governments in
respect of matters of local concern.
7
This is sanctioned by
immemorial practice.
8
By necessary implication, the legislative
power to create political corporations for purposes of local self-
government carries with it the power to confer on such
localgovernmental agencies the power to tax.
9
Under the New
Constitution, local governments are granted the autonomous
authority to create their own sources of revenue and to levy
taxes. Section 5, Article XI provides: "Each local government unit
shall have the power to create its sources of revenue and to levy
taxes, subject to such limitations as may be provided by law."
Withal, it cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative power to
enact and vest in local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to
plaintiff-appellant's pretense, would not suffice to invalidate the
said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that
which is exercised by itself. When it is said that the taxing power
may be delegated to municipalities and the like, it is meant that
there may be delegated such measure of power to impose and
collect taxes as the legislature may deem expedient. Thus,
municipalities may be permitted to tax subjects which for reasons
of public policy the State has not deemed wise to tax for more
general purposes.
10
This is not to say though that the
constitutional injunction against deprivation of property
without due process of law may be passed over under the guise
of the taxing power, except when the taking of the property is in
the lawful exercise of the taxing power, as when (1) the tax is for
a public purpose; (2) the rule on uniformity of taxation is
observed; (3) either the person or property taxed is within the
jurisdiction of the government levying the tax; and (4) in the
assessment and collection of certain kinds of taxes notice and
opportunity for hearing are provided.
11
Due process is usually
violated where the tax imposed is for a private as distinguished
from a public purpose; a tax is imposed on property outside the
State, i.e., extraterritorial taxation; and arbitrary or oppressive
methods are used in assessing and collecting taxes. But, a tax
does not violate the due process clause, as applied to a particular
taxpayer, although the purpose of the tax will result in
an injury rather than a benefit to such taxpayer. Due process
does not require that the property subject to the tax or the amount
of tax to be raised should be determined by judicial inquiry, and a
notice and hearing as to the amount of the tax and the manner in
which it shall be apportioned are generally not necessary to due
process of law.
12

There is no validity to the assertion that the delegated
authority can be declared unconstitutional on the theory of double
taxation. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which
local taxation may not be exercised.
13
The reason is that the
State has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the
United States and some states of the Union.
14
Double taxation
becomes obnoxious only where the taxpayer is taxed twice for the
benefit of the same governmental entity
15
or by the same
jurisdiction for the same purpose,
16
but not in a case where one
tax is imposed by the State and the other by the city or
municipality.
17

2. The plaintiff-appellant submits that Ordinance No. 23 and 27
constitute double taxation, because these two ordinances cover
the same subject matter and impose practically the same tax rate.
The thesis proceeds from its assumption that both ordinances are
valid and legally enforceable. This is not so. As earlier quoted,
Ordinance No. 23, which was approved on September 25, 1962,
levies or collects from soft drinks producers or manufacturers a
tax of one-sixteen (1/16) of a centavo for .every bottle corked,
irrespective of the volume contents of the bottle used. When it
was discovered that the producer or manufacturer could increase
the volume contents of the bottle and still pay the same tax rate,
the Municipality of Tanauan enacted Ordinance No. 27, approved
on October 28, 1962, imposing a tax of one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume capacity. The
difference between the two ordinances clearly lies in the tax rate
of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a
centavo for every bottle corked; in Ordinance No. 27, it is one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The intention of the Municipal Council of Tanauan in
enacting Ordinance No. 27 is thus clear: it was intended as a
plain substitute for the prior Ordinance No. 23, and operates as a
repeal of the latter, even without words to that effect.
18
Plaintiff-
appellant in its brief admitted that defendants-appellees are only
seeking to enforce Ordinance No. 27, series of 1962. Even the
stipulation of facts confirms the fact that the Acting Municipal
Treasurer of Tanauan, Leyte sought t6 compel compliance by the
plaintiff-appellant of the provisions of said Ordinance No. 27,
series of 1962. The aforementioned admission shows that only
Ordinance No. 27, series of 1962 is being enforced by
defendants-appellees. Even the Provincial Fiscal, counsel for
defendants-appellees admits in his brief "that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No.
23 as the provisions of the latter are inconsistent with the
provisions of the former."
That brings Us to the question of whether the remaining
Ordinance No. 27 imposes a percentage or a specific tax.
Undoubtedly, the taxing authority conferred on local governments
under Section 2, Republic Act No. 2264, is broad enough as to
extend to almost "everything, accepting those which are
mentioned therein." As long as the text levied under the authority
of a city or municipal ordinance is not within the exceptions and
limitations in the law, the same comes within the ambit of the
general rule, pursuant to the rules of exclucion
attehus and exceptio firmat regulum in cabisus non excepti
19
The
limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage
tax or other taxes in any form based thereon nor impose taxes on
articles subject to specific tax except gasoline, under the
provisions of the National Internal Revenue Code." For purposes
of this particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and the
volume of sale of the taxpayer imposes a sales tax and is null and
void for being outside the power of the municipality to
enact.
20
But, the imposition of "a tax of one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume capacity" on all
soft drinks produced or manufactured under Ordinance No. 27
does not partake of the nature of a percentage tax on sales, or
other taxes in any form based thereon. The tax is levied on the
produce (whether sold or not) and not on the sales. The volume
capacity of the taxpayer's production of soft drinks is considered
solely for purposes of determining the tax rate on the products,
but there is not set ratio between the volume of sales and the
amount of the tax.
21

Nor can the tax levied be treated as a specific tax. Specific taxes
are those imposed on specified articles, such as distilled spirits,
wines, fermented liquors, products of tobacco other than cigars
and cigarettes, matches firecrackers, manufactured oils and other
fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other habit-forming
drugs.
22
Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.)
of volume capacity on all softdrinks, produced or manufactured, or
an equivalent of 1- centavos per case,
23
cannot be considered
unjust and unfair. 24 an increase in the tax alone would not
support the claim that the tax is oppressive, unjust and
confiscatory. Municipal corporations are allowed much discretion
in determining the reates of imposable taxes. 25 This is in line
with the constutional policy of according the widest possible
autonomy to local governments in matters of local taxation, an
aspect that is given expression in the Local Tax Code (PD No.
231, July 1, 1973). 26 Unless the amount is so excessive as to be
prohibitive, courts will go slow in writing off an ordinance as
unreasonable. 27 Reluctance should not deter compliance with an
ordinance such as Ordinance No. 27 if the purpose of the law to
further strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking
machine with five but not more than ten crowners or P2,000.00
with ten but not more than twenty crowners imposed on
manufacturers, producers, importers and dealers of soft drinks
and/or mineral waters under Ordinance No. 54, series of 1964, as
amended by Ordinance No. 41, series of 1968, of defendant
Municipality,
29
appears not to affect the resolution of the validity
of Ordinance No. 27. Municipalities are empowered to impose,
not only municipal license taxes upon persons engaged in any
business or occupation but also to levy for public purposes, just
and uniform taxes. The ordinance in question (Ordinance No. 27)
comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act
No. 2264, otherwise known as the Local Autonomy Act, as
amended, is hereby upheld and Municipal Ordinance No. 27 of
the Municipality of Tanauan, Leyte, series of 1962, re-pealing
Municipal Ordinance No. 23, same series, is hereby declared of
valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
[G.R. No. 127105. June 25, 1999]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. S.C.
JOHNSON AND SON, INC., and COURT OF
D E C I S I O N
GONZAGA-REYES, J .:
This is a petition for review on certiorari under Rule 45 of the Rules
of Court seeking to set aside the decision of the Court of Appeals dated
November 7, 1996 in CA-GR SP No. 40802 affirming the decision of
the Court of Tax Appeals in CTA Case No. 5136.
The antecedent facts as found by the Court of Tax Appeals are not
disputed, to wit:
[Respondent], a domestic corporation organized and operating under
the Philippine laws, entered into a license agreement with SC Johnson
and Son, United States of America (USA), a non-resident foreign
corporation based in the U.S.A. pursuant to which the [respondent] was
granted the right to use the trademark, patents and technology owned by
the latter including the right to manufacture, package and distribute the
products covered by the Agreement and secure assistance in
management, marketing and production from SC Johnson and Son, U. S.
A.
The said License Agreement was duly registered with the
Technology Transfer Board of the Bureau of Patents, Trade Marks and
Technology Transfer under Certificate of Registration No. 8064 (Exh.
A).
For the use of the trademark or technology, [respondent] was obliged to
pay SC Johnson and Son, USA royalties based on a percentage of net
sales and subjected the same to 25% withholding tax on royalty
paymentswhich [respondent] paid for the period covering July 1992 to
May 1993 in the total amount of P1,603,443.00 (Exhs. B to L and
submarkings).
On October 29, 1993, [respondent] filed with the International Tax
Affairs Division (ITAD) of the BIR a claim for refund of overpaid
withholding tax on royalties arguing that, the antecedent facts attending
[respondents] case fall squarely within the same circumstances under
which said MacGeorge and Gillete rulings were issued. Since the
agreement was approved by the Technology Transfer Board, the
preferential tax rate of 10% should apply to the [respondent]. We
therefore submit that royalties paid by the [respondent] to SC Johnson
and Son, USA is only subject to 10% withholding tax pursuant to the
most-favored nation clause of the RP-US Tax Treaty [Article 13
Paragraph 2 (b) (iii)] in relation to the RP-West Germany Tax Treaty
[Article 12 (2) (b)] (Petition for Review [filed with the Court of
Appeals], par. 12). [Respondents] claim for the refund ofP963,266.00
was computed as follows:
Gross 25% 10%
Month/ Royalty Withholding Withholding
Year Fee Tax
Paid Tax Balance
______ _______ __________ __________ ______
July 1992 559,878 139,970 55,988 83,982
August 567,935 141,984 56,794 85,190
September 595,956 148,989 59,596 89,393
October 634,405 158,601 63,441 95,161
November 620,885 155,221 62,089 93,133
December 383,276 95,819 36,328 57,491
Jan 1993 602,451 170,630 68,245 102,368
February 565,845 141,461 56,585 84,877
March 547,253 136,813 54,725 82,088
April 660,810 165,203 66,081 99,122
May 603,076 150,769 60,308 90,461
P6,421,770 P1,605,443 P642,177 P963,266
[1]

======== ======== ======= =======
The Commissioner did not act on said claim for refund. Private
respondent S.C. Johnson & Son, Inc. (S.C. Johnson) then filed a petition
for review before the Court of Tax Appeals (CTA) where the case was
docketed as CTA Case No. 5136, to claim a refund of the overpaid
withholding tax on royalty payments from July 1992 to May 1993.
On May 7, 1996, the Court of Tax Appeals rendered its decision in
favor of S.C. Johnson and ordered the Commissioner of
Internal Revenue to issue a tax credit certificate in the amount of
P963,266.00 representing overpaid withholding tax on royalty payments
beginning July, 1992 to May, 1993.
[2]

The Commissioner of Internal Revenue thus filed a petition for
review with the Court of Appeals which rendered the decision subject of
this appeal on November 7, 1996 finding no merit in the petition and
affirming in toto the CTA ruling.
[3]

This petition for review was filed by the Commissioner of Internal
Revenue raising the following issue:
THE COURT OF APPEALS ERRED IN RULING THAT SC
JOHNSON AND SON, USA IS ENTITLED TO THE MOST
FAVORED NATION TAX RATE OF 10% ON ROYALTIES AS
PROVIDED IN THE RP-US TAX TREATY IN RELATION TO THE
RP-WEST GERMANY TAX TREATY.
Petitioner contends that under Article 13(2) (b) (iii) of the RP-US
Tax Treaty, which is known as the most favored nation clause,
the lowest rate of the Philippine tax at 10% may be imposed on royalties
derived by a resident of the United States from sources within the
Philippines only if the circumstances of the resident of the United States
are similar to those of the resident of West Germany. Since the RP-US
Tax Treaty contains no matching credit provision as that provided
under Article 24 of the RP-West Germany Tax Treaty, the tax on
royalties under the RP-US Tax Treaty is not paid under similar
circumstances as those obtaining in the RP-West Germany Tax
Treaty. Even assuming that the phrase paid under similar
circumstances refers to the payment of royalties, and not taxes, as held
by the Court of Appeals, still, the most favored nation clause cannot
be invoked for the reason that when a tax treaty contemplates
circumstances attendant to the payment of a tax, or royalty remittances
for that matter, these must necessarily refer to circumstances that are
tax-related. Finally, petitioner argues that since S.C. Johnsons
invocation of the most favored nation clause is in the nature of a claim
for exemption from the application of the regular tax rate of 25% for
royalties, the provisions of the treaty must be construed strictly against
it.
In its Comment, private respondent S.C. Johnson avers that the
instant petition should be denied (1) because it contains a defective
certification against forum shopping as required under SC Circular No.
28-91, that is, the certification was not executed by the petitioner herself
but by her counsel; and (2) that the most favored nation clause under
the RP-US Tax Treaty refers to royalties paid under similar
circumstances as those royalties subject to tax in other treaties; that the
phrase paid under similar circumstances does not refer to payment of
the tax but to the subject matter of the tax, that is, royalties, because the
most favored nation clause is intended to allow the taxpayer in one
state to avail of more liberal provisions contained in another tax treaty
wherein the country of residence of such taxpayer is also a party thereto,
subject to the basic condition that the subject matter of taxation in that
other tax treaty is the same as that in the original tax treaty under which
the taxpayer is liable; thus, the RP-US Tax Treaty speaks of royalties of
the same kind paid under similar circumstances. S.C. Johnson also
contends that the Commissioner is estopped from insisting on her
interpretation that the phrase paid under similar circumstances refers
to the manner in which the tax is paid, for the reason that said
interpretation is embodied in Revenue Memorandum Circular (RMC)
39-92 which was already abandoned by the Commissioners predecessor
in 1993; and was expressly revoked in BIR Ruling No. 052-95 which
stated that royalties paid to an American licensor are subject only to
10% withholding tax pursuant to Art 13(2)(b)(iii) of the RP-US Tax
Treaty in relation to the RP-West Germany Tax Treaty. Said ruling
should be given retroactive effect except if such is prejudicial to the
taxpayer pursuant to Section 246 of the National Internal Revenue Code.
Petitioner filed Reply alleging that the fact that the certification
against forum shopping was signed by petitioners counsel is not a fatal
defect as to warrant the dismissal of this petition since Circular No. 28-
91 applies only to original actions and not to appeals, as in the instant
case. Moreover, the requirement that the certification should be signed
by petitioner and not by counsel does not apply to petitioner who has
only the Office of the Solicitor General as statutory counsel. Petitioner
reiterates that even if the phrase paid under similar circumstances
embodied in the most favored nation clause of the RP-US Tax Treaty
refers to the payment of royalties and not taxes, still the presence or
absence of a matching credit provision in the said RP-US Tax Treaty
would constitute a material circumstance to such payment and would be
determinative of the said clauses application.
We address first the objection raised by private respondent that the
certification against forum shopping was not executed by the petitioner
herself but by her counsel, the Office of the Solicitor General (O.S.G.)
through one of its Solicitors, Atty. Tomas M. Navarro.
SC Circular No. 28-91 provides:
SUBJECT: ADDITIONAL REQUISITES FOR PETITIONS FILED
WITH THE SUPREME COURT AND THE COURT OF APPEALS
TO PREVENT FORUM SHOPPING OR MULTIPLE FILING OF
PETITIONS AND COMPLAINTS
TO : xxx xxx xxx
The attention of the Court has been called to the filing of multiple
petitions and complaints involving the same issues in the Supreme
Court, the Court of Appeals or other tribunals or agencies, with the
result that said courts, tribunals or agencies have to resolve the same
issues.
(1) To avoid the foregoing, in every petition filed with the Supreme
Court or the Court of Appeals, the petitioner aside from complying with
pertinent provisions of the Rules of Court and existing circulars, must
certify under oath to all of the following facts or undertakings: (a) he
has not theretofore commenced any other action or proceeding involving
the same issues in the Supreme Court, the Court of Appeals, or any
tribunal or agency; xxx
(2) Any violation of this revised Circular will entail the following
sanctions: (a) it shall be a cause for the summary dismissal of the
multiple petitions or complaints; xxx
The circular expressly requires that a certificate of non-forum
shopping should be attached to petitions filed before this Court and the
Court of Appeals. Petitioners allegation that Circular No. 28-91 applies
only to original actions and not to appeals as in the instant case is not
supported by the text nor by the obvious intent of the Circular which is
to prevent multiple petitions that will result in the same issue being
resolved by different courts.
Anent the requirement that the party, not counsel, must certify under
oath that he has not commenced any other action involving the same
issues in this Court or the Court of Appeals or any other tribunal or
agency, we are inclined to accept petitioners submission that since the
OSG is the only lawyer for the petitioner, which is a government agency
mandated under Section 35, Chapter 12, title III, Book IV of the 1987
Administrative Code
[4]
to be represented only by the Solicitor General,
the certification executed by the OSG in this case constitutes substantial
compliance with Circular No. 28-91.
With respect to the merits of this petition, the main point of
contention in this appeal is the interpretation of Article 13 (2) (b) (iii) of
the RP-US Tax Treaty regarding the rate of tax to be imposed by the
Philippines upon royalties received by a non-resident foreign
corporation. The provision states insofar as pertinent that-
1) Royalties derived by a resident of one of the Contracting
States from sources within the other Contracting State may be
taxed by both Contracting States.
2) However, the tax imposed by that Contracting State shall not
exceed.
a) In the case of the United States, 15 percent of the gross amount of the
royalties, and
b) In the case of the Philippines, the least of:
(i) 25 percent of the gross amount of the royalties;
(ii) 15 percent of the gross amount of the royalties, where the royalties
are paid by a corporation registered with the Philippine Board of
Investments and engaged in preferred areas of activities; and
(iii) the lowest rate of Philippine tax that may be imposed on royalties of
the same kind paid under similar circumstances to a resident of a third
State.
xxx xxx xxx
(italics supplied)
Respondent S. C. Johnson and Son, Inc. claims that on the basis of
the quoted provision, it is entitled to the concessional tax rate of 10
percent on royalties based on Article 12 (2) (b) of the RP-Germany Tax
Treaty which provides:
(2) However, such royalties may also be taxed in the Contracting
State in which they arise, and according to the law of that State,
but the tax so charged shall not exceed:
x x x
b) 10 percent of the gross amount of royalties arising from the use
of, or the right to use, any patent, trademark, design or model,
plan, secret formula or process, or from the use of or the right
to use, industrial, commercial, or scientific equipment, or for
information concerning industrial, commercial or scientific
experience.
For as long as the transfer of technology, under Philippine law, is subject
to approval, the limitation of the tax rate mentioned under b) shall, in the
case of royalties arising in the Republic of the Philippines, only apply if
the contract giving rise to such royalties has been approved by the
Philippine competent authorities.
Unlike the RP-US Tax Treaty, the RP-Germany Tax Treaty allows a
tax credit of 20 percent of the gross amount of such royalties against
German income and corporation tax for the taxes payable in the
Philippines on such royalties where the tax rate is reduced to 10 or 15
percent under such treaty. Article 24 of the RP-Germany Tax Treaty
states-
1) Tax shall be determined in the case of a resident of the Federal
Republic of Germany as follows:
x x x x x x x x x
b) Subject to the provisions of German tax law regarding credit for
foreign tax, there shall be allowed as a credit against German income
and corporation tax payable in respect of the following items of income
arising in the Republic of the Philippines, the tax paid under the laws of
the Philippines in accordance with this Agreement on:
x x x x x x x x x
dd) royalties, as defined in paragraph 3 of Article 12;
x x x x x x x x x
c) For the purpose of the credit referred in subparagraph b) the
Philippine tax shall be deemed to be
x x x x x x x x x
cc) in the case of royalties for which the tax is reduced to 10 or 15 per
cent according to paragraph 2 of Article 12, 20 percent of the gross
amount of such royalties.
x x x x x x x x x
According to petitioner, the taxes upon royalties under the RP-US
Tax Treaty are not paid under circumstances similar to those in the RP-
West Germany Tax Treaty since there is no provision for a 20 percent
matching credit in the former convention and private respondent cannot
invoke the concessional tax rate on the strength of the most favored
nation clause in the RP-US Tax Treaty. Petitioners position is
explained thus:
Under the foregoing provision of the RP-West Germany Tax Treaty,
the Philippine tax paid on income from sources within the Philippines is
allowed as a credit against German income and corporation tax on the
same income. In the case of royalties for which the tax is reduced to 10
or 15 percent according to paragraph 2 of Article 12 of the RP-West
Germany Tax Treaty, the credit shall be 20% of the gross amount of
such royalty. To illustrate, the royalty income of a German resident from
sources within the Philippines arising from the use of, or the right to use,
any patent, trade mark, design or model, plan, secret formula or process,
is taxed at 10% of the gross amount of said royalty under certain
conditions. The rate of 10% is imposed if credit against the German
income and corporation tax on said royalty is allowed in favor of the
German resident. That means the rate of 10% is granted to the German
taxpayer if he is similarly granted a credit against the income and
corporation tax of West Germany. The clear intent of the matching
credit is to soften the impact of double taxation by different
jurisdictions.
The RP-US Tax Treaty contains no similar matching credit as that
provided under the RP-West Germany Tax Treaty. Hence, the tax on
royalties under the RP-US Tax Treaty is not paid under similar
circumstances as those obtaining in the RP-West Germany Tax
Treaty. Therefore, the most favored nation clause in the RP-West
Germany Tax Treaty cannot be availed of in interpreting the provisions
of the RP-US Tax Treaty.
[5]

The petition is meritorious.
We are unable to sustain the position of the Court of Tax Appeals,
which was upheld by the Court of Appeals, that the phrase paid under
similar circumstances in Article 13 (2) (b), (iii) of the RP-US Tax Treaty
should be interpreted to refer to payment of royalty, and not to the
payment of the tax, for the reason that the phrase paid under similar
circumstances is followed by the phrase to a resident of a third
state. The respondent court held that Words are to be understood in
the context in which they are used, and since what is paid to a resident
of a third state is not a tax but a royalty logic instructs that the treaty
provision in question should refer to royalties of the same kind paid
under similar circumstances.
The above construction is based principally on syntax or sentence
structure but fails to take into account the purpose animating the treaty
provisions in point. To begin with, we are not aware of any law or rule
pertinent to the payment of royalties, and none has been brought to our
attention, which provides for the payment of royalties under dissimilar
circumstances. The tax rates on royalties and the circumstances of
payment thereof are the same for all the recipients of such royalties and
there is no disparity based on nationality in the circumstances of such
payment.
[6]
On the other hand, a cursory reading of the various tax
treaties will show that there is no similarity in the provisions on relief
from or avoidance of double taxation
[7]
as this is a matter of negotiation
between the contracting parties.
[8]
As will be shown later, this
dissimilarity is true particularly in the treaties between the Philippines
and the United States and between the Philippines and West Germany.
The RP-US Tax Treaty is just one of a number of bilateral treaties
which the Philippines has entered into for the avoidance of double
taxation.
[9]
The purpose of these international agreements is to reconcile
the national fiscal legislations of the contracting parties in order to help
the taxpayer avoid simultaneous taxation in two different
jurisdictions.
[10]
More precisely, the tax conventions are drafted with a
view towards the elimination ofinternational juridical double
taxation, which is defined as the imposition of comparable taxes in two
or more states on the same taxpayer in respect of the same subject matter
and for identical periods.
[11]
, citing the Committee on Fiscal Affairs of
the Organization for Economic Co-operation and Development
(OECD).11 The apparent rationale for doing away with double taxation
is to encourage the free flow of goods and services and the movement of
capital, technology and persons between countries, conditions deemed
vital in creating robust and dynamic economies.
[12]
Foreign investments
will only thrive in a fairly predictable and reasonable international
investment climate and the protection against double taxation is crucial
in creating such a climate.
[13]

Double taxation usually takes place when a person is resident of a
contracting state and derives income from, or owns capital in, the other
contracting state and both states impose tax on that income or capital. In
order to eliminate double taxation, a tax treaty resorts to several
methods. First, it sets out the respective rights to tax of the state of
source or situs and of the state of residence with regard to certain classes
of income or capital. In some cases, an exclusive right to tax is conferred
on one of the contracting states; however, for other items of income or
capital, both states are given the right to tax, although the amount of tax
that may be imposed by the state of source is limited.
[14]

The second method for the elimination of double taxation applies
whenever the state of source is given a full or limited right to tax
together with the state of residence. In this case, the treaties make it
incumbent upon the state of residence to allow relief in order to avoid
double taxation. There are two methods of relief- the exemption method
and the credit method. In the exemption method, the income or capital
which is taxable in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into account in
determining the rate of tax applicable to the taxpayers remaining
income or capital. On the other hand, in the credit method, although the
income or capital which is taxed in the state of source is still taxable in
the state of residence, the tax paid in the former is credited against the
tax levied in the latter. The basic difference between the two methods is
that in the exemption method, the focus is on the income or capital itself,
whereas the credit method focuses upon the tax.
[15]

In negotiating tax treaties, the underlying rationale for reducing the
tax rate is that the Philippines will give up a part of the tax in the
expectation that the tax given up for this particular investment is not
taxed by the other country.
[16]
Thus the petitioner correctly opined that
the phrase royalties paid under similar circumstances in the most
favored nation clause of the US-RP Tax Treaty necessarily contemplated
circumstances that are tax-related.
In the case at bar, the state of source is the Philippines because the
royalties are paid for the right to use property or rights, i.e. trademarks,
patents and technology, located within the Philippines.
[17]
The United
States is the state of residence since the taxpayer, S. C. Johnson and Son,
U. S. A., is based there. Under the RP-US Tax Treaty, the state of
residence and the state of source are both permitted to tax the royalties,
with a restraint on the tax that may be collected by the state of
source.
[18]
Furthermore, the method employed to give relief from double
taxation is the allowance of a tax credit to citizens or residents of the
United States (in an appropriate amount based upon the taxes paid or
accrued to the Philippines) against the United States tax, but such
amount shall not exceed the limitations provided by United States law
for the taxable year.
[19]
Under Article 13 thereof, the Philippines may
impose one of three rates- 25 percent of the gross amount of the
royalties; 15 percent when the royalties are paid by a corporation
registered with the Philippine Board of Investments and engaged in
preferred areas of activities; or the lowest rate of Philippine tax that may
be imposed on royalties of the same kind paid under similar
circumstances to a resident of a third state.
Given the purpose underlying tax treaties and the rationale for the
most favored nation clause, the concessional tax rate of 10 percent
provided for in the RP-Germany Tax Treaty should apply only if the
taxes imposed upon royalties in the RP-US Tax Treaty and in the RP-
Germany Tax Treaty are paid under similar circumstances. This would
mean that private respondent must prove that the RP-US Tax Treaty
grants similar tax reliefs to residents of the United States in respect of
the taxes imposable upon royalties earned from sources within the
Philippines as those allowed to their German counterparts under the RP-
Germany Tax Treaty.
The RP-US and the RP-West Germany Tax Treaties do not contain
similar provisions on tax crediting. Article 24 of the RP-Germany Tax
Treaty, supra, expressly allows crediting against German income and
corporation tax of 20% of the gross amount of royalties paid under the
law of the Philippines. On the other hand, Article 23 of the RP-US Tax
Treaty, which is the counterpart provision with respect to relief for
double taxation, does not provide for similar crediting of 20% of the
gross amount of royalties paid. Said Article 23 reads:
Article 23
Relief from double taxation
Double taxation of income shall be avoided in the following manner:
1) In accordance with the provisions and subject to the
limitations of the law of the United States (as it may be
amended from time to time without changing the general
principle thereof), the United States shall allow to a citizen or
resident of the United States as a credit against the United
States tax the appropriate amount of taxes paid or accrued to
the Philippines and, in the case of a United States corporation
owning at least 10 percent of the voting stock of a Philippine
corporation from which it receives dividends in any taxable
year, shall allow credit for the appropriate amount of taxes paid
or accrued to the Philippines by the Philippine corporation
paying such dividends with respect to the profits out of which
such dividends are paid. Such appropriate amount shall be
based upon the amount of tax paid or accrued to the
Philippines, but the credit shall not exceed the limitations (for
the purpose of limiting the credit to the United States tax on
income from sources within the Philippines or on income from
sources outside the United States) provided by United States
law for the taxable year. xxx.
The reason for construing the phrase paid under similar
circumstances as used in Article 13 (2) (b) (iii) of the RP-US Tax
Treaty as referring to taxes is anchored upon a logical reading of the text
in the light of the fundamental purpose of such treaty which is to grant
an incentive to the foreign investor by lowering the tax and at the same
time crediting against the domestic tax abroad a figure higher than what
was collected in the Philippines.
In one case, the Supreme Court pointed out that laws are not just
mere compositions, but have ends to be achieved and that the general
purpose is a more important aid to the meaning of a law than any rule
which grammar may lay down.
[20]
It is the duty of the courts to look to
the object to be accomplished, the evils to be remedied, or the purpose to
be subserved, and should give the law a reasonable or liberal
construction which will best effectuate its purpose.
[21]
The Vienna
Convention on the Law of Treaties states that a treaty shall be
interpreted in good faith in accordance with the ordinary meaning to be
given to the terms of the treaty in their context and in the light of its
object and purpose.
[22]

As stated earlier, the ultimate reason for avoiding double taxation is
to encourage foreign investors to invest in the Philippines - a crucial
economic goal for developing countries.
[23]
The goal of double taxation
conventions would be thwarted if such treaties did not provide for
effective measures to minimize, if not completely eliminate, the tax
burden laid upon the income or capital of the investor. Thus, if the rates
of tax are lowered by the state of source, in this case, by the Philippines,
there should be a concomitant commitment on the part of the state of
residence to grant some form of tax relief, whether this be in the form of
a tax credit or exemption.
[24]
Otherwise, the tax which could have been
collected by the Philippine government will simply be collected by
another state, defeating the object of the tax treaty since the tax burden
imposed upon the investor would remain unrelieved. If the state of
residence does not grant some form of tax relief to the investor, no
benefit would redound to the Philippines, i.e., increased investment
resulting from a favorable tax regime, should it impose a lower tax rate
on the royalty earnings of the investor, and it would be better to impose
the regular rate rather than lose much-needed revenues to another
country.
At the same time, the intention behind the adoption of the provision
on relief from double taxation in the two tax treaties in question
should be considered in light of the purpose behind the most favored
nation clause.
The purpose of a most favored nation clause is to grant to the
contracting party treatment not less favorable than that which has been
or may be granted to the most favored among other countries.
[25]
The
most favored nation clause is intended to establish the principle of
equality of international treatment by providing that the citizens or
subjects of the contracting nations may enjoy the privileges accorded by
either party to those of the most favored nation.
[26]
The essence of the
principle is to allow the taxpayer in one state to avail of more liberal
provisions granted in another tax treaty to which the country of
residence of such taxpayer is also a party provided that the subject
matter of taxation, in this case royalty income, is the same as that in the
tax treaty under which the taxpayer is liable. Both Article 13 of the RP-
US Tax Treaty and Article 12 (2) (b) of the RP-West Germany Tax
Treaty, above-quoted, speaks of tax on royalties for the use of
trademark, patent, and technology. The entitlement of the 10% rate by
U.S. firms despite the absence of a matching credit (20% for royalties)
would derogate from the design behind the most favored nation clause to
grant equality of international treatment since the tax burden laid upon
the income of the investor is not the same in the two countries. The
similarity in the circumstances of payment of taxes is a condition for the
enjoyment of most favored nation treatment precisely to underscore the
need for equality of treatment.
We accordingly agree with petitioner that since the RP-US Tax
Treaty does not give a matching tax credit of 20 percent for the taxes
paid to the Philippines on royalties as allowed under the RP-West
Germany Tax Treaty, private respondent cannot be deemed entitled to
the 10 percent rate granted under the latter treaty for the reason that there
is no payment of taxes on royalties under similar circumstances.
It bears stress that tax refunds are in the nature of tax
exemptions. As such they are regarded as in derogation of sovereign
authority and to be construed strictissimi juris against the person or
entity claiming the exemption.
[27]
The burden of proof is upon him who
claims the exemption in his favor and he must be able to justify his
claim by the clearest grant of organic or statute law.
[28]
Private
respondent is claiming for a refund of the alleged overpayment of tax on
royalties; however, there is nothing on record to support a claim that the
tax on royalties under the RP-US Tax Treaty is paid under similar
circumstances as the tax on royalties under the RP-West Germany Tax
Treaty.
WHEREFORE, for all the foregoing, the instant petition is
GRANTED. The decision dated May 7, 1996 of the Court of Tax
Appeals and the decision dated November 7, 1996 of the Court of
Appeals are hereby SET ASIDE.
SO ORDERED.
[G.R. No. 147188. September 14, 2004]
vs. THE ESTATE OF BENIGNO P. TODA, JR.,
Represented by Special Co-administrators Lorna
Kapunan and Mario Luza Bautista, respondents.
D E C I S I O N
DAVIDE, JR., C.J .:
This Court is called upon to determine in this case whether
the tax planning scheme adopted by a corporation constitutes tax
evasion that would justify an assessment of deficiency income
tax.
The petitioner seeks the reversal of the Decision
[1]
of the Court
of Appeals of 31 January 2001 in CA-G.R. SP No. 57799
affirming the 3 January 2000 Decision
[2]
of the Court of Tax
Appeals (CTA) in C.T.A. Case No. 5328,
[3]
which held that the
respondent Estate of Benigno P. Toda, Jr. is not liable for the
deficiency income tax of Cibeles Insurance Corporation (CIC) in
the amount of P79,099,999.22 for the year 1989, and ordered the
cancellation and setting aside of the assessment issued by
Commissioner of Internal Revenue Liwayway Vinzons-Chato on 9
January 1995.
The case at bar stemmed from a Notice of Assessment sent to
CIC by the Commissioner of Internal Revenue for deficiency
income tax arising from an alleged simulated sale of a 16-
storeycommercial building known as Cibeles Building, situated on
two parcels of land on Ayala Avenue, Makati City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr.,
President and owner of 99.991% of its issued and outstanding
capital stock, to sell the Cibeles Building and the two parcels of
land on which the building stands for an amount of not less
than P90 million.
[4]

On 30 August 1989, Toda purportedly sold the property
for P100 million to Rafael A. Altonaga, who, in turn, sold the same
property on the same day to Royal Match Inc. (RMI) for P200
million. These two transactions were evidenced by Deeds of
Absolute Sale notarized on the same day by the same notary
public.
[5]

For the sale of the property to RMI, Altonaga paid capital gains
tax in the amount of P10 million.
[6]

On 16 April 1990, CIC filed its corporate annual income tax
return
[7]
for the year 1989, declaring, among other things, its gain
from the sale of real property in the amount of P75,728.021. After
crediting withholding taxes of P254,497.00, it
paid P26,341,207
[8]
for its net taxable income of P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC
to Le Hun T. Choa for P12.5 million, as evidenced by a Deed of
Sale of Shares of Stocks.
[9]
Three and a half years later, or on 16
January 1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent
an assessment notice
[10]
and demand letter to the CIC for
deficiency income tax for the year 1989 in the amount
ofP79,099,999.22.
The new CIC asked for a reconsideration, asserting that the
assessment should be directed against the old CIC, and not
against the new CIC, which is owned by an entirely different set
ofstockholders; moreover, Toda had undertaken to hold the buyer
of his stockholdings and the CIC free from all tax liabilities for the
fiscal years 1987-1989.
[11]

On 27 January 1995, the Estate of Benigno P. Toda, Jr.,
represented by special co-administrators Lorna Kapunan and
Mario Luza Bautista, received a Notice of Assessment
[12]
dated 9
January 1995 from the Commissioner of Internal Revenue for
deficiency income tax for the year 1989 in the amount
of P79,099,999.22, computed as follows:
Income Tax 1989
Net Income per
return P75,987,725.00
Add: Additional gain on sale
of real property taxable under
ordinary corporate income
but were substituted with
individual capital gains
(P200M
100M) 100,000,000.00
Total Net Taxable Income
P175,987,725.00
per investigation
Tax Due thereof at 35% P
61,595,703.75
Less: Payment already made
1. Per return P26,595,704.00
2. Thru Capital Gains
Tax made by R.A.
Altonaga 10,000,000.00
36,595,704.00
Balance of tax
due P 24,999,999.75
Add: 50% Surcharge
12,499,999.88
25% Surcharge
6,249,999.94
Total
P 43,749,999.57
Add: Interest 20% from
4/16/90-4/30/94 (.808)
35,349,999.65
TOTAL AMT. DUE & COLLECTIBLE
P 79,099,999.22

============
The Estate thereafter filed a letter of protest.
[13]

In the letter dated 19 October 1995,
[14]
the Commissioner
dismissed the protest, stating that a fraudulent scheme was
deliberately perpetuated by the CIC wholly owned and controlled
by Toda by covering up the additional gain of P100 million, which
resulted in the change in the income structure of the proceeds of
the sale of the two parcels of land and the building thereon to an
individual capital gains, thus evading the higher corporate income
tax rate of 35%.
On 15 February 1996, the Estate filed a petition for
review
[15]
with the CTA alleging that the Commissioner erred in
holding the Estate liable for income tax deficiency; that the
inference of fraud of the sale of the properties is unreasonable
and unsupported; and that the right of the Commissioner to
assess CIC had already prescribed.
In his Answer
[16]
and Amended Answer,
[17]
the Commissioner
argued that the two transactions actually constituted a single sale
of the property by CIC to RMI, and that Altonaga was neither the
buyer of the property from CIC nor the seller of the same property
to RMI. The additional gain of P100 million (the difference
between the second simulated sale for P200 million and the first
simulated sale for P100 million) realized by CIC was taxed at the
rate of only 5% purportedly as capital gains tax of Altonaga,
instead of at the rate of 35% as corporate income tax of CIC. The
income tax return filed by CIC for 1989 with intent to evade
payment of the tax was thus false or fraudulent. Since such
falsity or fraud was discovered by the BIR only on 8 March 1991,
the assessment issued on 9 January 1995 was well within the
prescriptive period prescribed by Section 223 (a) of the National
Internal Revenue Code of 1986, which provides that tax may be
assessed within ten years from the discovery of the falsity or
fraud. With the sale being tainted with fraud, the separate
corporate personality of CIC should be disregarded. Toda, being
the registered owner of the 99.991% shares of stock of CIC and
the beneficial owner of the remaining 0.009% shares registered in
the name of the individual directors of CIC, should be held liable
for the deficiency income tax, especially because the gains
realized from the sale were withdrawn by him as cash advances
or paid to him as cash dividends. Since he is already dead, his
estate shall answer for his liability.
In its decision
[18]
of 3 January 2000, the CTA held that the
Commissioner failed to prove that CIC committed fraud to deprive
the government of the taxes due it. It ruled that even assuming
that a pre-conceived scheme was adopted by CIC, the same
constituted mere tax avoidance, and not tax evasion. There being
no proof of fraudulent transaction, the applicable period for the
BIR to assess CIC is that prescribed in Section 203 of the NIRC
of 1986, which is three years after the last day prescribed by law
for the filing of the return. Thus, the governments right to assess
CIC prescribed on 15 April 1993. The assessment issued on 9
January 1995 was, therefore, no longer valid. The CTA also ruled
that the mere ownership by Toda of 99.991% of the capital stock
of CIC was not in itself sufficient ground for piercing the separate
corporate personality of CIC. Hence, the CTA declared that the
Estate is not liable for deficiency income tax of P79,099,999.22
and, accordingly, cancelled and set aside the assessment issued
by the Commissioner on 9 January 1995.
In its motion for reconsideration,
[19]
the Commissioner insisted
that the sale of the property owned by CIC was the result of the
connivance between Toda and Altonaga. She further alleged that
the latter was a representative, dummy, and a close business
associate of the former, having held his office in a property owned
by CIC and derived his salary from a foreign corporation (Aerobin,
Inc.) duly owned by Toda for representation services rendered.
The CTA denied
[20]
the motion for reconsideration, prompting the
Commissioner to file a petition for review
[21]
with theCourt of
Appeals.
In its challenged Decision of 31 January 2001, the Court of
Appeals affirmed the decision of the CTA, reasoning that the
CTA, being more advantageously situated and having the
necessary expertise in matters of taxation, is better situated to
determine the correctness, propriety, and legality of the income
tax assessments assailed by the Toda Estate.
[22]

Unsatisfied with the decision of the Court of Appeals, the
Commissioner filed the present petition invoking the following
grounds:
I. THE COURT OF APPEALS ERRED IN HOLDING THAT
RESPONDENT COMMITTED NO FRAUD WITH INTENT
TO EVADE THE TAX ON THE SALE OF THE
PROPERTIES OF CIBELES INSURANCE
CORPORATION.
II. THE COURT OF APPEALS ERRED IN NOT
DISREGARDING THE SEPARATE CORPORATE
PERSONALITY OF CIBELES INSURANCE
CORPORATION.
III. THE COURT OF APPEALS ERRED IN HOLDING
THAT THE RIGHT OF PETITIONER TO ASSESS
RESPONDENT FOR DEFICIENCY INCOME TAX FOR
THE YEAR 1989 HAD PRESCRIBED.
The Commissioner reiterates her arguments in her previous
pleadings and insists that the sale by CIC of the Cibeles property
was in connivance with its dummy Rafael Altonaga, who was
financially incapable of purchasing it. She further points out that
the documents themselves prove the fact of fraud in that (1) the
two sales were done simultaneously on the same date, 30 August
1989; (2) the Deed of Absolute Sale between Altonaga and RMI
was notarized ahead of the alleged sale between CIC and
Altonaga, with the former registered in the Notarial Register of
Jocelyn H. Arreza Pabelana as Doc. 91, Page 20, Book I, Series
of 1989; and the latter, as Doc. No. 92, Page 20, Book I, Series of
1989, of the same Notary Public; (3) as early as 4 May 1989, CIC
received P40 million from RMI, and not from Altonaga. The said
amount was debited by RMI in its trial balance as of 30 June 1989
as investment in Cibeles Building. The substantial portion ofP40
million was withdrawn by Toda through the declaration of cash
dividends to all its stockholders.
For its part, respondent Estate asserts that the Commissioner
failed to present the income tax return of Altonaga to prove that
the latter is financially incapable of purchasing the Cibeles
property.
To resolve the grounds raised by the Commissioner, the
following questions are pertinent:
1. Is this a case of tax evasion or tax avoidance?
2. Has the period for assessment of deficiency income tax for
the year 1989 prescribed? and
3. Can respondent Estate be held liable for the deficiency
income tax of CIC for the year 1989, if any?
We shall discuss these questions in seriatim.
Is this a case of tax evasion
or tax avoidance?
Tax avoidance and tax evasion are the two most common
ways used by taxpayers in escaping from taxation. Tax avoidance
is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms
length. Tax evasion, on the other hand, is a scheme used outside
of those lawful means and when availed of, it usually subjects the
taxpayer to further or additional civil or criminal liabilities.
[23]

Tax evasion connotes the integration of three factors: (1) the
end to be achieved, i.e., the payment of less than that known by
the taxpayer to be legally due, or the non-payment of tax when it
is shown that a tax is due; (2) an accompanying state of mind
which is described as being evil, in bad faith, willfull,or
deliberate and not accidental; and (3) a course of action or
failure of action which is unlawful.
[24]

All these factors are present in the instant case. It is
significant to note that as early as 4 May 1989, prior to the
purported sale of the Cibeles property by CIC to Altonaga on 30
August 1989, CIC received P40 million from RMI,
[25]
and not from
Altonaga. That P40 million was debited by RMI and reflected in
its trial balance
[26]
as other inv. Cibeles Bldg. Also, as of 31
July 1989, another P40 million was debited and reflected in RMIs
trial balance as other inv. Cibeles Bldg. This would show that
the real buyer of the properties was RMI, and not the intermediary
Altonaga.
The investigation conducted by the BIR disclosed that
Altonaga was a close business associate and one of the many
trusted corporate executives of Toda. This information was
revealed by Mr. Boy Prieto, the assistant accountant of CIC and
an old timer in the company.
[27]
But Mr. Prieto did not testify on
this matter, hence, that information remains to be hearsay and is
thus inadmissible in evidence. It was not verified either, since the
letter-request for investigation of Altonaga was
unserved,
[28]
Altonaga having left for the United States of America
in January 1990. Nevertheless, that Altonaga was a mere conduit
finds support in the admission of respondent Estate that the sale
to him was part of the tax planning scheme of CIC. That
admission is borne by the records. In its Memorandum,
respondent Estate declared:
Petitioner, however, claims there was a change of structure of the
proceeds of sale. Admitted one hundred percent. But isnt this precisely
the definition of tax planning? Change the structure of the funds and pay
a lower tax. Precisely, Sec. 40 (2) of the Tax Code exists, allowing tax
free transfers of property for stock, changing the structure of the
property and the tax to be paid. As long as it is done legally, changing
the structure of a transaction to achieve a lower tax is not against the
law. It is absolutely allowed.
Tax planning is by definition to reduce, if not eliminate altogether, a tax.
Surely petitioner [sic] cannot be faulted for wanting to reduce the tax
from 35% to 5%.
[29]
[Underscoring supplied].
The scheme resorted to by CIC in making it appear that there
were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be considered a
legitimate tax planning. Such scheme is tainted with fraud.
Fraud in its general sense, is deemed to comprise anything
calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust or
confidence justly reposed, resulting in the damage to another, or
by which an undue and unconscionable advantage is taken of
another.
[30]

Here, it is obvious that the objective of the sale to Altonaga
was to reduce the amount of tax to be paid especially that the
transfer from him to RMI would then subject the income to only
5% individual capital gains tax, and not the 35% corporate income
tax. Altonagas sole purpose of acquiring and transferring title of
the subject properties on the same day was to create a tax
shelter. Altonaga never controlled the property and did not enjoy
the normal benefits and burdens of ownership. The sale to him
was merely a tax ploy, a sham, and without business purpose and
economic substance. Doubtless, the execution of the two sales
was calculated to mislead the BIR with the end in view of reducing
the consequent income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale of
Altonaga, which was prompted more on the mitigation of tax
liabilities than for legitimate business purposes constitutes one of
tax evasion.
[31]

Generally, a sale or exchange of assets will have an income
tax incidence only when it is consummated.
[32]
The incidence of
taxation depends upon the substance of a transaction. The tax
consequences arising from gains from a sale of property are not
finally to be determined solely by the means employed to transfer
legal title. Rather, the transaction must be viewed as a whole,
and each step from the commencement of negotiations to the
consummation of the sale is relevant. A sale by one person
cannot be transformed for tax purposes into a sale by another by
using the latter as a conduit through which to pass title. To permit
the true nature of the transaction to be disguised by mere
formalisms, which exist solely to alter tax liabilities, would
seriously impair the effective administration of the tax policies of
Congress.
[33]

To allow a taxpayer to deny tax liability on the ground that the
sale was made through another and distinct entity when it is
proved that the latter was merely a conduit is to sanction a
circumvention of our tax laws. Hence, the sale to Altonaga should
be disregarded for income tax purposes.
[34]
The two sale
transactions should be treated as a single direct sale by CIC to
RMI.
Accordingly, the tax liability of CIC is governed by then Section
24 of the NIRC of 1986, as amended (now 27 (A) of the Tax
Reform Act of 1997), which stated as follows:
Sec. 24. Rates of tax on corporations. (a) Tax on domestic
corporations.- A tax is hereby imposed upon the taxable net
income received during each taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines,
and partnerships, no matter how created or organized but not including
general professional partnerships, in accordance with the following:
Twenty-five percent upon the amount by which the taxable net income
does not exceed one hundred thousand pesos; and
Thirty-five percent upon the amount by which the taxable net income
exceeds one hundred thousand pesos.
CIC is therefore liable to pay a 35% corporate tax for its taxable
net income in 1989. The 5% individual capital gains tax provided
for in Section 34 (h) of the NIRC of 1986
[35]
(now 6% under
Section 24 (D) (1) of the Tax Reform Act of 1997) is inapplicable.
Hence, the assessment for the deficiency income tax issued by
the BIR must be upheld.
Has the period of
assessment prescribed?
No. Section 269 of the NIRC of 1986 (now Section 222 of the
Tax Reform Act of 1997) read:
Sec. 269. Exceptions as to period of limitation of assessment and
collection of taxes.-(a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the tax may be assessed,
or a proceeding in court after the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of
the falsity, fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action for
collection thereof .
Put differently, in cases of (1) fraudulent returns; (2) false
returns with intent to evade tax; and (3) failure to file a return, the
period within which to assess tax is ten years from discovery of
the fraud, falsification or omission, as the case may be.
It is true that in a query dated 24 August 1989, Altonaga,
through his counsel, asked the Opinion of the BIR on the tax
consequence of the two sale transactions.
[36]
Thus, the BIR was
amply informed of the transactions even prior to the execution of
the necessary documents to effect the transfer. Subsequently,
the two sales were openly made with the execution of public
documents and the declaration of taxes for 1989. However, these
circumstances do not negate the existence of fraud. As earlier
discussed those two transactions were tainted with fraud. And
even assuming arguendo that there was no fraud, we find that the
income tax return filed by CIC for the year 1989 was false. It did
not reflect the true or actual amount gained from the sale of the
Cibeles property. Obviously, such was done with intent to evade
or reduce tax liability.
As stated above, the prescriptive period to assess the correct
taxes in case of false returns is ten years from the discovery of
the falsity. The false return was filed on 15 April 1990, and the
falsity thereof was claimed to have been discovered only on 8
March 1991.
[37]
The assessment for the 1989 deficiency income
tax of CIC was issued on 9 January 1995. Clearly, the issuance
of the correct assessment for deficiency income tax was well
within the prescriptive period.
Is respondent Estate liable
for the 1989 deficiency
income tax of Cibeles
Insurance Corporation?
A corporation has a juridical personality distinct and separate
from the persons owning or composing it. Thus, the owners or
stockholders of a corporation may not generally be made to
answer for the liabilities of a corporation and vice versa. There
are, however, certain instances in which personal liability may
arise. It has been held in a number of cases that personal liability
of a corporate director, trustee, or officer along, albeit not
necessarily, with the corporation may validly attach when:
1. He assents to the (a) patently unlawful act of the
corporation, (b) bad faith or gross negligence in directing
its affairs, or (c) conflict of interest, resulting in damages
to the corporation, its stockholders, or other persons;
2. He consents to the issuance of watered down stocks or,
having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable
with the corporation; or
4. He is made, by specific provision of law, to personally
answer for his corporate action.
[38]

It is worth noting that when the late Toda sold his shares of
stock to Le Hun T. Choa, he knowingly and voluntarily held
himself personally liable for all the tax liabilities of CIC and the
buyer for the years 1987, 1988, and 1989. Paragraph g of the
Deed of Sale of Shares of Stocks specifically provides:
g. Except for transactions occurring in the ordinary course of business,
Cibeles has no liabilities or obligations, contingent or otherwise, for
taxes, sums of money or insurance claims other than those reported in its
audited financial statement as of December 31, 1989, attached hereto as
Annex B and made a part hereof. The business of Cibeles has at all
times been conducted in full compliance with all applicable laws, rules
and regulations. SELLER undertakes and agrees to hold the BUYER
and Cibeles free from any and all income tax liabilities of Cibeles for
the fiscal years 1987, 1988 and 1989.
[39]
[Underscoring Supplied].
When the late Toda undertook and agreed to hold the BUYER
and Cibeles free from any all income tax liabilities of Cibeles for
the fiscal years 1987, 1988, and 1989, he thereby voluntarily held
himself personally liable therefor. Respondent estate cannot,
therefore, deny liability for CICs deficiency income tax for the
year 1989 by invoking the separate corporate personality of CIC,
since its obligation arose from Todas contractual undertaking, as
contained in the Deed of Sale of Shares of Stock.
WHEREFORE, in view of all the foregoing, the petition is
hereby GRANTED. The decision of the Court of Appeals of 31
January 2001 in CA-G.R. SP No. 57799 is REVERSED and SET
ASIDE, and another one is hereby rendered ordering respondent
Estate of Benigno P. Toda Jr. to pay P79,099,999.22 as
deficiency income tax of Cibeles Insurance Corporation for the
year 1989, plus legal interest from 1 May 1994 until the amount is
fully paid.
Costs against respondent.
SO ORDERED.
G.R. No. L-18994 June 29, 1963
MELECIO R. DOMINGO, as Commissioner of Internal
Revenue, petitioner,
vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of
the Court of First Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate
Estate of the late Walter Scott Price,respondents.
Office of the Solicitor General and Atty. G. H. Mantolino for
petitioner.
Benedicto and Martinez for respondents.
LABRADOR, J .:
This is a petition for certiorari and mandamus against the Judge
of the Court of First Instance of Leyte, Ron.Lorenzo C. Garlitos,
presiding, seeking to annul certain orders of the court and for an
order in this Court directing the respondent court below to execute
the judgment in favor of the Government against the estate of
Walter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C.
Moscoso, G.R. No. L-14674, January 30, 1960, this Court
declared as final and executory the order for the payment by the
estate of the estate and inheritance taxes, charges and penalties,
amounting to P40,058.55, issued by the Court of First Instance of
Leyte in, special proceedings No. 14 entitled "In the matter of the
Intestate Estate of the Late Walter Scott Price." In order to
enforce the claims against the estate the fiscal presented a
petition dated June 21, 1961, to the court below for the execution
of the judgment. The petition was, however, denied by the court
which held that the execution is not justifiable as the Government
is indebted to the estate under administration in the amount of
P262,200. The orders of the court below dated August 20, 1960
and September 28, 1960, respectively, are as follows:
Atty. Benedicto submitted a copy of the contract between
Mrs. Simeona K. Price, Administratrix of the estate of her
late husband Walter Scott Price and Director Zoilo Castrillo
of the Bureau of Lands dated September 19, 1956 and
acknowledged before Notary Public Salvador V. Esguerra,
legal adviser in Malacaang to Executive Secretary De Leon
dated December 14, 1956, the note of His Excellency, Pres.
Carlos P. Garcia, to Director Castrillo dated August 2, 1958,
directing the latter to pay to Mrs. Price the sum
ofP368,140.00, and an extract of page 765 of Republic Act
No. 2700 appropriating the sum of P262.200.00 for the
payment to the Leyte Cadastral Survey, Inc., represented by
the administratrix Simeona K. Price, as directed in the above
note of the President. Considering these facts, the Court
orders that the payment of inheritance taxes in the sum of
P40,058.55 due the Collector of Internal Revenue as
ordered paid by this Court on July 5, 1960 in accordance
with the order of the Supreme Court promulgated July 30,
1960 in G.R. No. L-14674, be deducted from the amount of
P262,200.00 due and payable to the Administratrix Simeona
K. Price, in this estate, the balance to be paid by the
Government to her without further delay. (Order of August
20, 1960)
The Court has nothing further to add to its order dated
August 20, 1960 and it orders that the payment of the claim
of the Collector of Internal Revenue be deferred until the
Government shall have paid its accounts to the
administratrix herein amounting to P262,200.00. It may not
be amiss to repeat that it is only fair for the Government, as
a debtor, to its accounts to its citizens-creditors before it can
insist in the prompt paymentof the latter's account to it,
specially taking into consideration that the amount due to the
Government draws interests while the credit due to the
present state does not accrue any interest. (Order of
September 28, 1960)
The petition to set aside the above orders of the court below and
for the execution of the claim of the Government against the
estate must be denied for lack of merit. The ordinary procedure by
which to settle claims of indebtedness against the estate of a
deceased person, as an inheritance tax, is for the claimant to
present a claim before the probate court so that said court may
order the administrator to pay the amount thereof. To such effect
is the decision of this Court in Aldamiz vs. Judge of the Court of
First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:
. . . a writ of execution is not the proper procedure allowed
by the Rules of Court for the payment of debts and expenses
of administration. The proper procedure is for the court to
order the sale of personal estate or the sale or mortgage of
real property of the deceased and all debts or expenses of
administrator and with the written notice to all the heirs
legatees and devisees residing in the Philippines, according
to Rule 89, section 3, and Rule 90, section 2. And when sale
or mortgage of real estate is to be made, the regulations
contained in Rule 90, section 7, should be complied
with.1wph1.t
Execution may issue only where the devisees, legatees or
heirs have entered into possession of their respective
portions in the estate prior to settlement and payment of
the debts and expenses of administration and it is later
ascertained that there are such debts and expenses to be
paid, in which case "the court having jurisdiction of the estate
may, by order for that purpose, after hearing, settle the
amount of their several liabilities, and order how much and in
what manner each person shall contribute, and mayissue
execution if circumstances require" (Rule 89, section 6; see
also Rule 74, Section 4; Emphasis supplied.) And this is not
the instant case.
The legal basis for such a procedure is the fact that in the testate
or intestate proceedings to settle the estate of a deceased
person, the properties belonging to the estate are under the
jurisdiction of the court and such jurisdiction continues until said
properties have been distributed among the heirs entitled thereto.
During the pendency of the proceedings all the estate is
in custodia legis and the proper procedure is not to allow the
sheriff, in case of the court judgment, to seize the properties but
to ask the court for an order to require the administrator to pay the
amount due from the estate and required to be paid.
Another ground for denying the petition of the provincial fiscal is
the fact that the court having jurisdiction of the estate had found
that the claim of the estate against the Government has been
recognized and an amount of P262,200 has already been
appropriated for the purpose by a corresponding law (Rep. Act
No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate
forservices rendered have already become overdue and
demandable is well as fully liquidated. Compensation, therefore,
takes place by operation of law, in accordance with the provisions
of Articles 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount, thus:
ART. 1200. When all the requisites mentioned in article 1279
are present, compensation takes effect by operation of law,
and extinguished both debts to the concurrent amount,
eventhough the creditors and debtors are not aware of the
compensation.
It is clear, therefore, that the petitioner has no clear right to
execute the judgment for taxes against the estate of the deceased
Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the
petitioner. Appeal is the remedy.
The petition is, therefore, dismissed, without costs.

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G.R. No.

L-29059 December 15, 1987

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