Taxation Full Case

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-31364 March 30, 1979
MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME ARANETA, as

Regional Director, Revenue Region No. 14, Bureau of Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of Negros Occidental,
Branch V, and FRANCIS A. TONGOY, Administrator of the Estate of the late LUIS D.
TONGOY respondents.
1920, Rollo). The claim represents the indebtedness to the Government of the late Luis D.
Tongoy for deficiency income taxes in the total sum of P3,254.80 as above stated, covered
by Assessment Notices Nos. 11-50-29-1-11061-21-63 and 11-50-291-1 10875-64, to which
motion was attached Proof of Claim (Annex B, Petition, pp. 21-22, Rollo). The
Administrator opposed the motion solely on the ground that the claim was barred under
Section 5, Rule 86 of the Rules of Court (par. 4, Opposition to Motion for Allowance of
Claim, pp. 23-24, Rollo). Finding the opposition well-founded, the respondent Judge, Jose
F. Fernandez, dismissed the motion for allowance of claim filed by herein petitioner,
Regional Director of the Bureau of Internal Revenue, in an order dated July 29, 1969
(Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration
was filed, of the order of July 29, 1969, but was denied in an Order dated October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the government against the
estate of Luis D. Tongoy was filed beyond the period provided in Section 2, Rule 86 of the
Rules of Court.
2. The lower court erred in holding that the claim for taxes of the government was already
barred under Section 5, Rule 86 of the Rules of Court.
DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros Occidental, Branch V in
Special Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy," the first dated
July 29, 1969 dismissing the Motion for Allowance of Claim and for an Order of Payment
of Taxes by the Government of the Republic of the Philippines against the Estate of the late
Luis D. Tongoy, for deficiency income taxes for the years 1963 and 1964 of the decedent in
the total amount of P3,254.80, inclusive 5% surcharge, 1% monthly interest and
compromise penalties, and the second, dated October 7, 1969, denying the Motion for
reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28, 1969 was filed
on June 3, 1969 in the abovementioned special proceedings, (par. 3, Annex A, Petition, pp.
which raise the sole issue of whether or not the statute of non-claims Section 5, Rule 86 of
the New Rule of Court, bars claim of the government for unpaid taxes, still within the
period of limitation prescribed in Section 331 and 332 of the National Internal Revenue
Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the
Motion for Allowance of Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts, express or implied,
whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in they notice; otherwise they are barred
forever, except that they may be set forth as counter claims in any action that the executor
or administrator may bring against the claimants. Where the executor or administrator
commence an action, or prosecutes an action already commenced by the deceased in his
lifetime, the debtor may set forth may answer the claims he has against the decedents,
instead of presenting them independently to the court has herein provided, and mutual
claims may be set off against each other in such action; and in final judgment is rendered in
favored of the decedent, the amount to determined shall be considered the true balance
against the estate, as though the claim has been presented directly before the court in the
administration proceedings. Claims not yet due, or contingent may be approved at their
present value.
A perusal of the aforequoted provisions shows that it makes no mention of claims for
monetary obligation of the decedent created by law, such as taxes which is entirely of
different character from the claims expressly enumerated therein, such as: "all claims for
money against the decedent arising from contract, express or implied, whether the same be
due, not due or contingent, all claim for funeral expenses and expenses for the last sickness
of the decedent and judgment for money against the decedent." Under the familiar rule of
statutory construction of expressio unius est exclusio alterius, the mention of one thing
implies the exclusion of another thing not mentioned. Thus, if a statute enumerates the
things upon which it is to operate, everything else must necessarily, and by implication be
excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice Plant, et al.,
G.R. No. L-23081, December 30, 1969, it was held that the assessment, collection and
recovery of taxes, as well as the matter of prescription thereof are governed by the
provisions of the National Internal revenue Code, particularly Sections 331 and 332
thereof, and not by other provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs.
Court of Tax Appeals & Collector of Internal Revenue, G.R. No. L-10681, March 29,
1958). Even without being specifically mentioned, the provisions of Section 2 of Rule 86
of the Rules of Court may reasonably be presumed to have been also in the mind of the
Court as not affecting the aforecited Section of the National Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more pointedly held that
"taxes assessed against the estate of a deceased person ... need not be submitted to the
committee on claims in the ordinary course of administration. In the exercise of its control
over the administrator, the court may direct the payment of such taxes upon motion
showing that the taxes have been assessed against the estate." The abolition of the
Committee on Claims does not alter the basic ruling laid down giving exception to the
claim for taxes from being filed as the other claims mentioned in the Rule should be filed
before the Court. Claims for taxes may be collected even after the distribution of the
decedent's estate among his heirs who shall be liable therefor in proportion of their share in
the inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes against a decedent's estate in
the form of exception from the application of the statute of non-claims, is not hard to find.
Taxes are the lifeblood of the Government and their prompt and certain availability are
imperious need. (Commissioner of Internal Revenue vs. Pineda, G. R. No. L-22734,
September 15, 1967, 21 SCRA 105). Upon taxation depends the Government ability to
serve the people for whose benefit taxes are collected. To safeguard such interest, neglect
or omission of government officials entrusted with the collection of taxes should not be
allowed to bring harm or detriment to the people, in the same manner as private persons
may be made to suffer individually on account of his own negligence, the presumption
being that they take good care of their personal affairs. This should not hold true to
government officials with respect to matters not of their own personal concern. This is the
philosophy behind the government's exception, as a general rule, from the operation of the
principle of estoppel. (Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA
177; Manila Lodge No. 761, Benevolent and Protective Order of the Elks Inc. vs. Court of
Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs. Central Bank of the
Philippines, L-41480, April 30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc.,
66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs.
Philippine Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance
Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax
Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of
Internal Revenue, L- 23041, July 31, 1969, 28 SCRA 119.) As already shown, taxes may be
collected even after the distribution of the estate of the decedent among his heirs
(Government of the Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra
Clara Diluangco Palanca vs. Commissioner of Internal Revenue, G. R. No. L-16661,
January 31, 1962).
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra, citing the last
paragraph of Section 315 of the Tax Code payment of income tax shall be a lien in favor of
the Government of the Philippines from the time the assessment was made by the
Commissioner of Internal Revenue until paid with interests, penalties, etc. By virtue of
such lien, this court held that the property of the estate already in the hands of an heir or
transferee may be subject to the payment of the tax due the estate. A fortiori before the
inheritance has passed to the heirs, the unpaid taxes due the decedent may be collected,
even without its having been presented under Section 2 of Rule 86 of the Rules of Court. It
may truly be said that until the property of the estate of the decedent has vested in the heirs,
the decedent, represented by his estate, continues as if he were still alive, subject to the
payment of such taxes as would be collectible from the estate even after his death. Thus in
the case above cited, the income taxes sought to be collected were due from the estate, for
the three years 1946, 1947 and 1948 following his death in May, 1945.
Even assuming arguendo that claims for taxes have to be filed within the time prescribed in
Section 2, Rule 86 of the Rules of Court, the claim in question may be filed even after the
expiration of the time originally fixed therein, as may be gleaned from the italicized portion
of the Rule herein cited which reads:
Section 2. Time within which claims shall be filed. - In the notice provided in the preceding
section, the court shall state the time for the filing of claims against the estate, which shall
not be more than twelve (12) nor less than six (6) months after the date of the first
publication of the notice. However, at any time before an order of distribution is entered,
on application of a creditor who has failed to file his claim within the time previously
limited the court may, for cause shown and on such terms as are equitable, allow such
claim to be flied within a time not exceeding one (1) month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of Claim and for
an Order of Payment of Taxes) which, though filed after the expiration of the time
previously limited but before an order of the distribution is entered, should have been
granted by the respondent court, in the absence of any valid ground, as none was shown,
justifying denial of the motion, specially considering that it was for allowance Of claim for
taxes due from the estate, which in effect represents a claim of the people at large, the only
reason given for the denial that the claim was filed out of the previously limited period,
sustaining thereby private respondents' contention, erroneously as has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax Commissioner's
assessment in the total amount of P3,254.80 with 5 % surcharge and 1 % monthly interest
as provided in the Tax Code is a final one and the respondent estate's sole defense of
prescription has been herein overruled, the Motion for Allowance of Claim is herein
granted and respondent estate is ordered to pay and discharge the same, subject only to the
limitation of the interest collectible thereon as provided by the Tax Code. No
pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and Melencio-Herrera, JJ., concur.

SUPREME COURT
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent has no
authority to impose tax on government entities. Petitioner also contended that as a nonprofit organization, it is exempted from the payment of all forms of taxes, charges, duties
or fees11 in accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
Manila
THIRD DIVISION
G.R. No. 149110
April 9, 2003
NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals
dated March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power
Corporation (NPC) liable to pay franchise tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created under Commonwealth

Act No. 120, as amended.4 It is tasked to undertake the "development of hydroelectric
generations of power and the production of electricity from nuclear, geothermal and other
sources, as well as, the transmission of electric power on a nationwide basis."5
Concomitant to its mandated duty, petitioner has, among others, the power to construct,
operate and maintain power plants, auxiliary plants, power stations and substations for the
purpose of developing hydraulic power and supplying such power to the inhabitants.6
For many years now, petitioner sells electric power to the residents of Cabanatuan City,
posting a gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance
No. 165-92,8 the respondent assessed the petitioner a franchise tax amounting to
P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding year.9
"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and Other Charges by Government and Governmental Instrumentalities.- The
Corporation shall be non-profit and shall devote all its return 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 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, 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 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."12
The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City,
demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of
the amount of tax, and 2% monthly interest.13 Respondent alleged that petitioner's
exemption from local taxes has been repealed by section 193 of Rep. Act No. 7160,14
which reads as follows:
Another point going against plaintiff in this case is the ruling of the Supreme Court in the
case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it
was held that:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code."
'Local governments have no power to tax instrumentalities of the National Government.

PAGCOR is a government owned or controlled corporation with an original charter, PD
1869. All of its shares of stocks are owned by the National Government. xxx Being an
instrumentality of the government, PAGCOR should be and actually is exempt from local
taxes. Otherwise, its operation might be burdened, impeded or subjected to control by mere
local government.'
On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the
tax exemption privileges granted to petitioner subsist despite the passage of Rep. Act No.
7160 for the following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be
repealed by Rep. Act No. 7160 which is a general law; (2) section 193 of Rep. Act No.
7160 is in the nature of an implied repeal which is not favored; and (3) local governments
have no power to tax instrumentalities of the national government. Pertinent portion of the
Order reads:
Like PAGCOR, NPC, being a government owned and controlled corporation with an
original charter and its shares of stocks owned by the National Government, is beyond the
taxing power of the Local Government. Corollary to this, it should be noted here that in the
NPC Charter's declaration of Policy, Congress declared that: 'xxx (2) the total
electrification of the Philippines through the development of power from all services to
meet the needs of industrial development and dispersal and needs of rural electrification are
primary objectives of the nations which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government, including its financial institutions.'
(underscoring supplied). To allow plaintiff to subject defendant to its tax-ordinance would
be to impede the avowed goal of this government instrumentality.
"The question of whether a particular law has been repealed or not by a subsequent law is a
matter of legislative intent. The lawmakers may expressly repeal a law by incorporating
therein repealing provisions which expressly and specifically cite(s) the particular law or
laws, and portions thereof, that are intended to be repealed. A declaration in a statute,
usually in its repealing clause, that a particular and specific law, identified by its number or
title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No.
7160 is an implied repealing clause because it fails to identify the act or acts that are
intended to be repealed. It is a well-settled rule of statutory construction that repeals of
statutes by implication are not favored. The presumption is against inconsistency and
repugnancy for the legislative is presumed to know the existing laws on the subject and not
to have enacted inconsistent or conflicting statutes. It is also a well-settled rule that,
generally, general law does not repeal a special law unless it clearly appears that the
legislative has intended by the latter general act to modify or repeal the earlier special law.
Thus, despite the passage of R.A. No. 7160 from which the questioned Ordinance No. 16592 was based, the tax exemption privileges of defendant NPC remain.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power
is limited to that which is provided for in its charter or other statute. Any grant of taxing
power is to be construed strictly, with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that the
plaintiff could not impose the subject tax on the defendant."16
On appeal, the Court of Appeals reversed the trial court's Order17 on the ground that
section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the
exemptions granted to the petitioner.18 It ordered the petitioner to pay the respondent city
government the following: (a) the sum of P808,606.41 representing the franchise tax due
based on gross receipts for the year 1992, (b) the tax due every year thereafter based in the
gross receipts earned by NPC, (c) in all cases, to pay a surcharge of 25% of the tax due and
unpaid, and (d) the sum of P 10,000.00 as litigation expense.19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's
Decision. This was denied by the appellate court, viz:
"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated
therein that the taxing power of the province under Art. 137 (sic) of the Local Government
Code refers merely to private persons or corporations in which category it (NPC) does not
belong, and that the LGC (RA 7160) which is a general law may not impliedly repeal the
NPC Charter which is a special lawfinds the answer in Section 193 of the LGC to the
effect that 'tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled corporations except
local water districts xxx are hereby withdrawn.' The repeal is direct and unequivocal, not
implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A

PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS
IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT
CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR
CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S

EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE
PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A
LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED
TO HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN

EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL
OVER THE LOCAL GOVERNMENT CODE."21
It is beyond dispute that the respondent city government has the authority to issue
Ordinance No. 165-92 and impose an annual tax on "businesses enjoying a franchise,"
pursuant to section 151 in relation to section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other
special law, the province may impose a tax on businesses enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when
the business started to operate, the tax shall be based on the gross receipts for the preceding
calendar year, or any fraction thereof, as provided herein." (emphasis supplied)
Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city,
may levy the taxes, fees, and charges which the province or municipality may impose:
Provided, however, That the taxes, fees and charges levied and collected by highly
urbanized and independent component cities shall accrue to them and distributed in
accordance with the provisions of this Code.
The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the
respondent city government. It contends that sections 137 and 151 of the LGC in relation to
section 131, limit the taxing power of the respondent city government to private entities
that are engaged in trade or occupation for profit.22
'The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat
316, 4 L Ed. 579)'
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with
public interest which is conferred upon private persons or corporations, under such terms
and conditions as the government and its political subdivisions may impose in the interest
of the public welfare, security and safety." From the phraseology of this provision, the
petitioner claims that the word "private" modifies the terms "persons" and "corporations."
Hence, when the LGC uses the term "franchise," petitioner submits that it should refer
specifically to franchises granted to private natural persons and to private corporations.23
Ergo, its charter should not be considered a "franchise" for the purpose of imposing the
franchise tax in question.
This doctrine emanates from the 'supremacy' of the National Government over local
governments.
On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial
activity regularly engaged in as means of livelihood or with a view to profit." Petitioner
claims that it is not engaged in an activity for profit, in as much as its charter specifically
provides that it is a "non-profit organization." In any case, petitioner argues that the
accumulation of profit is merely incidental to its operation; all these profits are required by
law to be channeled for expansion and improvement of its facilities and services.24
Petitioner also alleges that it is an instrumentality of the National Government,25 and as

such, may not be taxed by the respondent city government. It cites the doctrine in Basco vs.
Philippine Amusement and Gaming Corporation26 where this Court held that local
governments have no power to tax instrumentalities of the National Government, viz:
"Local governments have no power to tax instrumentalities of the National Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded
or subjected to control by a mere local government.
'Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the instrumentalities
of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a way as to prevent it
from consummating its federal responsibilities, or even seriously burden it from
accomplishment of them.' (Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics
supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the
power to tax as ' a tool regulation' (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc
Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of
the very entity which has the inherent power to wield it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges
of government-owned or controlled corporations, is in the nature of an implied repeal. A
special law, its charter cannot be amended or modified impliedly by the local government
code which is a general law. Consequently, petitioner claims that its exemption from all
taxes, fees or charges under its charter subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of statutes by implication are
not favored and as much as possible, effect must be given to all enactments of the
legislature. Moreover, it has to be conceded that the charter of the NPC constitutes a special
law. Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that
the enactment of a later legislation which is a general law cannot be construed to have
repealed a special law. Where there is a conflict between a general law and a special
statute, the special statute should prevail since it evinces the legislative intent more clearly
than the general statute."28
Finally, petitioner submits that the charter of the NPC, being a valid exercise of police
power, should prevail over the LGC. It alleges that the power of the local government to
impose franchise tax is subordinate to petitioner's exemption from taxation; "police power
being the most pervasive, the least limitable and most demanding of all powers, including
the power of taxation."29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the government can neither
exist nor endure. A principal attribute of sovereignty,31 the exercise of taxing power
derives its source from the very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good. The theory behind the exercise of
the power to tax emanates from necessity;32 without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people.
In recent years, the increasing social challenges of the times expanded the scope of state
activity, and taxation has become a tool to realize social justice and the equitable
distribution of wealth, economic progress and the protection of local industries as well as
public welfare and similar objectives.33 Taxation assumes even greater significance with
the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested
exclusively on Congress; local legislative bodies are now given direct authority to levy
taxes, fees and other charges34 pursuant to Article X, section 5 of the 1987 Constitution,
viz:
"Section 5.- Each Local Government unit shall have the power to create its own sources of
revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees
and charges shall accrue exclusively to the Local Governments."
This paradigm shift results from the realization that genuine development can be achieved
only by strengthening local autonomy and promoting decentralization of governance. For a
long time, the country's highly centralized government structure has bred a culture of
dependence among local government leaders upon the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in matters of local
development on the part of local government leaders."35 The only way to shatter this
culture of dependence is to give the LGUs a wider role in the delivery of basic services,
and confer them sufficient powers to generate their own sources for the purpose. To
achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic policy of local autonomy,
set the guidelines and limitations to this grant of taxing powers, viz:
"Section 3. The Congress shall enact a local government code which shall provide for a
more responsive and accountable local government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers, responsibilities, and resources,
and provide for the qualifications, election, appointment and removal, term, salaries,
powers and functions and duties of local officials, and all other matters relating to the
organization and operation of the local units."
To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the Local
Government Code of 1991 (LGC), various measures have been enacted to promote local
autonomy. These include the Barrio Charter of 1959,37 the Local Autonomy Act of
1959,38 the Decentralization Act of 196739 and the Local Government Code of 1983.40
Despite these initiatives, however, the shackles of dependence on the national government
remained. Local government units were faced with the same problems that hamper their
capabilities to participate effectively in the national development efforts, among which are:
(a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c)
limited authority to prioritize and approve development projects, (d) heavy dependence on
external sources of income, and (e) limited supervisory control over personnel of national
line agencies.41
Considered as the most revolutionary piece of legislation on local autonomy,42 the LGC
effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs
to include taxes which were prohibited by previous laws such as the imposition of taxes on
forest products, forest concessionaires, mineral products, mining operations, and the like.
The LGC likewise provides enough flexibility to impose tax rates in accordance with their
needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the
minimum and maximum tax rates and leaves the determination of the actual rates to the
respective sanggunian.43
One of the most significant provisions of the LGC is the removal of the blanket exclusion
of instrumentalities and agencies of the national government from the coverage of local
taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any
kind on the National Government, its agencies and instrumentalities, this rule now admits
an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose
taxes, fees or charges on the aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the Local Government Units.Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units." (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation44 relied upon by the petitioner to support its claim
no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the
LGC, when no law empowering the local government units to tax instrumentalities of the
National Government was in effect. However, as this Court ruled in the case of Mactan
Cebu International Airport Authority (MCIAA) vs. Marcos,45 nothing prevents Congress
from decreeing that even instrumentalities or agencies of the government performing
governmental functions may be subject to tax.46 In enacting the LGC, Congress exercised
its prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after
reviewing the specific provisions of the LGC, this Court held that MCIAA, although an
instrumentality of the national government, was subject to real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in section 133, the taxing power of local governments cannot
extend to the levy of inter alia, 'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and local government units'; however,
pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila
Area may impose the real property tax except on, inter alia, 'real property owned by the
Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted for consideration or otherwise, to a taxable person as provided
in the item (a) of the first paragraph of section 12.'"47
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.
In its general signification, a franchise is a privilege conferred by government authority,

which does not belong to citizens of the country generally as a matter of common right.48
In its specific sense, a franchise may refer to a general or primary franchise, or to a special
or secondary franchise. The former relates to the right to exist as a corporation, by virtue of
duly approved articles of incorporation, or a charter pursuant to a special law creating the
corporation.49 The right under a primary or general franchise is vested in the individuals
who compose the corporation and not in the corporation itself.50 On the other hand, the
latter refers to the right or privileges conferred upon an existing corporation such as the
right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires.51
The rights under a secondary or special franchise are vested in the corporation and may
ordinarily be conveyed or mortgaged under a general power granted to a corporation to
dispose of its property, except such special or secondary franchises as are charged with a
public use.52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a
secondary or special franchise. This is to avoid any confusion when the word franchise is
used in the context of taxation. As commonly used, a franchise tax is "a tax on the privilege
of transacting business in the state and exercising corporate franchises granted by the
state."53 It is not levied on the corporation simply for existing as a corporation, upon its
property54 or its income,55 but on its exercise of the rights or privileges granted to it by
the government. Hence, a corporation need not pay franchise tax from the time it ceased to
do business and exercise its franchise.56 It is within this context that the phrase "tax on
businesses enjoying a franchise" in section 137 of the LGC should be interpreted and
understood. Verily, to determine whether the petitioner is covered by the franchise tax in
question, the following requisites should concur: (1) that petitioner has a "franchise" in the
sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges
under this franchise within the territory of the respondent city government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act
No. 7395, constitutes petitioner's primary and secondary franchises. It serves as the
petitioner's charter, defining its composition, capitalization, the appointment and the
specific duties of its corporate officers, and its corporate life span.57 As its secondary
franchise, Commonwealth Act No. 120, as amended, vests the petitioner the following
powers which are not available to ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development of water power in any part
of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters
from lands of riparian owners and from persons owning or interested in waters which are or
may be necessary for said purposes, upon payment of just compensation therefor; to alter,
straighten, obstruct or increase the flow of water in streams or water channels intersecting
or connecting therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly or
indirectly, adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs,
pipes, mains, transmission lines, power stations and substations, and other works for the
purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in
the Philippines and supplying such power to the inhabitants thereof; to acquire, construct,
install, maintain, operate, and improve gas, oil, or steam engines, and/or other prime
movers, generators and machinery in plants and/or auxiliary plants for the production of
electric power; to establish, develop, operate, maintain and administer power and lighting
systems for the transmission and utilization of its power generation; to sell electric power
in bulk to (1) industrial enterprises, (2) city, municipal or provincial systems and other
government institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate
subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise
dispose of property incident to, or necessary, convenient or proper to carry out the purposes
for which the Corporation was created: Provided, That in case a right of way is necessary
for its transmission lines, easement of right of way shall only be sought: Provided,
however, That in case the property itself shall be acquired by purchase, the cost thereof
shall be the fair market value at the time of the taking of such property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume,
street, avenue, highway or railway of private and public ownership, as the location of said
works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner
provided by law for instituting condemnation proceedings by the national, provincial and
municipal governments;
(m) To cooperate with, and to coordinate its operations with those of the National
Electrification Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding the
reservoirs of plants and/or projects constructed or proposed to be constructed by the
Corporation. Upon determination by the Corporation of the areas required for watersheds
for a specific project, the Bureau of Forestry, the Reforestation Administration and the
Bureau of Lands shall, upon written advice by the Corporation, forthwith surrender
jurisdiction to the Corporation of all areas embraced within the watersheds, subject to
existing private rights, the needs of waterworks systems, and the requirements of domestic
water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures
to prevent environmental pollution and promote the conservation, development and
maximum utilization of natural resources xxx "58
With these powers, petitioner eventually had the monopoly in the generation and
distribution of electricity. This monopoly was strengthened with the issuance of Pres.
Decree No. 40,59 nationalizing the electric power industry. Although Exec. Order No.
21560 thereafter allowed private sector participation in the generation of electricity, the
transmission of electricity remains the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city
government's territorial jurisdiction pursuant to the powers granted to it by Commonwealth
Act No. 120, as amended. From its operations in the City of Cabanatuan, petitioner realized
a gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and
ought to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply
because its stocks are wholly owned by the National Government, and its charter
characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the exercise by the
corporation of a privilege to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders. By virtue of its charter,
petitioner was created as a separate and distinct entity from the National Government. It
can sue and be sued under its own name,61 and can exercise all the powers of a corporation
under the Corporation Code.62
To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No.
202963 classifies government-owned or controlled corporations (GOCCs) into those
performing governmental functions and those performing proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock corporation,

whether performing governmental or proprietary functions, which is directly chartered by
special law or if organized under the general corporation law is owned or controlled by the
government directly, or indirectly through a parent corporation or subsidiary corporation, to
the extent of at least a majority of its outstanding voting capital stock x x x." (emphases
supplied)
Governmental functions are those pertaining to the administration of government, and as

such, are treated as absolute obligation on the part of the state to perform while proprietary
functions are those that are undertaken only by way of advancing the general interest of
society, and are merely optional on the government.64 Included in the class of GOCCs
performing proprietary functions are "business-like" entities such as the National Steel
Corporation (NSC), the National Development Corporation (NDC), the Social Security
System (SSS), the Government Service Insurance System (GSIS), and the National Water
Sewerage Authority (NAWASA),65 among others.
Petitioner was created to "undertake the development of hydroelectric generation of power

and the production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis."66 Pursuant to this mandate,
petitioner generates power and sells electricity in bulk. Certainly, these activities do not
partake of the sovereign functions of the government. They are purely private and
commercial undertakings, albeit imbued with public interest. The public interest involved
in its activities, however, does not distract from the true nature of the petitioner as a
commercial enterprise, in the same league with similar public utilities like telephone and
telegraph companies, railroad companies, water supply and irrigation companies, gas, coal
or light companies, power plants, ice plant among others; all of which are declared by this
Court as ministrant or proprietary functions of government aimed at advancing the general
interest of society.67
A closer reading of its charter reveals that even the legislature treats the character of the
petitioner's enterprise as a "business," although it limits petitioner's profits to twelve
percent (12%), viz:68
"(n) When essential to the proper administration of its corporate affairs or necessary for the
proper transaction of its business or to carry out the purposes for which it was organized, to
contract indebtedness and issue bonds subject to approval of the President upon
recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably necessary to carry
out the business and purposes for which it was organized, or which, from time to time, may
be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the
said purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty percent
(60%) of its electricity requirement from the petitioner are likewise imposed the cap of
twelve percent (12%) on profits.69 The main difference is that the petitioner is mandated to
devote "all its returns from its capital investment, as well as excess revenues from its
operation, for expansion"70 while other franchise holders have the option to distribute their
profits to its stockholders by declaring dividends. We do not see why this fact can be a
source of difference in tax treatment. In both instances, the taxable entity is the corporation,
which exercises the franchise, and not the individual stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions under its
charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be
shown to exist clearly and categorically, and supported by clear legal provisions.71 In the
case at bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from,
among others, "all income taxes, franchise taxes and realty taxes to be paid to the National
instrumentalities." However, section 193 of the LGC withdrew, subject to limited
exceptions, the sweeping tax privileges previously enjoyed by private and public
corporations. Contrary to the contention of petitioner, section 193 of the LGC is an express,
albeit general, repeal of all statutes granting tax exemptions from local taxes.72 It reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar maxim expressio unius
est exclusio alterius.73 Not being a local water district, a cooperative registered under R.A.
No. 6938, or a non-stock and non-profit hospital or educational institution, petitioner
clearly does not belong to the exception. It is therefore incumbent upon the petitioner to
point to some provisions of the LGC that expressly grant it exemption from local taxes.
But this would be an exercise in futility. Section 137 of the LGC clearly states that the
LGUs can impose franchise tax "notwithstanding any exemption granted by any law or
other special law." This particular provision of the LGC does not admit any exception. In
City Government of San Pablo, Laguna v. Reyes,74 MERALCO's exemption from the
payment of franchise taxes was brought as an issue before this Court. The same issue was
involved in the subsequent case of Manila Electric Company v. Province of Laguna.75
Ruling in favor of the local government in both instances, we ruled that the franchise tax in
question is imposable despite any exemption enjoyed by MERALCO under special laws,
viz:
"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the
LGC to support their position that MERALCO's tax exemption has been withdrawn. The
explicit language of section 137 which authorizes the province to impose franchise tax
'notwithstanding any exemption granted by any law or other special law' is allencompassing and clear. The franchise tax is imposable despite any exemption enjoyed
under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that
unless otherwise provided in this Code, tax exemptions or incentives granted to or
presently enjoyed by all persons, whether natural or juridical, including government-owned
or controlled corporations except (1) local water districts, (2) cooperatives duly registered
under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are
withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions
to the three enumerated entities. It is a basic precept of statutory construction that the
express mention of one person, thing, act, or consequence excludes all others as expressed
in the familiar maxim expressio unius est exclusio alterius. In the absence of any provision
of the Code to the contrary, and we find no other provision in point, any existing tax
exemption or incentive enjoyed by MERALCO under existing law was clearly intended to
be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of
the gross annual receipts for the preceding calendar based on the incoming receipts realized
within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter is clearly manifested by the language used on (sic) Sections
137 and 193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to enumerate all
the existing statutes providing for special tax exemptions or privileges, the LGC provided
for an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used."76 (emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs, through
ordinances duly approved, to grant tax exemptions, initiatives or reliefs.77 But in enacting
section 37 of Ordinance No. 165-92 which imposes an annual franchise tax
"notwithstanding any exemption granted by law or other special law," the respondent city
government clearly did not intend to exempt the petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of the local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court observed in the Mactan case, "the
original reasons for the withdrawal of tax exemption privileges granted to governmentowned or controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly situated
enterprises."78 With the added burden of devolution, it is even more imperative for
government entities to share in the requirements of development, fiscal or otherwise, by
paying taxes or other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively,
are hereby AFFIRMED.
SO ORDERED.
Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

SUPREME COURT
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
Manila
FIRST DIVISION
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,
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 manufacturing process 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, L20563, 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 fiveyear 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.
Teehankee, C.J., Narvasa, Paras and Gancayco, JJ., concur
Manila
the corresponding income tax returns were not filed. Thereupon, the representative of the
Collector of Internal Revenue filed said returns for the estate on the basis of information
and data obtained from the aforesaid estate proceedings and issued an assessment for the
following:
EN BANC
1. Deficiency income tax
SUPREME COURT
1945 P135.83
G.R. No. L-22734
September 15, 1967
1946 436.95
1947 1,206.91 P1,779.69
Add: 5% surcharge 88.98
vs.
1% monthly interest from November 30, 1953 to April 15, 1957 720.77
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, respondent.
Compromise for late filing 80.00

Compromise for late payment 40.00
Office of the Solicitor General for petitioner.
Total amount due
Manuel B. Pineda for and in his own behalf as respondent.
-------------------------------------------------------------------------------P2,707.44
===========
2. Additional residence tax for 1945 P14.50
BENGZON, J.P., J.:
===========
3. Real Estate dealer's tax for the fourth quarter of 1946 and the whole year of 1947
P207.50
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15
children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in
the Court of First Instance of Manila (Case No. 71129) wherein the surviving widow was
appointed administratrix. The estate was divided among and awarded to the heirs and the
proceedings terminated on June 8, 1948. Manuel B. Pineda's share amounted to about
P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue investigated the
income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that
===========
Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he
appealed to the Court of Tax Appeals alleging that he was appealing "only that
proportionate part or portion pertaining to him as one of the heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment reversing the
decision of the Commissioner on the ground that his right to assess and collect the tax has
prescribed. The Commissioner appealed and this Court affirmed the findings of the Tax
Court in respect to the assessment for income tax for the year 1947 but held that the right to
assess and collect the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the
returns were filed on August 24, 1953; assessments for both taxable years were made
within five years therefrom or on October 19, 1953; and the action to collect the tax was
filed within five years from the latter date, on August 7, 1957. For taxable year 1947,
however, the return was filed on March 1, 1948; the assessment was made on October 19,
1953, more than five years from the date the return was filed; hence, the right to assess
income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court
for further appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without additional evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B.
Pineda liable for the payment corresponding to his share of the following taxes:
Deficiency income tax
1945 P135.83
1946 436.95
payment of all lawful outstanding claims against the estate in proportion to the amount or
value of the property they have respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to pay the full amount of the
taxes assessed.
Pineda is liable for the assessment as an heir and as a holder-transferee of property

belonging to the estate/taxpayer. As an heir he is individually answerable for the part of the
tax proportionate to the share he received from the inheritance.3 His liability, however,
cannot exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount
of the property in his possession. The reason is that the Government has a lien on the
P2,500.00 received by him from the estate as his share in the inheritance, for unpaid
income taxes4a for which said estate is liable, pursuant to the last paragraph of Section 315
of the Tax Code, which we quote hereunder:
If any person, corporation, partnership, joint-account (cuenta en participacion), association,

or insurance company liable to pay the income tax, neglects or refuses to pay the same after
demand, the amount shall be a lien in favor of the Government of the Philippines from the
time when the assessment was made by the Commissioner of Internal Revenue until paid
with interest, penalties, and costs that may accrue in addition thereto upon all property and
rights to property belonging to the taxpayer: . . .
Real estate dealer's fixed tax 4th quarter of 1946 and whole year of 1947 P187.50
The Commissioner of Internal Revenue has appealed to Us and has proposed to hold
Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be due
from the estate in the total amount of P760.28 instead of only for the amount of taxes
corresponding to his share in the estate.1awphl.nt
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for
unpaid income tax due the estate only up to the extent of and in proportion to any share he
received. He relies on Government of the Philippine Islands v. Pamintuan2 where We held
that "after the partition of an estate, heirs and distributees are liable individually for the
By virtue of such lien, the Government has the right to subject the property in Pineda's
possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28.
After such payment, Pineda will have a right of contribution from his co-heirs,5 to achieve
an adjustment of the proper share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by going
after all the heirs and collecting from each one of them the amount of the tax proportionate
to the inheritance received. This remedy was adopted in Government of the Philippine
Islands v. Pamintuan, supra. In said case, the Government filed an action against all the
heirs for the collection of the tax. This action rests on the concept that hereditary property
consists only of that part which remains after the settlement of all lawful claims against the
estate, for the settlement of which the entire estate is first liable.6 The reason why in case
suit is filed against all the heirs the tax due from the estate is levied proportionately against
them is to achieve thereby two results: first, payment of the tax; and second, adjustment of
the shares of each heir in the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
property and rights to property belonging to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands of an heir or transferee to the
payment of the tax due, the estate. This second remedy is the very avenue the Government
took in this case to collect the tax. The Bureau of Internal Revenue should be given, in
instances like the case at bar, the necessary discretion to avail itself of the most expeditious
way to collect the tax as may be envisioned in the particular provision of the Tax Code
above quoted, because taxes are the lifeblood of government and their prompt and certain
availability is an imperious need.7 And as afore-stated in this case the suit seeks to achieve
only one objective: payment of the tax. The adjustment of the respective shares due to the
heirs from the inheritance, as lessened by the tax, is left to await the suit for contribution by
the heir from whom the Government recovered said tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby

ordered to pay to the Commissioner of Internal Revenue the sum of P760.28 as deficiency
income tax for 1945 and 1946, and real estate dealer's fixed tax for the fourth quarter of
1946 and for the whole year 1947, without prejudice to his right of contribution for his coheirs. No costs. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 86785 November 21, 1991

vs.
COURT OF APPEALS and ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION, respondents.
Redentor G. Guyala for private respondent.
M.L. Gadioma Law Office collaborating counsel for private respondent.
REGALADO, J.:p
With commendable zeal, petitioner, through the Solicitor General, assails the decision in
CA-G.R. No. 15429 of the Court of Appeals, 1 promulgated on January 20, 1989, affirming
the decision of the Court of Tax Appeals in C.T.A. Case No. 2778 which granted a tax
credit of P170,476.64 representing ad valorem taxes paid by private respondent for the
period from the first quarter of 1974 to the third quarter of 1975.
The findings of fact of the Court of Tax Appeals, which were adopted by the Court of
Appeals, are not disputed by petitioner and are hereunder reproduced:
1. Petitioner is a mining corporation duly organized and existing under and virtue of the
laws of the Philippines, having its offices at A. Soriano Bldg., Ayala Avenue, Makati, Rizal.
It is engaged primarily in the mining of copper ore from its mines property and concessions
in a barrio called Don Andres Soriano, Toledo, Province of Cebu, and reputedly the biggest
copper mine in Asia (t.s.n., pp. 6, 18-19, hearing 10/1/82.)
2. Petitioner used the open pit method digging away the copper ore deposits. This consists
of removing all surface and top materials of limestone, soil and rocks to reach into the
copper ore deposits found below. (t.s.n., pp. 19-21, 10/1/82; pp. 16-17, 2/17/83.)
3. Petitioner is the owner of the land or surface rights of the Biga Lime Quarry located on
Toledo City containing limestone. (Exhs. G-1, H, H-1 to H-17, K; t.s.n., pp. 18, 22, 24, 3132, 10/1/82) And as such owner, petitioner is not required, during the years covered in this
case (1973-1975), to secure a government permit to dig out the limestone. (Sec. 67, P.D.
463; Sec. 63, Consolidated Mines Administrative Order; t.s.n., pp. 21-24, 10/1/82.)
4. Beneath the surface of the Biga Lime Quarry are deposits of copper ore, and to mine
these copper deposits, petitioner had to remove and dig out the surface materials of
limestone soil and rocks. Apparently, most of the limestone was left in the mine site as
waste, although a small portion thereof was utilized by petitioner as a flotation agent in the
conversion of the copper rocks into concentrates. On the basis of the evidence, the
limestone was first processed by petitioner into lime; and the lime became a cleansing
reagent, by chemical reaction with water, in the conversion of the copper ore into copper
concentrate. The effect of the lime mixed with water was to cause the copper mineral
powder to float and caused the unwanted waste like lime and other materials to sink. This
waste at the bottom of the conveyor was thrown away as tailings while the floating copper
powder was accumulated and dried, known as copper concentrate. This was the mineral ore
that was exported to Japan for processing into copper cathodes and rods. Evidently, the
lime does not become part of the concentrate. (Exhs. I; J; t.s.n., p. 16, 5/4/81; pp. 16-17,
20-27, 10/1/82.)
5. As shown from the records, the limestone processed into lime and used as flotation agent
was never removed from the mines concession of petitioner. Even the tailings, topsoil
waste and rocks, were left in the mines site as waste. (t.s.n., pp. 21-27, 10/1/ 82; p. 6.
5/14/81.)
6. The processing by petitioner of the limestone was done completely inside the
concession. (t.s.n., pp. 8, 10/29/83; pp. 28, 31, 10/1/82; pp. 21-22, 10/1/83.) And nobody
purchased the limestone or the lime manufactured from it. (t.s.n., p. 29, 10/1/83/.)
Seemingly, neither the limestone not the processed "lime" possessed market value. (t.s.n.,
pp. 5-7, 9/29/83; pp. 7-8, 13-14, 5/14/81; Exhs. D, D-11.)
7. The evidence presented shows that for cost accounting and internal management control,
petitioner assigned "cost estimates" to each and every identifiable activity or process
involved in the mining of copper from blasting and digging and hauling to loading for
export. Invariably, cost was assigned to the process of digging out the copper rocks,
crushing and pulverizing them, and converting the mineral into exportable copper
concentrate to exporting the concentrate. It was from this assignment of cost estimate to the
process of producing lime from the limestone, that petitioner established that the
"production cost" of lime, during the period involved in this case, was P72,096.25. (Exhs.
A-d, D-1, F-1 to F-3; t.s.n., pp. 7-14, 5/14/81; pp. 3-4, 8-9, 13-17, 2/17/83; pp. 5-8,
9/29/83.)
8. It was this production cost of "lime" that petitioner used in computing the ad valorem tax
of P181,925.25 representing tax on the
No. 15429. On January 20, 1989, respondent Court of Appeals affirmed the decision of the
Court of Tax Appeals and dismissed the petition for lack of merit. 4
Before us, petitioner raises the sole issue of whether limestone dug out and processed into
lime used in the production of copper concentrates is subject to ad valorem tax imposed by
Section 243 of the then applicable National Internal Revenue Code (Section 255 of the
Internal Revenue Code of 1977, as amended). It is petitioner's submission that the
aforementioned ad valorem tax is a severance tax and is due and payable upon removal of
the mineral from its bed or mine.
The petition cannot prosper.
The ad valorem tax under Section 243 of the old Tax Code is a tax not on the minerals but
upon the taxpayer's privilege of severing or extracting minerals or mineral products from
the earth, the Government's right to exact said imposed springing from the Regalian theory
of State ownership of its natural resources. 5
lime, . . . 2
The pertinent provisions of the old Tax Code read as follows:
On December 22, 1975, petitioner filed with the Commissioner of Internal Revenue its
claim for tax credit of the aforesaid sum of P181,925.25 which it paid as ad valorem tax.
On February 18, 1976, since no action was seasonably taken by the Commissioner of
Internal Revenue on the claim, petitioner filed a petition for review with the Court of Tax
Appeals.
Sec. 243. Ad valorem taxes on output of mineral lands not covered by leases. There is
hereby imposed on the actual market value of the annual gross output of the minerals or
mineral product extracted or produced from all mineral lands not covered by lease, an ad
valorem tax in the amount of two per centum of the value of the output, except gold which
shall pay one and one-half per centum.
On February 16, 1988, the Court of Tax Appeals rendered judgment in favor of private
respondent ordering therein respondent Commissioner of Internal Revenue "to grant a tax
credit to petitioner Atlas Consolidated Mining & Development Corporation in the amount
of P170,476.64 representing erroneously paid ad valorem tax for the period from the 1st
quarter of 1974 to the 3rd quarter of 1975." 3
Before the minerals or mineral products are removed from the mines, the Commissioner of
Internal Revenue or his representatives shall first be notified of such removal on a form
prescribed for the purpose. (As amended by Sec. 21, Republic Act No. 909, and Sec. 48,
Republic Act No. 6110).
Not satisfied therewith, petitioner filed with this Court a petition for review on certiorari,
which petition was referred to the Court of Appeals and re-docketed therein as CA-G.R. SP
Sec. 245. Time and manner of payment of royalties or ad valorem taxes. The royalties or
ad valorem taxes, as the case may be, shall be due and payable upon the removal of the
mineral products from the locality where mined. . . . .
Under the aforementioned provisions, although all minerals and mineral products extracted
from the mineral lands are subject to ad valorem tax, however, the said tax becomes due
and payable only upon removal of the same from the locality where mined. In the case at
bar, the limestone were admittedly never removed from the mine site nor did they become
component parts of the copper concentrates. Moreover, it should be noted that said tax is
imposed only on the actual market value of mineral products extracted or produced. 6 This
is confirmed by the second paragraph of said Section 243 which requires prior notification
to the Commissioner of Internal Revenue or his representative before the minerals or
mineral products are removed from the mines. Such requirements is obviously intended to
enable him to assess and collect the proper ad valorem taxes, which necessarily
presupposes that such minerals or mineral product have an actual market value.
As found by both lower courts, in the case of private respondent the evidence shows that
the limestone removed from its mineral lands, together with other surface materials, had no
actual market value. The Court of Tax Appeals ramified that the utilization of waste
limestone by herein private respondent, which is engaged in mining copper ore, by
converting such waste into lime as a cleansing reagent in the conversion of copper into
copper concentrate, was merely incidental to its mining copper ore operation for which it is
adequately taxed. 7 It is not engaged i the district business of extracting limestone in order
to serve other persons or commercial entities therewith.
Thus, respondent Court of Appeals oppositely declares:
It is clear from the above provision that the ad valorem tax charged therein is assessed and
collected on "actual market value" of the annual gross output of the minerals extracted or
the mineral products produced from the mineral lands of the taxpayer. But "to extract" as
pointed out by respondent Atlas, means "to separate an ore or mineral from a deposit" (p.
80, Rollo), so that the word "extract" used in the above Sec. 243, when applied to the case
of Atlas, means that its taxable operation is its business or activity of extracting copper
minerals or ore from the deposit in its mining lands. The presence of limestone together
with other surface materials as soil and rocks on its mineral lands is, however, only an
accident; in the words of respondent Atlas, "in fact, as obstruction blocking the separation
of the copper sought" by it from said lands (id). Hence, the removal of these obstructions,
like the removal of other surface materials like soil and rocks, from the mineral lands
where the copper ore is buried, cannot be the "extraction" contemplated by Sec. 243.
The process by which respondent Atlas extracts copper mineral or ore from its mineral
lands in the course of which it digs away and removes all the surface top materials thereon
including limestone, is very well described in the decision of the respondent CTA as
follows:
1. Petitioner (Atlas Consolidated) had to dig away and remove all the surface top materials
consisting of limestone, top soil and rocks to reach into the copper ore deposits found
below. As a matter of fact, as stated above, petitioner as owner of the surface right was not
even required to secure a government permit to dig out the limestone.
2. Most of the limestone was left in the mine site as waste, although a small portion thereof
was utilized by petitioner as a flotation agent in the conversion of the copper rocks into
concentrates. The limestone was first processed by petitioner into lime, and by chemical
reaction with water, the lime became a cleansing reagent in the conversion of the copper
ore into copper concentrate. It appears that the effect of the lime, mixed with water, was to
cause the copper mineral powder to float and caused the unwanted waste like lime and
other materials to sink which were thrown away as tailings. The floating copper powder
was accumulated and dried, known as copper concentrate which was the mineral exported
to Japan for processing into copper cathodes and rods. The lime did not become part of the
concentrate.
3. The limestone processed into lime and used as flotation agent was never removed from
the mine concession of petitioner. And the record reveals that neither the limestone not the
processed lime possessed market value. 8
On the promise, therefore, that the extraction or removal by private respondent of

limestone from its mineral lands is a mere incident in its copper ore mining operations for
which it is already taxed, both courts held that to impose another set of tax on said
limestone which has no commercial value would be tantamount to double taxation. Such an
imposition, avers respondent court, has been repeatedly proscribed in our decisional
pronouncements to the effect that where a taxpayer is engaged in a distinct business and, as
a feature thereof, in an activity merely incidental which serves no other person or business,
the incidental activity should not be separately or additionally taxed. 9 Petitioner takes
vigorous exception thereto, stigmatizing the reliance on said cases as erroneous and
misplaced since what is involved in the case at bar is a mining tax while the cited cases
deal with privilege taxes.
We agree, for purposes of the issue involve in the present case, with the ratiocination of
respondent court in holding that, under the factual situation obtaining herein, there is no
substantial difference between privilege taxes and mining taxes, specifically the ad valorem
tax imposed in Section 243 of the old Tax Code, insofar as the prohibition against double
taxation is concerned. It calls our attention to petitioner's own admission that said ad
valorem tax is really a tax on the privilege of extracting or producing minerals or mineral
products from the earth, a principle taken from the Republic Cement Corporation case,
supra. Respondent court plausibly concludes therefrom that the ad valorem tax in question
is really in the nature of a privilege tax, hence, the aforesaid rulings in the cited cases,
involving privilege taxes and the forbiddance against the imposition of another tax on an
activity incidental to the principal business, should apply to the instant case.
Generally, statutes levying taxes or duties are to be construed strongly against the
Government and in favor of the subject or citizens, because burdens are not to be imposed
or presumed to be imposed beyond what statutes expressly and clearly declare. 10 No
person or property is subject to taxation unless they fall within the terms or plain import of
a taxing statute. 11
Moreover, it has been the long standing policy and practice of this Court to respect the
conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the
nature of its functions, is 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 its authority. 12 Therefore, finding no such abuse or
improvident exercise of authority or discretion, the decision of respondent court, affirming
that of the Court of Tax Appeals, must consequently by upheld.
ON THE FOREGOING CONSIDERATIONS, the petition at bar is DENIED and the

judgment of respondent Court of Appeals is hereby AFFIRMED.
SO ORDERED.

SUPREME COURT
Based on a Joint Stipulation of Facts and Issues3 of the parties, the CTA Second Division
summarized the factual and procedural antecedents of the case, the pertinent portions of
which read:
Manila
SECOND DIVISION
G.R. No. 185371
Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the
Republic of the Philippines, x x x.
December 8, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City,
issued Letter of Authority No. 00006561 for Revenue Officer Daisy G. Justiniana to
examine petitioners books of accounts and other accounting records for income tax and
other internal revenue taxes for the taxable year 1999. Said Letter of Authority was
revalidated on August 10, 2001 by Regional Director Leonardo Sacamos.
METRO STAR SUPERAMA, INC., Respondent.
DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court filed by the
petitioner Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1]
September 16, 2008 Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in
C.T.A. EB No. 306 and 2] its November 18, 2008 Resolution2 denying petitioners motion
for reconsideration.
The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second
Division) in CTA Case No. 7169 reversing the February 8, 2005 Decision of the CIR which
assessed respondent Metro Star Superama, Inc. (Metro Star) of deficiency value-added tax
and withholding tax for the taxable year 1999.
For petitioners failure to comply with several requests for the presentation of records and
Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement dated
September 26, 2001 informing Revenue District Officer of Revenue Region No. 67,
Legazpi City to proceed with the investigation based on the best evidence obtainable
preparatory to the issuance of assessment notice.
On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a

Preliminary 15-day Letter, which petitioner received on November 9, 2001. The said letter
stated that a post audit review was held and it was ascertained that there was deficiency
value-added and withholding taxes due from petitioner in the amount of P 292,874.16.
On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from
Revenue District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred
Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos
(P292,874.16.) for deficiency value-added and withholding taxes for the taxable year 1999,
computed as follows:
ASSESSMENT NOTICE NO. 067-99-003-579-072
VALUE ADDED TAX
Total
Gross Sales P1,697,718.90
SUMMARIES OF DEFICIENCIES
Output Tax P 154,338.08
VALUE ADDED TAX P 291,069.09
Less: Input Tax _____________
WITHHOLDING TAX 1,805.07
VAT Payable P 154,338.08
TOTAL P 292,874.16
Add: 25% Surcharge P 38,584.54

20% Interest 79,746.49
Compromise Penalty
Late Payment P16,000.00
Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure
dated May 12, 2003, which petitioner received on May 15, 2003, giving the latter last
opportunity to settle its deficiency tax liabilities within ten (10) [days] from receipt thereof,
otherwise respondent BIR shall be constrained to serve and execute the Warrants of
Distraint and/or Levy and Garnishment to enforce collection.
Failure to File VAT returns 2,400.00 18,400.00 136,731.01

TOTAL P 291,069.09
WITHHOLDING TAX
Compensation 2,772.91
On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of
Distraint and/or Levy No. 67-0029-23 dated May 12, 2003 demanding payment of
deficiency value-added tax and withholding tax payment in the amount of P292,874.16.
Expanded 110,103.92
Total Tax Due P 112,876.83
On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for
Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99.
Less: Tax Withheld 111,848.27

Deficiency Withholding Tax P 1,028.56
Add: 20% Interest p.a. 576.51
Compromise Penalty 200.00
On February 8, 2005, respondent Commissioner, through its authorized representative,

Revenue Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying
petitioners Motion for Reconsideration. Petitioner, through counsel received said Decision
on February 18, 2005.
TOTAL P 1,805.07
*Expanded Withholding Tax P1,949,334.25 x 5% 97,466.71
x x x.
Film Rental 10,000.25 x 10% 1,000.00

Audit Fee 193,261.20 x 5% 9,663.00
Rental Expense 41,272.73 x 1% 412.73
Security Service 156,142.01 x 1% 1,561.42
Service Contractor P 110,103.92
Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was
not accorded due process, Metro Star filed a petition for review4 with the CTA. The parties
then stipulated on the following issues to be decided by the tax court:
1. Whether the respondent complied with the due process requirement as provided under
the National Internal Revenue Code and Revenue Regulations No. 12-99 with regard to the
issuance of a deficiency tax assessment;
1.1 Whether petitioner is liable for the respective amounts of P291,069.09 and P1,805.07 as
deficiency VAT and withholding tax for the year 1999;
The CTA-Second Division opined that "[w]hile there [is] a disputable presumption that a
mailed letter [is] deemed received by the addressee in the ordinary course of mail, a direct
denial of the receipt of mail shifts the burden upon the party favored by the presumption to
prove that the mailed letter was indeed received by the addressee."5 It also found that there
was no clear showing that Metro Star actually received the alleged PAN, dated January 16,
2002. It, accordingly, ruled that the Formal Letter of Demand dated April 3, 2002, as well
as the Warrant of Distraint and/or Levy dated May 12, 2003 were void, as Metro Star was
denied due process.6
1.2. Whether the assessment has become final and executory and demandable for failure of
petitioner to protest the same within 30 days from its receipt thereof on April 11, 2002,
pursuant to Section 228 of the National Internal Revenue Code;
The CIR sought reconsideration7 of the decision of the CTA-Second Division, but the
motion was denied in the latters July 24, 2007 Resolution.8
2. Whether the deficiency assessments issued by the respondent are void for failure to state
the law and/or facts upon which they are based.
Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the petition was
dismissed after a determination that no new matters were raised. The CTA-En Banc
disposed:
2.2 Whether petitioner was informed of the law and facts on which the assessment is made
in compliance with Section 228 of the National Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to VAT

on sales of services under Section 108(A) of the National Internal Revenue Code;
4. Whether or not the assessment is based on the best evidence obtainable pursuant to
Section 6(b) of the National Internal Revenue Code.
The CTA-Second Division found merit in the petition of Metro Star and, on March 21,
2007, rendered a decision, the decretal portion of which reads:
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED.

Accordingly, the assailed Decision dated February 8, 2005 is hereby REVERSED and SET
ASIDE and respondent is ORDERED TO DESIST from collecting the subject taxes against
petitioner.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and
DISMISSED for lack of merit. Accordingly, the March 21, 2007 Decision and July 27,
2007 Resolution of the CTA Second Division in CTA Case No. 7169 entitled, "Metro Star
Superama, Inc., petitioner vs. Commissioner of Internal Revenue, respondent" are hereby
AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration10 filed by the CIR was likewise denied by the CTA-En
Banc in its November 18, 2008 Resolution.11
The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due
process was served nonetheless because the latter received the Final Assessment Notice
(FAN), comes now before this Court with the sole issue of whether or not Metro Star was
denied due process.
The general rule is that the Court will not lightly set aside the conclusions reached by the
CTA which, by the very nature of its functions, has accordingly developed an exclusive
expertise on the resolution unless there has been an abuse or improvident exercise of
authority.12 In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v.
Commissioner of Internal Revenue,13 the Court wrote:
Jurisprudence has consistently shown that this Court accords the findings of fact by the
CTA with the highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No.
122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of
Tax Appeals, which by the very nature of its function is dedicated exclusively to the
consideration of tax problems, has necessarily developed an expertise on the subject, and
its conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or abuse on the part
of the Tax Court. In the absence of any clear and convincing proof to the contrary, this
Court must presume that the CTA rendered a decision which is valid in every respect.
On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is
instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having received
an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence
that such notice was indeed received by the addressee. The onus probandi was shifted to
respondent to prove by contrary evidence that the Petitioner received the assessment in the
due course of mail. The Supreme Court has consistently held that while a mailed letter is
deemed received by the addressee in the course of mail, this is merely a disputable
presumption subject to controversion and a direct denial thereof shifts the burden to the
party favored by the presumption to prove that the mailed letter was indeed received by the
addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as held by the Supreme
Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, January
30, 1965:
"The facts to be proved to raise this presumption are (a) that the letter was properly
addressed with postage prepaid, and (b) that it was mailed. Once these facts are proved, the
presumption is that the letter was received by the addressee as soon as it could have been
transmitted to him in the ordinary course of the mail. But if one of the said facts fails to
appear, the presumption does not lie. (VI, Moran, Comments on the Rules of Court, 1963
ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil 269)."
x x x. What is essential to prove the fact of mailing is the registry receipt issued by the
Bureau of Posts or the Registry return card which would have been signed by the Petitioner
or its authorized representative. And if said documents cannot be located, Respondent at
the very least, should have submitted to the Court a certification issued by the Bureau of
Posts and any other pertinent document which is executed with the intervention of the
Bureau of Posts. This Court does not put much credence to the self serving documentations
made by the BIR personnel especially if they are unsupported by substantial evidence
establishing the fact of mailing. Thus:
"While we have held that an assessment is made when sent within the prescribed period,
even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250
and L-12259, May 27, 1959), this ruling makes it the more imperative that the release,
mailing or sending of the notice be clearly and satisfactorily proved. Mere notations made
without the taxpayers intervention, notice or control, without adequate supporting
evidence cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue
offices, without adequate protection or defense." (Nava vs. CIR, 13 SCRA 104, January 30,
1965).
x x x.
The failure of the respondent to prove receipt of the assessment by the Petitioner leads to
the conclusion that no assessment was issued. Consequently, the governments right to
issue an assessment for the said period has already prescribed. (Industrial Textile
Manufacturing Co. of the Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996).
(Emphases supplied.)
The Court agrees with the CTA that the CIR failed to discharge its duty and present any
evidence to show that Metro Star indeed received the PAN dated January 16, 2002. It could
have simply presented the registry receipt or the certification from the postmaster that it
mailed the PAN, but failed. Neither did it offer any explanation on why it failed to comply
with the requirement of service of the PAN. It merely accepted the letter of Metro Stars
chairman dated April 29, 2002, that stated that he had received the FAN dated April 3,
2002, but not the PAN; that he was willing to pay the tax as computed by the CIR; and that
he just wanted to clarify some matters with the hope of lessening its tax liability.
This now leads to the question: Is the failure to strictly comply with notice requirements
prescribed under Section 228 of the National Internal Revenue Code of 1997 and Revenue
Regulations (R.R.) No. 12-99 tantamount to a denial of due process? Specifically, are the
requirements of due process satisfied if only the FAN stating the computation of tax
liabilities and a demand to pay within the prescribed period was sent to the taxpayer?
The answer to these questions require an examination of Section 228 of the Tax Code
which reads:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer
of his findings: provided, however, that a preassessment notice shall not be required in the
following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and automatically
applied the same amount claimed against the estimated tax liabilities for the taxable quarter
or quarters of the succeeding taxable year; or
(e) When the article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded
or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment
is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall
be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or
his duly authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration

or reinvestigation within thirty (30) days from receipt of the assessment in such form and
manner as may be prescribed by implementing rules and regulations. Within sixty (60) days
from filing of the protest, all relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the decision
or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of
the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the
decision shall become final, executory and demandable. (Emphasis supplied).
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes through the sending of a PAN. He must be
informed of the facts and the law upon which the assessment is made. The law imposes a
substantive, not merely a formal, requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently violative of the cardinal principle
in administrative investigations - that taxpayers should be able to present their case and
adduce supporting evidence.14
(d) When the excise tax due on exciseable articles has not been paid; or
This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently
provide:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. The Revenue Officer who audited the taxpayer's
records shall, among others, state in his report whether or not the taxpayer agrees with his
findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not
amenable, based on the said Officer's submitted report of investigation, the taxpayer shall
be informed, in writing, by the Revenue District Office or by the Special Investigation
Division, as the case may be (in the case Revenue Regional Offices) or by the Chief of
Division concerned (in the case of the BIR National Office) of the discrepancy or
discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose of
"Informal Conference," in order to afford the taxpayer with an opportunity to present his
side of the case. If the taxpayer fails to respond within fifteen (15) days from date of receipt
of the notice for informal conference, he shall be considered in default, in which case, the
Revenue District Officer or the Chief of the Special Investigation Division of the Revenue
Regional Office, or the Chief of Division in the National Office, as the case may be, shall
endorse the case with the least possible delay to the Assessment Division of the Revenue
Regional Office or to the Commissioner or his duly authorized representative, as the case
may be, for appropriate review and issuance of a deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative, as the
case may be, it is determined that there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered
mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in
detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed
assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond
within fifteen (15) days from date of receipt of the PAN, he shall be considered in default,
in which case, a formal letter of demand and assessment notice shall be caused to be issued
by the said Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of
the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The notice for informal conference
and the preliminary assessment notice shall not be required in any of the following cases, in
which case, issuance of the formal assessment notice for the payment of the taxpayer's
deficiency tax liability shall be sufficient:
(i) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer; or
(ii) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and automatically
applied the same amount claimed against the estimated tax liabilities for the taxable quarter
or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded
or transferred to non-exempt persons.
3.1.4 Formal Letter of Demand and Assessment Notice. The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayer's deficiency tax or
taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and assessment notice shall be
void (see illustration in ANNEX B hereof).
The same shall be sent to the taxpayer only by registered mail or by personal delivery.
If sent by personal delivery, the taxpayer or his duly authorized representative shall
acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the
following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf
of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and
(d) date of receipt thereof.
of the laws on the other, the scales must tilt in favor of the individual, for a citizens right is
amply protected by the Bill of Rights under the Constitution. Thus, while "taxes are the
lifeblood of the government," the power to tax has its limits, in spite of all its plenitude.
Hence in Commissioner of Internal Revenue v. Algue, Inc.,20 it was said
x x x.
From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform
him of the assessment made is but part of the "due process requirement in the issuance of a
deficiency tax assessment," the absence of which renders nugatory any assessment made by
the tax authorities. The use of the word "shall" in subsection 3.1.2 describes the mandatory
nature of the service of a PAN. The persuasiveness of the right to due process reaches both
substantial and procedural rights and the failure of the CIR to strictly comply with the
requirements laid down by law and its own rules is a denial of Metro Stars right to due
process.15 Thus, for its failure to send the PAN stating the facts and the law on which the
assessment was made as required by Section 228 of R.A. No. 8424, the assessment made
by the CIR is void.
The case of CIR v. Menguito16 cited by the CIR in support of its argument that only the
non-service of the FAN is fatal to the validity of an assessment, cannot apply to this case
because the issue therein was the non-compliance with the provisions of R. R. No. 12-85
which sought to interpret Section 229 of the old tax law. RA No. 8424 has already amended
the provision of Section 229 on protesting an assessment. The old requirement of merely
notifying the taxpayer of the CIRs findings was changed in 1998 to informing the taxpayer
of not only the law, but also of the facts on which an assessment would be made.
Otherwise, the assessment itself would be invalid.17 The regulation then, on the other
hand, simply provided that a notice be sent to the respondent in the form prescribed, and
that no consequence would ensue for failure to comply with that form.1avvphi1
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.
xxx
xxx
xxx
It is said that taxes are what we pay for civilized society. Without taxes, the government
would be paralyzed for the lack of the motive power to activate and operate it. Hence,
despite the natural reluctance to surrender part of ones hard-earned income to 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 x x x that the law has not been
observed.21 (Emphasis supplied).
The Court need not belabor to discuss the matter of Metro Stars failure to file its protest,
for it is well-settled that a void assessment bears no fruit.18
WHEREFORE, the petition is DENIED.
It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived
of property without due process of law.19 In balancing the scales between the power of the
State to tax and its inherent right to prosecute perceived transgressors of the law on one
side, and the constitutional rights of a citizen to due process of law and the equal protection
SO ORDERED.
SUPREME COURT
accounts and other accounting records of respondent for taxable year "1997 & unverified
prior years."7
Manila
FIRST DIVISION
G.R. No. 169103
March 16, 2011
On December 14, 1999, based on the findings of the Revenue Officers, the petitioner
issued a Preliminary Assessment Notice8 against the respondent for its deficiency internal
revenue taxes for the year 1997. The respondent agreed to all the assessments issued
against it except to the amount of P2,351,680.90 representing deficiency documentary
stamp taxes on its policy premiums and penalties. 9
MANILA BANKERS' LIFE INSURANCE CORPORATION, Respondent.
Thus, on January 4, 2000, the petitioner issued against the respondent a Formal Letter of
Demand10 with the corresponding Assessment Notices attached,11 one of which was
Assessment Notice No. ST-DST2-97-0054-200012 pertaining to the documentary stamp
taxes due on respondents policy premiums:
DECISION
Documentary Stamp Tax on Policy Premiums
LEONARDO-DE CASTRO, J.:
Assessment No. ST-DST2-97-0054-2000
This is a Petition for Review on Certiorari1 filed by the Commissioner of Internal Revenue
(CIR) of the April 29, 2005 Decision2 and July 27, 2005 Resolution3 of the Court of
Appeals in CA-G.R. SP No. 70600, which upheld the April 4, 2002 Decision4 of the Court
of Tax Appeals (CTA) in CTA Case No. 6189.
Tax Due 3,954,955.00
vs.
Less: Tax Paid 2,308,505.74

Tax Deficiency 1,646,449.26
Add: 20% Int./a 680,231.64
The facts as found by the CTA and Court of Appeals are undisputed.
Recommended Compromise
Penalty-Late Payment _____ 25,000.00
Respondent Manila Bankers Life Insurance Corporation is a duly organized domestic

corporation primarily engaged in the life insurance business.5
On May 28, 1999, petitioner Commissioner of Internal Revenue issued Letter of Authority
No. 0000207056 authorizing a special team of Revenue Officers to examine the books of
Total Amount Due 2,351,680.9013
The tax deficiency was computed by including the increases in the life insurance coverage
or the sum assured by some of respondents life insurance plans14:
ISSUED INCREASED
ORDINARY P648,127,000.00 P 74,755,000.00
GROUP 114,936,000.00 744,164,000.00
TOTAL
The amount of P818,919,000.00 comprises the increases in the sum assured for the
respondents ordinary insurance the "Money Plus Plan" (P74,755,000.00), and group
insurance (P744,164,000.00).16
-------------------------------------------------------------------------------P763,063,000.00
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------P 818,919,000.00
--------------------------------------------------------------------------------
GRAND TOTAL/TAX BASE P1,581,982,000.00
On February 3, 2000, the respondent filed its Letter of Protest17 with the Bureau of
Internal Revenue (BIR) contesting the assessment for deficiency documentary stamp tax on
its insurance policy premiums. Despite submission of documents on April 3, 2000,18 as
required by the BIR in its March 20, 200019 letter, the respondents Protest was not acted
upon by the BIR within the 180-day period given to it by Section 228 of the 1997 National
Internal Revenue Code (NIRC) within which to rule on the protest. Hence, on October 26,
2000, the respondent filed a Petition for Review with the CTA for the cancellation of
Assessment Notice No. ST-DST2-97-0054-2000. The respondent invoked the CTAs March
30, 1993 ruling in the similar case of Lincoln Philippine Life Insurance Company, Inc.
(now Jardine-CMA Life Insurance Company, Inc.) v. Commissioner of Internal Revenue,20
wherein the CTA held that the tax base to be used in computing the documentary stamp tax
is the value at the time the instrument is issued because the documentary stamp tax is
levied and paid only once, which is at the time the taxable document is issued.
TAX RATE P0.50/200.00

TAX DUE P 3,954,955.00
LESS: TAX PAID P 2,308,505.74
On April 4, 2002, the CTA granted the respondents Petition with the dispositive portion as
follows:
--------------------------------------------------------------------------------
DEFICIENCY DST - BASIC P 1,646,499.26

- 20% INTEREST 680,231.64
- SURCHARGE 25,000.00
WHEREFORE, in the light of all the foregoing, respondent Commissioner of Internal

Revenue is hereby ORDERED to CANCEL and WITHDRAW Assessment Notice No. STDST2-97-0054-2000 dated January 4, 2000 in the amount of P2,351,680.90 representing
deficiency documentary stamp taxes for the taxable year 1997.21
TOTAL ASSESSMENT
--------------------------------------------------------------------------------
The CTA, applying the Tax Code Provisions then in force, held that:
P 2,351,680.9015
--------------------------------------------------------------------------------
[T]he documentary stamp tax on life insurance policies is imposed only once based on the
amount insured at the time of actual issuance of such policies. The documentary stamp tax
which is in the nature of an excise tax is imposed on the document as originally issued.
Therefore, any subsequent increase in the insurance coverage resulting from policies which
have been subjected to the documentary stamp tax at the time of their issuance, is no longer
subject to the documentary stamp tax.22
Aggrieved by the decision, the petitioner went to the Court of Appeals on a Petition for
Review23 docketed as CA-G.R. SP No. 70600 on the ground that:
THE TAX COURT ERRED IN RULING THAT INCREASES IN THE COVERAGE OR

THE SUM ASSURED BY AN EXISTING INSURANCE POLICY IS NOT SUBJECT TO
THE DOCUMENTARY STAMP TAX. (DST).24
On April 29, 2005, the Court of Appeals sustained the cancellation of Assessment Notice
No. ST-DST2-97-0054-2000 in its Decision, the decretal portion of which reads:
WHEREFORE, all considered and finding no merit in the herein appeal, judgment is
hereby rendered upholding the April 4, 2002, CTA Decision in CTA Case No. 6189 entitled
"Manila Bankers Life Insurance Corporation, Petitioner, versus Commissioner of Internal
Revenue, Respondent.25
The Court of Appeals, in upholding the decision of the CTA, said that the subject of the
documentary stamp tax is the issuance of the instrument representing the creation, change
or cessation of a legal relationship.26 It further held that because the legal status or nature
of the relationship embodied in the document has no bearing at all on the tax, the
fulfillment of suspensive conditions incorporated in the respondents policies, as claimed
by the petitioner, would still not give rise to new documentary stamp tax payments.27
The petitioner asked for reconsideration of the above Decision and cited this Courts March
19, 2002 Decision in Commissioner of Internal Revenue v. Lincoln Philippine Life
Insurance Company, Inc.,28 the very same case the respondent invoked before the CTA.
The petitioner argued that in Lincoln, this Court reversed both the CTA and the Court of
Appeals and sustained the validity of the deficiency documentary stamp tax imposed on the
increase in the sum insured even though no new policy was issued because the increase, by
reason of the "Automatic Increase Clause," was already definite at the time the policy was
issued.
On July 27, 2005, the Court of Appeals sustained its ruling, and stated that the Lincoln
Case was not applicable because the increase in the sum assured in Lincolns insurance
policy was definite and determinable at the time such policy was issued as the automatic
increase clause, which allowed for the increase, formed an integral part of the policy;
whereas in the respondents case, "the tax base of the disputed deficiency assessment was
not [a] definite or determinable increase in the sum assured."29
The petitioner is now before us praying for the nullification of the Court of Appeals April
29, 2005 Decision and July 27, 2005 Resolution and to have the assessment for deficiency
documentary stamp tax on respondents policy premiums, plus 25% surcharge for late
payment and 20% annual interest, sustained30 on the following arguments:
A.
THE APPLICABLE PROVISIONS OF THE NIRC AT THE TIME THE ASSESSMENT

FOR DEFICIENCY DOCUMENTARY STAMP TAX WAS ISSUED PROVIDE THAT
DOCUMENTARY STAMP TAX IS COLLECTIBLE NOT ONLY ON THE ORIGINAL
POLICY BUT ALSO UPON RENEWAL OR CONTINUANCE THEREOF.
B.
THE AMOUNT INSURED BY THE POLICY AT THE TIME OF ITS ISSUANCE

NECESSARILY INCLUDED THE ADDITIONAL SUM AS A RESULT OF THE
EXERCISE OF THE OPTION UNDER THE "GUARANTEED CONTINUITY"
CLAUSE IN RESPONDENTS INSURANCE POLICIES.
C.
THE "GUARANTEED CONTINUITY" CLAUSE OFFERS TO THE INSURED AN

OPTION TO AVAIL OF THE RIGHT TO RENEW OR CONTINUE THE POLICY. IF
AND WHEN THE INSURED AVAILS OF SUCH OPTION AND SUCH GUARANTEED
CONTINUITY CLAUSE TAKES EFFECT, THE INSURER IS LIABLE FOR
DEFICIENCY DOCUMENTARY STAMP TAX CORRESPONDING TO THE
INCREASE OF THE INSURANCE COVERAGE.
The resolution of this case hinges on the validity of the imposition of documentary stamp
tax on increases in the coverage or sum assured by existing life insurance policies, even
without the issuance of new policies.
In view of the fact that the assessment for deficiency documentary stamp tax covered the
taxable year 1997, the relevant and applicable legal provisions are those found in the 1977
National Internal Revenue Code (Tax Code) as amended,33 to wit:
D.
SECTION 198 OF THE 1997 NIRC CLEARLY STATES THAT THE DOCUMENTARY
STAMP TAX IS IMPOSABLE UPON RENEWAL OR CONTINUANCE OF ANY
POLICY OF INSURANCE OR THE RENEWAL OR CONTINUANCE OF ANY
CONTRACT BY ALTERING OR OTHERWISE, AT THE SAME RATE AS THAT
IMPOSED ON THE ORIGINAL INSTRUMENT.31
As can be gleaned from the facts, the deficiency documentary stamp tax was assessed on
the increases in the life insurance coverage of two kinds of policies: the "Money Plus
Plan," which is an ordinary term life insurance policy; and the group life insurance policy.
The increases in the coverage of the life insurance policies were brought about by the
premium payments made subsequent to the issuance of the policies. The Money Plus Plan
is a 20-year term ordinary life insurance plan with a "Guaranteed Continuity Clause" which
allowed the policy holder to continue the policy after the 20-year term subject to certain
conditions. Under the plan, the policy holders paid their premiums in five separate periods,
with the premium payments, after the first period premiums, to be made only upon
reaching a certain age. The succeeding premium payments translated to increases in the
sum assured. Thus, the petitioner believed that since the documentary stamp tax was
affixed on the policy based only on the first period premiums, then the succeeding
premium payments should likewise be subject to documentary stamp tax. In the case of
respondents group insurance, the deficiency documentary stamp tax was imposed on the
premiums for the additional members to already existing and effective master policies. The
petitioner concluded that any additional member to the group of employees, who were
already insured under the existing mother policy, should similarly be subjected to
documentary stamp tax.32
Section 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers.
Upon documents, instruments, loan agreements and papers, and upon acceptances,
assignments, sales and transfers of the obligation, right or property incident thereto, there
shall be levied, collected and paid for, and in respect of the transaction so had or
accomplished, the corresponding documentary stamp taxes prescribed in the following
sections of this Title, by the person making, signing, issuing, accepting, or transferring the
same wherever the document is made, signed, issued, accepted, or transferred when the
obligation or right arises from Philippine sources or the property is situated in the
Philippines, and the same time such act is done or transaction had: Provided, That
whenever one party to the taxable document enjoys exemption from the tax herein
imposed, the other party who is not exempt shall be the one directly liable for the tax. 34
Section 183. Stamp Tax on Life Insurance Policies. On all policies of insurance or other
instruments by whatever name the same may be called, whereby any insurance shall be
made or renewed upon any life or lives, there shall be collected a documentary stamp tax of
fifty centavos on each two hundred pesos or fractional part thereof, of the amount insured
by any such policy.35 (Emphases ours.)
Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto.36 It is in the nature of an excise tax because it is imposed upon the
privilege, opportunity or facility offered at exchanges for the transaction of the business. It
is an excise upon the facilities used in the transaction of the business distinct and separate
from the business itself.37
To elucidate, documentary stamp tax is levied on the exercise of certain privileges granted
by law for the creation, revision, or termination of specific legal relationships through the
execution of specific instruments. Examples of these privileges, the exercise of which are
subject to documentary stamp tax, are leases of lands, mortgages, pledges, trusts and
conveyances of real property. Documentary stamp tax is thus imposed on the exercise of
these privileges through the execution of specific instruments, independently of the legal
status of the transactions giving rise thereto. The documentary stamp tax must be paid upon
the issuance of these instruments, without regard to whether the contracts which gave rise
to them are rescissible, void, voidable, or unenforceable. 38
Accordingly, the documentary stamp tax on insurance policies, though imposed on the
document itself, is actually levied on the privilege to conduct insurance business. Under
Section 173, the documentary stamp tax becomes due and payable at the time the insurance
policy is issued, with the tax based on the amount insured by the policy as provided for in
Section 183.
Documentary Stamp Tax

on the "Money Plus Plan"
The petitioner would have us reverse both the CTA and the Court of Appeals based on our
decision in Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance
Company, Inc.39
The Lincoln case has been invoked by both parties in different stages of this case. The
respondent relied on the CTAs ruling in the Lincoln case when it elevated its protest there;
and when we reversed the CTAs ruling therein, the petitioner called the Court of Appeals
attention to it, and prayed for a decision upholding the assessment for deficiency
documentary stamp tax just like in the Lincoln case.
It is therefore necessary to briefly discuss the Lincoln case to determine its applicability, if
any, to the case now before us. Prior to 1984, Lincoln Philippine Life Insurance Company,
Inc. (Lincoln) had been issuing its "Junior Estate Builder Policy," a special kind of life
insurance policy because of a clause which provided for an automatic increase in the
amount of life insurance coverage upon attainment of a certain age by the insured without
the need of a new policy. As Lincoln paid documentary stamp taxes only on the initial sum
assured, the CIR issued a deficiency documentary stamp tax assessment for the year 1984,
the year the clause took effect. Both the CTA and the Court of Appeals found no basis for
the deficiency assessment. As discussed above, however, this Court reversed both lower
courts and sustained the CIRs assessment.
This Court ruled that the increase in the sum assured brought about by the "automatic
increase" clause incorporated in Lincolns Junior Estate Builder Policy was still subject to
documentary stamp tax, notwithstanding that no new policy was issued, because the date of
the effectivity of the increase, as well as its amount, were already definite and determinable
at the time the policy was issued. As such, the tax base under Section 183, which is "the
amount fixed in the policy," is "the figure written on its face and whatever increases will
take effect in the future by reason of the automatic increase clause." 40 This Court added
that the automatic increase clause was "in the nature of a conditional obligation under
Article 1181,41 by which the increase of the insurance coverage shall depend upon the
happening of the event which constitutes the obligation." 42
Since the Lincoln case, wherein the then CIRs arguments for the BIR are very similar to
the petitioners arguments herein, was decided in favor of the BIR, the petitioner is now
relying on our ruling therein to support his position in this case. Although the two cases are
similar in many ways, they must be distinguished by the nature of the respective "clauses"
in the life insurance policies involved, where we note a major difference. In Lincoln, the
relevant clause is the "Automatic Increase Clause" which provided for the automatic
increase in the amount of life insurance coverage upon the attainment of a certain age by
the insured, without any need for another contract. In the case at bar, the clause in
contention is the "Guaranteed Continuity Clause" in respondents Money Plus Plan, which
reads:
GUARANTEED CONTINUITY
We guarantee the continuity of this Policy until the Expiry Date stated in the Schedule
provided that the effective premium is consecutively paid when due or within the 31-day
Grace Period.
We shall not have the right to change premiums on your Policy during the 20-year Policy
term.
At the end of each twenty-year period, and provided that you have not attained age 55, you
may renew your Policy for a further twenty-year period. To renew, you must submit proof
of insurability acceptable to MBLIC and pay the premium due based on attained age
according to the rates prevailing at the time of renewal.43
A simple reading of respondents guaranteed continuity clause will show that it is

significantly different from the "automatic increase clause" in Lincoln. The only things
guaranteed in the respondents continuity clause were: the continuity of the policy until the
stated expiry date as long as the premiums were paid within the allowed time; the nonchange in premiums for the duration of the 20-year policy term; and the option to continue
such policy after the 20-year period, subject to certain requirements. In fact, even the
continuity of the policy after its term was not guaranteed as the decision to renew it
belonged to the insured, subject to certain conditions. Any increase in the sum assured, as a
result of the clause, had to survive a new agreement between the respondent and the
insured. The increase in the life insurance coverage was only corollary to the new premium
rate imposed based upon the insureds age at the time the continuity clause was availed of.
It was not automatic, was never guaranteed, and was certainly neither definite nor
determinable at the time the policy was issued.
Therefore, the increases in the sum assured brought about by the guaranteed continuity
clause cannot be subject to documentary stamp tax under Section 183 as insurance made
upon the lives of the insured.
However, it is clear from the text of the guaranteed continuity clause that what the
respondent was actually offering in its Money Plus Plan was the option to renew the policy,
after the expiration of its original term. Consequently, the acceptance of this offer would
give rise to the renewal of the original policy.
The petitioner avers that these life insurance policy renewals make the respondent liable for
deficiency documentary stamp tax under Section 198.
Section 198 of the old Tax Code reads:
Section 198. Stamp Tax on Assignments and Renewals of Certain Instruments. Upon
each and every assignment or transfer of any mortgage, lease or policy of insurance, or the
renewal or continuance of any agreement, contract, charter, or any evidence of obligation
or indebtedness by altering or otherwise, there shall be levied, collected and paid a
documentary stamp tax, at the same rate as that imposed on the original instrument.44
Section 198 speaks of assignments and renewals. In the case of insurance policies, this
section applies only when such policy was assigned or transferred. The provision which
specifically applies to renewals of life insurance policies is Section 183:
Section 183. Stamp Tax on Life Insurance Policies. On all policies of insurance or other
instruments by whatever name the same may be called, whereby any insurance shall be
made or renewed upon any life or lives, there shall be collected a documentary stamp tax of
fifty centavos on each two hundred pesos or fractional part thereof, of the amount insured
by any such policy. (Emphasis ours.)
Section 183 is a substantial reproduction of the earlier documentary stamp tax provision,
Section 1449(j) of the Administrative Code of 1917. Regulations No. 26, or The Revised
Documentary Stamp Tax Regulations,45 provided the implementing rules to the provisions
on documentary stamp tax under the Administrative Code of 1917. Section 54 of the
Regulations, in reference to what is now Section 183, explicitly stated that the documentary
stamp tax imposed under that section is also collectible upon renewals of life insurance
policies, viz:
Section 54. Tax also due on renewals. The tax under this section is collectible not only on
the original policy or contract of insurance but also upon the renewal of the policy or
contract of insurance.
To argue that there was no new legal relationship created by the availment of the
guaranteed continuity clause would mean that any option to renew, integrated in the
original agreement or contract, would not in reality be a renewal but only a discharge of a
pre-existing obligation. The truth of the matter is that the guaranteed continuity clause only
gave the insured the right to renew his life insurance policy which had a fixed term of
twenty years. And although the policy would still continue with essentially the same terms
and conditions, the fact is, its maturity date, coverage, and premium rate would have
changed. We cannot agree with the CTA in its holding that "the renewal, is in effect treated
as an increase in the sum assured since no new insurance policy was issued."46 The
renewal was not meant to restore the original terms of an old agreement, but instead it was
meant to extend the life of an existing agreement, with some of the contracts terms
modified. This renewal was still subject to the acceptance and to the conditions of both the
insured and the respondent. This is entirely different from a simple mutual agreement
between the insurer and the insured, to increase the coverage of an existing and effective
life insurance policy.
It is clear that the availment of the option in the guaranteed continuity clause will
effectively renew the Money Plus Plan policy, which is indisputably subject to the
imposition of documentary stamp tax under Section 183 as an insurance renewed upon the
life of the insured.
Documentary Stamp Tax

on Group Life Insurance
The petitioner is also asking this Court to sustain his deficiency documentary stamp tax
assessment on the additional premiums earned by the respondent in its group life insurance
policies.
This Court, in Pineda v. Court of Appeals47 has had the chance to discuss the concept of
"group insurance," to wit:
In its original and most common form, group insurance provides life or health insurance
coverage for the employees of one employer.
The coverage terms for group insurance are usually stated in a master agreement or policy
that is issued by the insurer to a representative of the group or to an administrator of the
insurance program, such as an employer. The employer acts as a functionary in the
collection and payment of premiums and in performing related duties. Likewise falling
within the ambit of administration of a group policy is the disbursement of insurance
payments by the employer to the employees. Most policies, such as the one in this case,
require an employee to pay a portion of the premium, which the employer deducts from
wages while the remainder is paid by the employer. This is known as a contributory plan as
compared to a non-contributory plan where the premiums are solely paid by the employer.
Although the employer may be the titular or named insured, the insurance is actually
related to the life and health of the employee. Indeed, the employee is in the position of a
real party to the master policy, and even in a non-contributory plan, the payment by the
employer of the entire premium is a part of the total compensation paid for the services of
the employee. Put differently, the labor of the employees is the true source of the benefits,
which are a form of additional compensation to them.48 (Emphasis ours.)
When a group insurance plan is taken out, a group master policy is issued with the
coverage and premium rate based on the number of the members covered at that time. In
the case of a company group insurance plan, the premiums paid on the issuance of the
master policy cover only those employees enrolled at the time such master policy was
issued. When the employer hires additional employees during the life of the policy, the
additional employees may be covered by the same group insurance already taken out
without any need for the issuance of a new policy.
The respondent claims that since the additional premiums represented the additional
members of the same existing group insurance policy, then under our tax laws, no
additional documentary stamp tax should be imposed since the appropriate documentary
stamp tax had already been paid upon the issuance of the master policy. The respondent
asserts that since the documentary stamp tax, by its nature, is paid at the time of the
issuance of the policy, "then there can be no other imposition on the same, regardless of
any change in the number of employees covered by the existing group insurance."49
To resolve this issue, it would be instructive to take another look at Section 183: On all
policies of insurance or other instruments by whatever name the same may be called,
whereby any insurance shall be made or renewed upon any life or lives.
The phrase "other instruments" as also found in the earlier version of Section 183, i.e.,
Section 1449(j) of the Administrative Code of 1917, was explained in Regulations No. 26,
to wit:
Section 52. "Other instruments" defined. The term "other instruments" includes any
instrument by whatever name the same is called whereby insurance is made or renewed,
i.e., by which the relationship of insurer and insured is created or evidenced, whether it be a
letter of acceptance, cablegrams, letters, binders, covering notes, or memoranda. (Emphasis
ours.)
Whenever a master policy admits of another member, another life is insured and covered.
This means that the respondent, by approving the addition of another member to its
existing master policy, is once more exercising its privilege to conduct the business of
insurance, because it is yet again insuring a life. It does not matter that it did not issue
another policy to effect this change, the fact remains that insurance on another life is made
and the relationship of insurer and insured is created between the respondent and the
additional member of that master policy. In the respondents case, its group insurance plan
is embodied in a contract which includes not only the master policy, but all documents
subsequently attached to the master policy.50 Among these documents are the Enrollment
Cards accomplished by the employees when they applied for membership in the group
insurance plan. The Enrollment Card of a new employee, once registered in the Schedule of
Benefits and attached to the master policy, becomes evidence of such employees
membership in the group insurance plan, and his right to receive the benefits therein.
Everytime the respondent registers and attaches an Enrollment Card to an existing master
policy, it exercises its privilege to conduct its business of insurance and this is patently
subject to documentary stamp tax as insurance made upon a life under Section 183.
The respondent would like this Court to ignore the petitioners argument that renewals of
insurance policies are also subject to documentary stamp tax for being raised for the first
time. This Court was faced with the same dilemma in Commissioner of Internal Revenue v.
Procter & Gamble Philippine Manufacturing Corporation,51 when the petitioner also raised
an issue therein for the first time in the Supreme Court. In addressing the procedural lapse,
we said:
As clearly ruled by Us "To allow a litigant to assume a different posture when he comes
before the court and challenges the position he had accepted at the administrative level,"
would be to sanction a procedure whereby the Court - which is supposed to review
administrative determinations - would not review, but determine and decide for the first
time, a question not raised at the administrative forum. Thus it is well settled that under the
same underlying principle of prior exhaustion of administrative remedies, on the judicial
level, issues not raised in the lower court cannot generally be raised for the first time on
appeal. x x x.52
However, in the same case, we also held that:
Nonetheless it is axiomatic that the State can never be in estoppel, and this is particularly
true in matters involving taxation. The errors of certain administrative officers should never
be allowed to jeopardize the government's financial position.53 (Emphasis ours.)
Along with police power and eminent domain, taxation is one of the three basic and
necessary attributes of sovereignty.54 Taxes are the lifeblood of the government and their
prompt and certain availability is an imperious need. It is through taxes that government
agencies are able to operate and with which the State executes its functions for the welfare
of its constituents.55 It is for this reason that we cannot let the petitioners oversight bar the
governments rightful claim.1avvphi1
This Court would like to make it clear that the assessment for deficiency documentary
stamp tax is being upheld not because the additional premium payments or an agreement to
change the sum assured during the effectivity of an insurance plan are subject to
documentary stamp tax, but because documentary stamp tax is levied on every document
which establishes that insurance was made or renewed upon a life.
WHEREFORE, the petition is GRANTED. The April 29, 2005 Decision and the July 27,
2005 Resolution of the Court of Appeals in CA-G.R. SP No. 70600 are hereby SET
ASIDE. Respondent Manila Bankers Life Insurance Corp. is hereby ordered to pay
petitioner Commissioner of Internal Revenue the deficiency documentary stamp tax in the
amount of P1,646,449.26, plus the delinquency penalties of 25% surcharge on the amount
due and 20% annual interest from January 5, 2000 until fully paid.
SO ORDERED.
the foreign reinsurers a portion of the premiums on insurance it has originally underwritten
in the Philippines, in consideration for the assumption by the latter of liability on an
equivalent portion of the risks insured. Said reinsurrance contracts were signed by
Philippine Guaranty Co., Inc. in Manila and by the foreign reinsurers outside the
Philippines, except the contract with Swiss Reinsurance Company, which was signed by
both parties in Switzerland.
SUPREME COURT
Manila
EN BANC
G.R. No. L-22074
April 30, 1965
The reinsurance contracts made the commencement of the reinsurers' liability simultaneous
with that of Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty
Co., Inc. was required to keep a register in Manila where the risks ceded to the foreign
reinsurers where entered, and entry therein was binding upon the reinsurers. A
proportionate amount of taxes on insurance premiums not recovered from the original
assured were to be paid for by the foreign reinsurers. The foreign reinsurers further agreed,
in consideration for managing or administering their affairs in the Philippines, to
compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance
premiums. Conflicts and/or differences between the parties under the reinsurance contracts
were to be arbitrated in Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance
Company stipulated that their contract shall be construed by the laws of the Philippines.
THE PHILIPPINE GUARANTY CO., INC., petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the
foreign reinsurers the following premiums:
1953 . . . . . . . . . . . . . . . . . . . . . P842,466.71
Josue H. Gustilo and Ramirez and Ortigas for petitioner.
1954 . . . . . . . . . . . . . . . . . . . . . 721,471.85
Office of the Solicitor General and Attorney V.G. Saldajena for respondents.
BENGZON, J.P., J.:
The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance
contracts, on various dates, with foreign insurance companies not doing business in the
Philippines namely: Imperio Compaia de Seguros, La Union y El Fenix Espaol,
Overseas Assurance Corp., Ltd., Socieded Anonima de Reaseguros Alianza, Tokio Marino
& Fire Insurance Co., Ltd., Union Assurance Society Ltd., Swiss Reinsurance Company
and Tariff Reinsurance Limited. Philippine Guaranty Co., Inc., thereby agreed to cede to
Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when
it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax
on them. Consequently, per letter dated April 13, 1959, the Commissioner of Internal
Revenue assessed against Philippine Guaranty Co., Inc. withholding tax on the ceded
reinsurance premiums, thus:
1953
Gross premium per investigation . . . . . . . . . . P768,580.00
Withholding tax due thereon at 24% . . . . . . . . P184,459.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . 46,114.00
sums of P202,192.00 and P173,153.00 or the total sum of P375,345.00 as withholding

income taxes for the years 1953 and 1954, plus the statutory delinquency penalties thereon.
With costs against petitioner.
Compromise for non-filing of withholding

income tax return . . . . . . . . . . . . . . . . . . . . . . . . . 100.00
TOTAL AMOUNT DUE & COLLECTIBLE . . . .
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of
Internal Revenue's assessment for withholding tax on the reinsurance premiums ceded in
1953 and 1954 to the foreign reinsurers.
-------------------------------------------------------------------------------P230,673.00
==========
1954
Petitioner maintain that the reinsurance premiums in question did not constitute income
from sources within the Philippines because the foreign reinsurers did not engage in
business in the Philippines, nor did they have office here.
Gross premium per investigation . . . . . . . . . . P780.880.68

Withholding tax due thereon at 24% . . . . . . . . P184,411.00
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . P184,411.00
Compromise for non-filing of withholding
income tax return . . . . . . . . . . . . . . . . . . . . . . . . . 100.00
TOTAL AMOUNT DUE & COLLECTIBLE . . . .
-------------------------------------------------------------------------------P234,364.00
==========
Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance
premiums ceded to foreign reinsurers not doing business in the Philippines are not subject
to withholding tax. Its protest was denied and it appealed to the Court of Tax Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:
IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty

Co., Inc. is hereby ordered to pay to the Commissioner of Internal Revenue the respective
The reinsurance contracts, however, show that the transactions or activities that constituted
the undertaking to reinsure Philippine Guaranty Co., Inc. against loses arising from the
original insurances in the Philippines were performed in the Philippines. The liability of the
foreign reinsurers commenced simultaneously with the liability of Philippine Guaranty Co.,
Inc. under the original insurances. Philippine Guaranty Co., Inc. kept in Manila a register
of the risks ceded to the foreign reinsurers. Entries made in such register bound the foreign
resinsurers, localizing in the Philippines the actual cession of the risks and premiums and
assumption of the reinsurance undertaking by the foreign reinsurers. Taxes on premiums
imposed by Section 259 of the Tax Code for the privilege of doing insurance business in
the Philippines were payable by the foreign reinsurers when the same were not recoverable
from the original assured. The foreign reinsurers paid Philippine Guaranty Co., Inc. an
amount equivalent to 5% of the ceded premiums, in consideration for administration and
management by the latter of the affairs of the former in the Philippines in regard to their
reinsurance activities here. Disputes and differences between the parties were subject to
arbitration in the City of Manila. All the reinsurance contracts, except that with Swiss
Reinsurance Company, were signed by Philippine Guaranty Co., Inc. in the Philippines and
later signed by the foreign reinsurers abroad. Although the contract between Philippine
Guaranty Co., Inc. and Swiss Reinsurance Company was signed by both parties in
Switzerland, the same specifically provided that its provision shall be construed according
to the laws of the Philippines, thereby manifesting a clear intention of the parties to subject
themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from
sources within the Philippines. The word "sources" has been interpreted as the activity,
property or service giving rise to the income. 1 The reinsurance premiums were income
created from the undertaking of the foreign reinsurance companies to reinsure Philippine
Guaranty Co., Inc., against liability for loss under original insurances. Such undertaking, as
explained above, took place in the Philippines. These insurance premiums, therefore, came
from sources within the Philippines and, hence, are subject to corporate income tax.
The foreign insurers' place of business should not be confused with their place of activity.
Business should not be continuity and progression of transactions 2 while activity may
consist of only a single transaction. An activity may occur outside the place of business.
Section 24 of the Tax Code does not require a foreign corporation to engage in business in
the Philippines in subjecting its income to tax. It suffices that the activity creating the
income is performed or done in the Philippines. What is controlling, therefore, is not the
place of business but the place of activity that created an income.
Petitioner further contends that the reinsurance premiums are not income from sources
within the Philippines because they are not specifically mentioned in Section 37 of the Tax
Code. Section 37 is not an all-inclusive enumeration, for it merely directs that the kinds of
income mentioned therein should be treated as income from sources within the Philippines
but it does not require that other kinds of income should not be considered
likewise.1wph1.t
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is

a necessary burden to preserve the State's sovereignty and a means to give the citizenry an
army to resist an aggression, a navy to defend its shores from invasion, a corps of civil
servants to serve, public improvement designed for the enjoyment of the citizenry and
those which come within the State's territory, and facilities and protection which a
government is supposed to provide. Considering that the reinsurance premiums in question
were afforded protection by the government and the recipient foreign reinsurers exercised
rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers
should share the burden of maintaining the state.
Petitioner would wish to stress that its reliance in good faith on the rulings of the
Commissioner of Internal Revenue requiring no withholding of the tax due on the
reinsurance premiums in question relieved it of the duty to pay the corresponding
withholding tax thereon. This defense of petitioner may free if from the payment of
surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it
certainly would not exculpate if from liability to pay such withholding tax The Government
is not estopped from collecting taxes by the mistakes or errors of its agents.3
In respect to the question of whether or not reinsurance premiums ceded to foreign

reinsurers not doing business in the Philippines are subject to withholding tax under
Section 53 and 54 of the Tax Code, suffice it to state that this question has already been
answered in the affirmative in Alexander Howden & Co., Ltd. vs. Collector of Internal
Revenue, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be computed from the amount
actually remitted to the foreign reinsurers instead of from the total amount ceded. And
since it did not remit any amount to its foreign insurers in 1953 and 1954, no withholding
tax was due.
The pertinent section of the Tax Code States:
Sec. 54. Payment of corporation income tax at source. In the case of foreign
corporations subject to taxation under this Title not engaged in trade or business within the
Philippines and not having any office or place of business therein, there shall be deducted
and withheld at the source in the same manner and upon the same items as is provided in
Section fifty-three a tax equal to twenty-four per centum thereof, and such tax shall be
returned and paid in the same manner and subject to the same conditions as provided in that
section.
The applicable portion of Section 53 provides:
(b) Nonresident aliens. All persons, corporations and general copartnerships (compaias
colectivas), in what ever capacity acting, including lessees or mortgagors of real or
personal property, trustees acting in any trust capacity, executors, administrators, receivers,
conservators, fiduciaries, employers, and all officers and employees of the Government of
the Philippines having the control, receipt, custody, disposal, or payment of interest,
dividends, rents, salaries, wages, premiums, annuities, compensation, remunerations,
emoluments, or other fixed or determinable annual or periodical gains, profits, and income
of any nonresident alien individual, not engaged in trade or business within the Philippines
and not having any office or place of business therein, shall (except in the case provided for
in subsection [a] of this section) deduct and withhold from such annual or periodical gains,
profits, and income a tax equal to twelve per centum thereof: Provided That no deductions
or withholding shall be required in the case of dividends paid by a foreign corporation

unless (1) such corporation is engaged in trade or business within the Philippines or has an
office or place of business therein, and (2) more than eighty-five per centum of the gross
income of such corporation for the three-year period ending with the close of its taxable
year preceding the declaration of such dividends (or for such part of such period as the
corporation has been in existence)was derived from sources within the Philippines as
determined under the provisions of section thirty-seven: Provided, further, That the
Collector of Internal Revenue may authorize such tax to be deducted and withheld from the
interest upon any securities the owners of which are not known to the withholding agent.
The above-quoted provisions allow no deduction from the income therein enumerated in
determining the amount to be withheld. According, in computing the withholding tax due
on the reinsurance premium in question, no deduction shall be recognized.
WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc.
is hereby ordered to pay to the Commissioner of Internal Revenue the sums of P202,192.00
and P173,153.00, or a total amount of P375,345.00, as withholding tax for the years 1953
and 1954, respectively. If the amount of P375,345.00 is not paid within 30 days from the
date this judgement becomes final, there shall be collected a surcharged of 5% on the
amount unpaid, plus interest at the rate of 1% a month from the date of delinquency to the
date of payment, provided that the maximum amount that may be collected as interest shall
not exceed the amount corresponding to a period of three (3) years. With costs againsts
petitioner.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and
Regala, JJ., concur.
Makalintal and Zaldivar, JJ., took no part.
Deficiency percentage tax P 7, 270,892.88

Add: 25% surcharge 1,817,723.22
SUPREME COURT
20% interest from 1-21-87 to 10-28-88 3,215,825.03
Manila
Compromise penalty 15,000.00

--------------------------------------------------------------------------------
FIRST DIVISION
TOTAL AMOUNT DUE AND COLLECTIBLE P12,319,441.13
G.R. No. 134062
April 17, 2007

1986 Deficiency Documentary Stamp Tax

vs.
Deficiency percentage tax P93,723,372.40
BANK OF THE PHILIPPINE ISLANDS, Respondent.
Add: 25% surcharge 23,430,843.10

Compromise penalty 15,000.00
DECISION
--------------------------------------------------------------------------------
CORONA, J.:
TOTAL AMOUNT DUE AND COLLECTIBLE P117,169,215.50.5
This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA)
dated May 29, 1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision3
and resolution4 of the Court of Tax Appeals (CTA) dated November 16, 1995 and May 27,
1996, respectively, in CTA Case No. 4715.
Both notices of assessment contained the following note:
In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR)
assessed respondent Bank of the Philippine Islands (BPIs) deficiency percentage and
documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63:
1986 Deficiency Percentage Tax
Please be informed that your [percentage and documentary stamp taxes have] been
assessed as shown above. Said assessment has been based on return (filed by you) (as
verified) (made by this Office) (pending investigation) (after investigation). You are
requested to pay the above amount to this Office or to our Collection Agent in the Office of
the City or Deputy Provincial Treasurer of xxx6
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed,
even in the vaguest terms, why it is being assessed a deficiency. The very purpose of a
deficiency assessment is to inform taxpayer why he has incurred a deficiency so that he can
make an intelligent decision on whether to pay or to protest the assessment. This is all the
more so when the assessment involves astronomical amounts, as in this case.
We therefore request that the examiner concerned be required to state, even in the briefest
form, why he believes the taxpayer has a deficiency documentary and percentage taxes,
and as to the percentage tax, it is important that the taxpayer be informed also as to what
particular percentage tax the assessment refers to.
2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise
forged between your office and the Bankers Association of the Philippines [BAP] on this
issue and of BPIs submission of its computations under this compromise. There is
therefore no basis whatsoever for this assessment, assuming it is on the subject of the BAP
compromise. On the other hand, if it relates to documentary stamp tax on some other issue,
we should like to be informed about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely at a loss on how such
assessment may be protested since your letter does not even tell the taxpayer what
particular percentage tax is involved and how your examiner arrived at the deficiency. As
soon as this is explained and clarified in a proper letter of assessment, we shall inform you
of the taxpayers decision on whether to pay or protest the assessment.7
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:
although in all respects, your letter failed to qualify as a protest under Revenue
Regulations No. 12-85 and therefore not deserving of any rejoinder by this office as no
valid issue was raised against the validity of our assessment still we obliged to explain
the basis of the assessments.
this constitutes the final decision of this office on the matter.8
On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs
May 8, 1991 letter.9 This was denied in a letter dated December 12, 1991, received by BPI
on January 21, 1992.10
On February 18, 1992, BPI filed a petition for review in the CTA.11 In a decision dated
November 16, 1995, the CTA dismissed the case for lack of jurisdiction since the subject
assessments had become final and unappealable. The CTA ruled that BPI failed to protest
on time under Section 270 of the National Internal Revenue Code (NIRC) of 1986 and
Section 7 in relation to Section 11 of RA 1125.12 It denied reconsideration in a resolution
dated May 27, 1996.13
On appeal, the CA reversed the tax courts decision and resolution and remanded the case
to the CTA14 for a decision on the merits.15 It ruled that the October 28, 1988 notices were
not valid assessments because they did not inform the taxpayer of the legal and factual
bases therefor. It declared that the proper assessments were those contained in the May 8,
1991 letter which provided the reasons for the claimed deficiencies.16 Thus, it held that
BPI filed the petition for review in the CTA on time.17 The CIR elevated the case to this
Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for deficiency percentage and documentary
stamp taxes for 1986 had already become final and unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of the NIRC stated:
xxx xxx xxx
Sec. 270. Protesting of assessment. When the [CIR] or his duly authorized
of his findings. Within a period to be prescribed by implementing regulations, the taxpayer
shall be required to respond to said notice. If the taxpayer fails to respond, the [CIR] shall
issue an assessment based on his findings.
xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28, 1988 notices19 were
valid assessments. If they were not, as held by the CA, then the correct assessments were in
the May 8, 1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter,
seasonably asked for a reconsideration of the findings which the CIR denied in his
December 12, 1991 letter, received by BPI on January 21, 1992. Consequently, the petition
for review filed by BPI in the CTA on February 18, 1992 would be well within the 30-day
period provided by law.20
The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid
assessments. He asserts that he used BIR Form No. 17.08 (as revised in November 1964)
which was designed for the precise purpose of notifying taxpayers of the assessed amounts
due and demanding payment thereof.21 He contends that there was no law or jurisprudence
then that required notices to state the reasons for assessing deficiency tax liabilities.22
BPI counters that due process demanded that the facts, data and law upon which the
assessments were based be provided to the taxpayer. It insists that the NIRC, as worded
now (referring to Section 228), specifically provides that:
BPIs contention has no merit. The present Section 228 of the NIRC provides:
Sec. 228. Protesting of Assessment. When the [CIR] or his duly authorized
of his findings: Provided, however, That a preassessment notice shall not be required in the
following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts on which the assessment
is made; otherwise, the assessment shall be void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and facts on which the
assessments of the deficiency taxes were made. He merely notified BPI of his findings,
consisting only of the computation of the tax liabilities and a demand for payment thereof
within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the provisions of the former
Section 270 prior to its amendment by RA 8424 (also known as the Tax Reform Act of
1997).23 In CIR v. Reyes,24 we held that:
"[t]he taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void."
In the present case, Reyes was not informed in writing of the law and the facts on which
the assessment of estate taxes had been made. She was merely notified of the findings by
the CIR, who had simply relied upon the provisions of former Section 229 prior to its
amendment by [RA] 8424, otherwise known as the Tax Reform Act of 1997.
According to BPI, this is declaratory of what sound tax procedure is and a confirmation of
what due process requires even under the former Section 270.
First, RA 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR's findings was
changed in 1998 to informing the taxpayer of not only the law, but also of the facts on
which an assessment would be made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the
estate. On April 22, 1998, the final estate tax assessment notice, as well as demand letter,
was also issued. During those dates, RA 8424 was already in effect. The notice required
under the old law was no longer sufficient under the new law.25 (emphasis supplied; italics
in the original)
Accordingly, when the assessments were made pursuant to the former Section 270, the only
requirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing
in the old law required a written statement to the taxpayer of the law and facts on which the
assessments were based. The Court cannot read into the law what obviously was not
intended by Congress. That would be judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the assessments contain a
computation of tax liabilities, the amount the taxpayer was to pay and a demand for
payment within a prescribed period.26 Everything considered, there was no doubt the
October 28, 1988 notices sufficiently met the requirements of a valid assessment under the
old law and jurisprudence.
The sentence
Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228
was not an affirmation of what the law required under the former Section 270. The
amendment introduced by RA 8424 was an innovation and could not be reasonably inferred
from the old law.29 Clearly, the legislature intended to insert a new provision regarding the
form and substance of assessments issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:
xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform
[BPI] of the legal and factual basis of the formers decision to charge the latter for
deficiency documentary stamp and gross receipts taxes.31
In other words, the CAs theory was that BPI was deprived of due process when the CIR
failed to inform it in writing of the factual and legal bases of the assessments even if
these were not called for under the old law.
We disagree.
Indeed, the underlying reason for the law was the basic constitutional requirement that "no
person shall be deprived of his property without due process of law."32 We note, however,
what the CTA had to say:
[t]he taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void
xxx xxx xxx
was not in the old Section 270 but was only later on inserted in the renumbered Section 228
in 1997. Evidently, the legislature saw the need to modify the former Section 270 by
inserting the aforequoted sentence.27 The fact that the amendment was necessary showed
that, prior to the introduction of the amendment, the statute had an entirely different
meaning.28
From the foregoing testimony, it can be safely adduced that not only was [BPI] given the
opportunity to discuss with the [CIR] when the latter issued the former a Pre-Assessment
Notice (which [BPI] ignored) but that the examiners themselves went to [BPI] and "we talk
to them and we try to [thresh] out the issues, present evidences as to what they need." Now,
how can [BPI] and/or its counsel honestly tell this Court that they did not know anything
about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew beforehand the
assessments[,] contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry
Lazaro, Assistant Manager of the Accounting Department of [BPI]. He testified to the fact
that he prepared worksheets which contain his analysis regarding the findings of the
[CIRs] examiner, Mr. San Pedro and that the same worksheets were presented to Mr.
Carlos Tan, Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of
the nature and basis of the assessments, and was given all the opportunity to contest the
same but ignored it despite the notice conspicuously written on the assessments which
states that "this ASSESSMENT becomes final and unappealable if not protested within 30
days after receipt." Counsel resorted to dilatory tactics and dangerously played with time.
Unfortunately, such strategy proved fatal to the cause of his client.33
The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature of its function is
dedicated exclusively to the consideration of tax problems, has necessarily developed an
expertise on the subject, and its conclusions will not be overturned unless there has been an
abuse or improvident exercise of authority. Such findings can only be disturbed on appeal
if they are not supported by substantial evidence or there is a showing of gross error or
abuse on the part of the [CTA].34
Under the former Section 270, there were two instances when an assessment became final
and unappealable: (1) when it was not protested within 30 days from receipt and (2) when
the adverse decision on the protest was not appealed to the CTA within 30 days from
receipt of the final decision:35
Sec. 270. Protesting of assessment.1a\^/phi1.net
xxx xxx xxx
Such assessment may be protested administratively by filing a request for reconsideration

or reinvestigation in such form and manner as may be prescribed by the implementing
regulations within thirty (30) days from receipt of the assessment; otherwise, the
assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation

adversely affected by the decision on the protest may appeal to the [CTA] within thirty (30)
days from receipt of the said decision; otherwise, the decision shall become final,
executory and demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid assessments, BPI should have
protested the same within 30 days from receipt thereof. The December 10, 1988 reply it
sent to the CIR did not qualify as a protest since the letter itself stated that "[a]s soon as this
is explained and clarified in a proper letter of assessment, we shall inform you of the
taxpayers decision on whether to pay or protest the assessment."36 Hence, by its own
declaration, BPI did not regard this letter as a protest against the assessments. As a matter
of fact, BPI never deemed this a protest since it did not even consider the October 28, 1988
notices as valid or proper assessments.
The inevitable conclusion is that BPIs failure to protest the assessments within the 30-day
period provided in the former Section 270 meant that they became final and unappealable.
Thus, the CTA correctly dismissed BPIs appeal for lack of jurisdiction. BPI was, from then
on, barred from disputing the correctness of the assessments or invoking any defense that
would reopen the question of its liability on the merits.37 Not only that. There arose a
presumption of correctness when BPI failed to protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the
performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner
and approved by his superior officers will not be disturbed. All presumptions are in favor of
the correctness of tax assessments.38
Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be
deemed to have failed to appeal the CIRs final decision regarding the disputed assessments
within the 30-day period provided by law. The CIR, in his May 8, 1991 response, stated
that it was his "final decision on the matter." BPI therefore had 30 days from the time it
received the decision on June 27, 1991 to appeal but it did not. Instead it filed a request for
reconsideration and lodged its appeal in the CTA only on February 18, 1992, way beyond
the reglementary period. BPI must now suffer the repercussions of its omission. We have
already declared that:
the [CIR] should always indicate to the taxpayer in clear and unequivocal language
whenever his action on an assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment, as contemplated by Sections 7 and 11 of [RA
1125], as amended. On the basis of his statement indubitably showing that the
Commissioner's communicated action is his final decision on the contested assessment, the
aggrieved taxpayer would then be able to take recourse to the tax court at the opportune
time. Without needless difficulty, the taxpayer would be able to determine when his right to
appeal to the tax court accrues.
The rule of conduct would also obviate all desire and opportunity on the part of the
taxpayer to continually delay the finality of the assessment and, consequently, the
collection of the amount demanded as taxes by repeated requests for recomputation and
reconsideration. On the part of the [CIR], this would encourage his office to conduct a
careful and thorough study of every questioned assessment and render a correct and
definite decision thereon in the first instance. This would also deter the [CIR] from unfairly
making the taxpayer grope in the dark and speculate as to which action constitutes the
decision appealable to the tax court. Of greater import, this rule of conduct would meet a
pressing need for fair play, regularity, and orderliness in administrative action.39 (emphasis
supplied)
Either way (whether or not a protest was made), we cannot absolve BPI of its liability
under the subject tax assessments.
We realize that these assessments (which have been pending for almost 20 years) involve a
considerable amount of money. Be that as it may, we cannot legally presume the existence
of something which was never there. The state will be deprived of the taxes validly due it
and the public will suffer if taxpayers will not be held liable for the proper taxes assessed
against them:
Taxes are the lifeblood of the government, for without taxes, the government can neither
exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives
its source from the very existence of the state whose social contract with its citizens obliges
it to promote public interest and common good. The theory behind the exercise of the
power to tax emanates from necessity; without taxes, government cannot fulfill its mandate
of promoting the general welfare and well-being of the people.40
WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court
of Appeals in CA-G.R. SP No. 41025 is REVERSED and SET ASIDE.
SO ORDERED.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-49529 March 31, 1989
VALLEY TRADING CO., INC., petitioner,

vs.
COURT OF FIRST INSTANCE OF ISABELA, BRANCH II; DR. CARLOS UY (in his
capacity as Mayor of Cauayan, Isabela); MOISES BALMACEDA (in his capacity as
Municipal Treasurer of Cauayan, Isabela); and SANGGUNIANG BAYAN of Cauayan,
Isabela, respondents.
Jesus M. Aguas for petitioner.
The records show that petitioner Valley Trading Co., Inc. filed a complaint in the court a
quo seeking a declaration of the supposed nullity of Section 2B.02, Sub-paragraph 1, Letter
(A), Paragraph 2 of Ordinance No. T-1, Revenue Code of Cauayan, Isabela, which imposed
a graduated tax on retailers, independent wholesalers and distributors; and for the refund of
P23,202.12, plus interest of 14 % per annum thereon, which petitioner had paid pursuant to
said ordinance. Petitioner likewise prayed for the issuance of a writ of preliminary
prohibitory injunction to enjoin the collection of said tax. 3 Defendants in said case were
Dr. Carlos A. Uy and Moises Balmaceda, who were sued in their capacity as Mayor and
Municipal Treasurer of Cauayan, Isabela, respectively, together with the Sangguniang
Bayan of the same town.
Petitioner takes the position that said ordinance imposes a "graduated fixed tax based on
Sales" that "in effect imposes a sales tax in contravention of Sec. 5, Charter I, par. (L) of
P.D. 231 amended by P.D. 426 otherwise known as the Local Tax Code " 4 which prohibits
a municipality from imposing a percentage tax on sales.
Respondents, on the other hand, claim in their answer that the tax is an annual fixed
business tax, not a percentage tax on sales, imposable by a municipality under Section
19(A-1) of the Local Tax Code. They cited the ruling of the Acting Secretary of Finance, in
his letter of April 14, 1977, upholding the validity of said tax on the ground that the same is
an annual graduated fixed tax imposed on the privilege to engage in business, and not a
percentage tax on sales which consists of a fixed percentage of the proceeds realized out of
every sale transaction of taxable items sold by the taxpayer. 5
The Solicitor General for respondents.
REGALADO, J.:
Challenged in this petition for certiorari are the orders of the then Court of First Instance of
Isabela, 1 dated October 13, 1978 and November 17, 1978, denying petitioner's prayer for a
writ of preliminary injunction in Special Civil Action Br. II-61. 2
After a reply to the answer had been filed, the trial court set the case for a pre-trial
conference. 6 However, on October 13, 1978, the court issued an order terminating the pretrial and reset the hearing on the merits for failure of the parties to arrive at an amicable
settlement. In the same order, the trial court also denied the prayer for a writ of preliminary
injunction on the ground that "the collection of taxes cannot be enjoined". 7
Petitioner moved for the reconsideration of the order, contending that a hearing is
mandatory before action may be taken on the motion for the issuance of a writ of
preliminary injunction, 8 but the court below denied said motion and reiterated its previous
order. 9
At the center of this controversy is the submission of the petitioner that a hearing on the
merits is necessary before a motion for a writ of preliminary injunction may be denied.
Petitioner supports its contention by invoking Section 7, Rule 58 of the Rules of Court
which provides that "(a)fter hearing on the merits the court may grant or refuse, continue,
modify or dissolve the injunction as justice may require." Petitioner maintains that Section
6 of Rule 58 relied upon by respondents refers to the objections that might be interposed to
the issuance of the writ or the justification for the dissolution of an injunction previously
issued ex parte, but that nowhere is it mentioned that a hearing is not necessary.
The weakness of petitioner's position is easily discernible. While it correctly pointed out
that Section 6 of Rule 58 provides for the grounds for objection to an injunction, petitioner
ignores the circumstances under which these objections may be appreciated by the trial
court. Thus, if the ground is the insufficiency of the complaint, the same is apparent from
the complaint itself and preliminary injunction may be refused outright, with or without
notice to the adverse party. In fact, under said section, the court may also refuse an
injunction on other grounds on the basis of affidavits which may have been submitted by
the parties in connection with such application. In the foregoing instances, a hearing is not
necessary.
The reliance of the petitioner on Section 7 of Rule 58 is misplaced. This section merely
specifies the actions that the court may take on the application for the writ if there is a
hearing on the merits; it does not declare that such hearing is mandatory or a prerequisite
therefor. Otherwise, we may have a situation where courts will be forced to conduct a
hearing even if from a consideration of the pleadings alone it can readily be ascertained
that the movant is not entitled to the writ. In fine, it will thereby entail a useless exercise
and unnecessary waste of judicial time.
It would be different, of course, it there is a prima facie showing on the face of the motion
and/or pleadings that the grant of preliminary injunction may be proper, in which case
notice to the opposing party would be necessary since the grant of such writ on an ex parte
proceeding is now proscribed. 10 A hearing should be conducted since, under such
circumstances, only in case of extreme urgency will the writ issue prior to a final
hearing.11 Such requirement for prior notice and hearing underscores the necessity that a
writ of preliminary injunction is to be dispensed with circumspection both sides should be
heard whenever possible. 12 It does not follow, however, that such a hearing is
indispensable where right at the outset the court is reasonably convinced that the writ will
not lie. What was then discouraged, and is now specifically prohibited, is the issuance of
the writ without notice and hearing.
An opinion has been expressed that injunction is available as an ancillary remedy in actions
to determine the construction or validity of a local tax ordinance. 13 Unlike the National
Internal Revenue Code, the Local Tax Code does not contain any specific provision
prohibiting courts from enjoining the collection of local taxes. Such Statutory lapse or
intent, however it may be viewed, may have allowed preliminary injunction where local
taxes are involved but cannot negate the procedural rules and requirements under Rule 58.
The issuance of a writ of preliminary injunction in the present case, as in any other case, is
addressed to the sound discretion of the court, conditioned on the existence of a clear and
positive right of the movant which should be protected. It is an extraordinary peremptory
remedy available only on the grounds expressly provided by law, specifically Section 3 of
Rule 58 of the Rules of Court.
The circumstances required for the writ to issue do not obtain in the case at bar. The
damage that may be caused to the petitioner will not, of course, be irrepairable; where so
indicated by subsequent events favorable to it, whatever it shall have paid is easily
refundable. Besides, the damage to its property rights must perforce take a back seat to the
paramount need of the State for funds to sustain governmental functions. Compared to the
damage to the State which may be caused by reduced financial resources, the damage to
petitioner is negligible. The policy of the law is to discountenance any delay in the
collection of taxes because of the oft-repeated but unassailable consideration that taxes are
the lifeblood of the Government and their prompt and certain availability is an imperious
need.
Equally pertinent is the rule that courts should avoid issuing a writ of preliminary
injunction which, in effect, would dispose of the main case without trial. 14 In the present
case, it is evident that the only ground relied upon for injunction relief is the alleged patent
nullity of the ordinance. 15 If the court should issue the desired writ, premised on that sole
justification therefor of petitioner, it would be a virtual acceptance of his claim that the
imposition is patently invalid or, at the very least, that the ordinance is of doubtful validity.
There would, in effect, be a prejudgment of the main case and a reversal of the rule on the
burden of proof since it would assume the proposition which the petitioner is inceptively
duty bound to prove.
Furthermore, such action will run counter to the well settled rule that laws are presumed to
be valid unless and until the courts declare the contrary in clear and unequivocal terms. A
court should issue a writ of preliminary injunction only when the petitioner assailing a
statute has made out a case of unconstitutionality or invalidity strong enough to overcome,
in the mind of the judge, the presumption of validity, aside from a showing of a clear legal
right to the remedy sought. 16 The case before Us, however, presents no features sufficient
to overcome such presumption. This must have been evident to the trial court from the
answer of the respondents and the well reasoned ruling of the Acting Secretary of Finance.
There mere fact that a statute is alleged to be unconstitutional or invalid will not entitle a
party to have its enforcement enjoined. 17 Under the foregoing disquisitions, We see no
plausible reason to consider this case as an exception.
WHEREFORE, judgment is hereby rendered DISMISSING this petition and

SUSTAINING the validity of the questioned orders of the trial court.
SO ORDERED
SUPREME COURT
Manila
14, 1922, proceedings for the probate of his will and the settlement and distribution of his
estate were begun in the Court of First Instance of Zamboanga. The will was admitted to
probate. Said will provides, among other things, as follows:
EN BANC
4. I direct that any money left by me be given to my nephew Matthew Hanley.
G.R. No. L-43082
June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiffappellant,

vs.
5. I direct that all real estate owned by me at the time of my death be not sold or otherwise
disposed of for a period of ten (10) years after my death, and that the same be handled and
managed by the executors, and proceeds thereof to be given to my nephew, Matthew
Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be
directed that the same be used only for the education of my brother's children and their
descendants.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

6. I direct that ten (10) years after my death my property be given to the above mentioned
Matthew Hanley to be disposed of in the way he thinks most advantageous.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
Office of the Solicitor-General Hilado for defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of
Thomas Hanley, deceased, brought this action in the Court of First Instance of Zamboanga
against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the
refund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of
the deceased, and for the collection of interst thereon at the rate of 6 per cent per annum,
computed from September 15, 1932, the date when the aforesaid tax was [paid under
protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the
tax in question and which was not included in the original assessment. From the decision of
the Court of First Instance of Zamboanga dismissing both the plaintiff's complaint and the
defendant's counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga,
leaving a will (Exhibit 5) and considerable amount of real and personal properties. On june
xxx
xxx
xxx
8. I state at this time I have one brother living, named Malachi Hanley, and that my
nephew, Matthew Hanley, is a son of my said brother, Malachi Hanley.
The Court of First Instance of Zamboanga considered it proper for the best interests of ther
estate to appoint a trustee to administer the real properties which, under the will, were to
pass to Matthew Hanley ten years after the two executors named in the will, was, on March
8, 1924, appointed trustee. Moore took his oath of office and gave bond on March 10,
1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein
was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal
Revenue, alleging that the estate left by the deceased at the time of his death consisted of
realty valued at P27,920 and personalty valued at P1,465, and allowing a deduction of
P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24 which,
together with the penalties for deliquency in payment consisting of a 1 per cent monthly
interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax,
amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in the
testamentary proceedings pending before the Court of First Instance of Zamboanga
(Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to
the Government the said sum of P2,052.74. The motion was granted. On September 15,
1932, the plaintiff paid said amount under protest, notifying the defendant at the same time
that unless the amount was promptly refunded suit would be brought for its recovery. The
defendant overruled the plaintiff's protest and refused to refund the said amount hausted,
plaintiff went to court with the result herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted
heir, Matthew Hanley, from the moment of the death of the former, and that from the time,
the latter became the owner thereof.
II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on
the estate of said deceased.
III. In holding that the inheritance tax in question be based upon the value of the estate
upon the death of the testator, and not, as it should have been held, upon the value thereof
at the expiration of the period of ten years after which, according to the testator's will, the
property could be and was to be delivered to the instituted heir.
IV. In not allowing as lawful deductions, in the determination of the net amount of the
estate subject to said tax, the amounts allowed by the court as compensation to the
"trustees" and paid to them from the decedent's estate.
V. In not rendering judgment in favor of the plaintiff and in denying his motion for new
trial.
The defendant-appellant contradicts the theories of the plaintiff and assigns the following
error besides:
The lower court erred in not ordering the plaintiff to pay to the defendant the sum of
P1,191.27, representing part of the interest at the rate of 1 per cent per month from April
10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax
assessed by the defendant against the estate of Thomas Hanley.
The following are the principal questions to be decided by this court in this appeal: (a)
When does the inheritance tax accrue and when must it be satisfied? (b) Should the
inheritance tax be computed on the basis of the value of the estate at the time of the
testator's death, or on its value ten years later? (c) In determining the net value of the estate
subject to tax, is it proper to deduct the compensation due to trustees? (d) What law
governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer
be given retroactive effect? (e) Has there been deliquency in the payment of the inheritance
tax? If so, should the additional interest claimed by the defendant in his appeal be paid by
the estate? Other points of incidental importance, raised by the parties in their briefs, will
be touched upon in the course of this opinion.
(a) The accrual of the inheritance tax is distinct from the obligation to pay the same.
Section 1536 as amended, of the Administrative Code, imposes the tax upon "every
transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in
anticipation of inheritance,devise, or bequest." The tax therefore is upon transmission or
the transfer or devolution of property of a decedent, made effective by his death. (61 C. J.,
p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed to,
receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to
become operative at or after death. Acording to article 657 of the Civil Code, "the rights to
the succession of a person are transmitted from the moment of his death." "In other words",
said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the
deceased ancestor. The property belongs to the heirs at the moment of the death of the
ancestor as completely as if the ancestor had executed and delivered to them a deed for the
same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3
Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391;
Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs.
Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38
Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs. Fule, 46
Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun,
53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is
applicable to testate as well as intestate succession, it operates only in so far as forced heirs
are concerned. But the language of article 657 of the Civil Code is broad and makes no
distinction between different classes of heirs. That article does not speak of forced heirs; it
does not even use the word "heir". It speaks of the rights of succession and the transmission
thereof from the moment of death. The provision of section 625 of the Code of Civil
Procedure regarding the authentication and probate of a will as a necessary condition to
effect transmission of property does not affect the general rule laid down in article 657 of
the Civil Code. The authentication of a will implies its due execution but once probated and
allowed the transmission is effective as of the death of the testator in accordance with
article 657 of the Civil Code. Whatever may be the time when actual transmission of the
inheritance takes place, succession takes place in any event at the moment of the decedent's
death. The time when the heirs legally succeed to the inheritance may differ from the time
when the heirs actually receive such inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que desde el falleimiento del causante, hasta
que el heredero o legatario entre en posesion de los bienes de la herencia o del legado,
transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la
muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del
presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having
died on May 27, 1922, the inheritance tax accrued as of the date.
In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater
than that paid by the first, the former must pay the difference.
From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that
the obligation to pay the tax arose as of the date. The time for the payment on inheritance
tax is clearly fixed by section 1544 of the Revised Administrative Code as amended by Act
No. 3031, in relation to section 1543 of the same Code. The two sections follow:
If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve
per centum per annum shall be added as part of the tax; and to the tax and interest due and
unpaid within ten days after the date of notice and demand thereof by the collector, there
shall be further added a surcharge of twenty-five per centum.
SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall
not be taxed:
A certified of all letters testamentary or of admisitration shall be furnished the Collector of

Internal Revenue by the Clerk of Court within thirty days after their issuance.
(a) The merger of the usufruct in the owner of the naked title.
It should be observed in passing that the word "trustee", appearing in subsection (b) of
section 1543, should read "fideicommissary" or "cestui que trust". There was an obvious
mistake in translation from the Spanish to the English version.
(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
to the trustees.
(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the desire of the predecessor.
SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:
(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.
(b) In other cases, within the six months subsequent to the death of the predecessor; but if
judicial testamentary or intestate proceedings shall be instituted prior to the expiration of
said period, the payment shall be made by the executor or administrator before delivering
to each beneficiary his share.
The instant case does fall under subsection (a), but under subsection (b), of section 1544
above-quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the
subsection, the tax should have been paid before the delivery of the properties in question
to P. J. M. Moore as trustee on March 10, 1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties
are concerned, did not and could not legally pass to the instituted heir, Matthew Hanley,
until after the expiration of ten years from the death of the testator on May 27, 1922 and,
that the inheritance tax should be based on the value of the estate in 1932, or ten years after
the testator's death. The plaintiff introduced evidence tending to show that in 1932 the real
properties in question had a reasonable value of only P5,787. This amount added to the
value of the personal property left by the deceased, which the plaintiff admits is P1,465,
would generate an inheritance tax which, excluding deductions, interest and surcharge,
would amount only to about P169.52.
If death is the generating source from which the power of the estate to impose inheritance
taxes takes its being and if, upon the death of the decedent, succession takes place and the
right of the estate to tax vests instantly, the tax should be measured by the vlaue of the
estate as it stood at the time of the decedent's death, regardless of any subsequent
contingency value of any subsequent increase or decrease in value. (61 C. J., pp. 1692,
1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also
Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of
the state to an inheritance tax accrues at the moment of death, and hence is ordinarily
measured as to any beneficiary by the value at that time of such property as passes to him.
Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure
(vol. 37, pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed
until the estate vests in possession or the contingency is settled. This rule was formerly
followed in New York and has been adopted in Illinois, Minnesota, Massachusetts, Ohio,
Pennsylvania and Wisconsin. This rule, horever, is by no means entirely satisfactory either
to the estate or to those interested in the property (26 R. C. L., p. 231.). Realizing, perhaps,
the defects of its anterior system, we find upon examination of cases and authorities that
New York has varied and now requires the immediate appraisal of the postponed estate at
its clear market value and the payment forthwith of the tax on its out of the corpus of the
estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App.
Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of
Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp.,
1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23
Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that a transmission by
inheritance is taxable at the time of the predecessor's death, notwithstanding the
postponement of the actual possession or enjoyment of the estate by the beneficiary, and
the tax measured by the value of the property transmitted at that time regardless of its
appreciation or depreciation.
(c) Certain items are required by law to be deducted from the appraised gross in arriving at
the net value of the estate on which the inheritance tax is to be computed (sec. 1539,
Revised Administrative Code). In the case at bar, the defendant and the trial court allowed a
deduction of only P480.81. This sum represents the expenses and disbursements of the
executors until March 10, 1924, among which were their fees and the proven debts of the
deceased. The plaintiff contends that the compensation and fees of the trustees, which
aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be
deducted under section 1539 of the Revised Administrative Code which provides, in part,
as follows: "In order to determine the net sum which must bear the tax, when an inheritance
is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the
testamentary or intestate proceedings, . . . ."
A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs.
Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the
compensation due him may lawfully be deducted in arriving at the net value of the estate
subject to tax. There is no statute in the Philippines which requires trustees' commissions to
be deducted in determining the net value of the estate subject to inheritance tax (61 C. J., p.
1705). Furthermore, though a testamentary trust has been created, it does not appear that
the testator intended that the duties of his executors and trustees should be separated. (Ibid.;
In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's Estate, 161
N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator expressed the
desire that his real estate be handled and managed by his executors until the expiration of
the period of ten years therein provided. Judicial expenses are expenses of administration
(61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878; 101
Minn., 485), it was said: ". . . The compensation of a trustee, earned, not in the
administration of the estate, but in the management thereof for the benefit of the legatees or
devises, does not come properly within the class or reason for exempting administration
expenses. . . . Service rendered in that behalf have no reference to closing the estate for the
purpose of a distribution thereof to those entitled to it, and are not required or essential to
the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that
here before the court, are created for the the benefit of those to whom the property
ultimately passes, are of voluntary creation, and intended for the preservation of the estate.
No sound reason is given to support the contention that such expenses should be taken into
consideration in fixing the value of the estate for the purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas
Hanley under the provisions of section 1544 of the Revised Administrative Code, as
amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1,
1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The
law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which
took effect on March 9, 1922.
It is well-settled that inheritance taxation is governed by the statute in force at the time of
the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The
taxpayer can not foresee and ought not to be required to guess the outcome of pending
measures. Of course, a tax statute may be made retroactive in its operation. Liability for
taxes under retroactive legislation has been "one of the incidents of social life." (Seattle vs.
Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a
tax statute should operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup.
Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs.
Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be
considered as prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly demands or expresses that it shall
have a retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of
Regulations No. 65 of the Department of Finance makes section 3 of Act No. 3606,
amending section 1544 of the Revised Administrative Code, applicable to all estates the
inheritance taxes due from which have not been paid, Act No. 3606 itself contains no
provisions indicating legislative intent to give it retroactive effect. No such effect can
begiven the statute by this court.
The defendant Collector of Internal Revenue maintains, however, that certain provisions of
Act No. 3606 are more favorable to the taxpayer than those of Act No. 3031, that said
provisions are penal in nature and, therefore, should operate retroactively in conformity
with the provisions of article 22 of the Revised Penal Code. This is the reason why he
applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the
surcharge of 25 per cent is based on the tax only, instead of on both the tax and the interest,
as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice
and demand by rthe Collector of Internal Revenue within which to pay the tax, instead of
ten days only as required by the old law.
Properly speaking, a statute is penal when it imposes punishment for an offense committed
against the state which, under the Constitution, the Executive has the power to pardon. In
common use, however, this sense has been enlarged to include within the term "penal
statutes" all status which command or prohibit certain acts, and establish penalties for their
violation, and even those which, without expressly prohibiting certain acts, impose a
penalty upon their commission (59 C. J., p. 1110). Revenue laws, generally, which impose
taxes collected by the means ordinarily resorted to for the collection of taxes are not
classed as penal laws, although there are authorities to the contrary. (See Sutherland,
Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55;
Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150;
State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not
applicable to the case at bar, and in the absence of clear legislative intent, we cannot give
Act No. 3606 a retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and
the tax may be paid within another given time. As stated by this court, "the mere failure to
pay one's tax does not render one delinqent until and unless the entire period has eplased
within which the taxpayer is authorized by law to make such payment without being
subjected to the payment of penalties for fasilure to pay his taxes within the prescribed
period." (U. S. vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to pay the inheritance tax
before the delivery of the decedent's property to the trustee. Stated otherwise, the defendant
contends that delivery to the trustee was delivery to the cestui que trust, the beneficiery in
this case, within the meaning of the first paragraph of subsection (b) of section 1544 of the
Revised Administrative Code. This contention is well taken and is sustained. The
appointment of P. J. M. Moore as trustee was made by the trial court in conformity with the
wishes of the testator as expressed in his will. It is true that the word "trust" is not
mentioned or used in the will but the intention to create one is clear. No particular or
technical words are required to create a testamentary trust (69 C. J., p. 711). The words
"trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these
two words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To
create a trust by will the testator must indicate in the will his intention so to do by using
language sufficient to separate the legal from the equitable estate, and with sufficient
certainty designate the beneficiaries, their interest in the ttrust, the purpose or object of the
trust, and the property or subject matter thereof. Stated otherwise, to constitute a valid
testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words
to raise a trust; (2) a definite subject; (3) a certain or ascertain object; statutes in some
jurisdictions expressly or in effect so providing." (69 C. J., pp. 705,706.) There is no doubt
that the testator intended to create a trust. He ordered in his will that certain of his
properties be kept together undisposed during a fixed period, for a stated purpose. The
probate court certainly exercised sound judgment in appointment a trustee to carry into
effect the provisions of the will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him
(sec. 582 in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of
the deceased was placed in trust did not remove it from the operation of our inheritance tax
laws or exempt it from the payment of the inheritance tax. The corresponding inheritance
tax should have been paid on or before March 10, 1924, to escape the penalties of the laws.
This is so for the reason already stated that the delivery of the estate to the trustee was in
esse delivery of the same estate to the cestui que trust, the beneficiary in this case. A trustee
is but an instrument or agent for the cestui que trust (Shelton vs. King, 299 U. S., 90; 33
Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took possesson
of the trust estate he thereby admitted that the estate belonged not to him but to his cestui
que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not
acquire any beneficial interest in the estate. He took such legal estate only as the proper
execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the fulfillment
of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p.
542).
The highest considerations of public policy also justify the conclusion we have reached.
Were we to hold that the payment of the tax could be postponed or delayed by the creation
of a trust of the type at hand, the result would be plainly disastrous. Testators may provide,
as Thomas Hanley has provided, that their estates be not delivered to their beneficiaries
until after the lapse of a certain period of time. In the case at bar, the period is ten years. In
other cases, the trust may last for fifty years, or for a longer period which does not offend
the rule against petuities. The collection of the tax would then be left to the will of a private
individual. The mere suggestion of this result is a sufficient warning against the accpetance
of the essential to the very exeistence of government. (Dobbins vs. Erie Country, 16 Pet.,
435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane
County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs.
Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs.
Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon
the privileges enjoyed by, or the protection afforded to, a citizen by the government but
upon the necessity of money for the support of the state (Dobbins vs. Erie Country, supra).
For this reason, no one is allowed to object to or resist the payment of taxes solely because
no personal benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct.
Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the
government's power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226;
50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a construction as to
permit evasions on merely fanciful and insubstantial distictions. (U. S. vs. Watts, 1 Bond.,
580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690,
followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros.,
Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong &
Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs.
Trinidad, 43 Phil., 803.) When proper, a tax statute should be construed to avoid the
possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to
the taxpayer, becomes fair to the government.
That taxes must be collected promptly is a policy deeply intrenched in our tax system.
Thus, no court is allowed to grant injunction to restrain the collection of any internal
revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252).
In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this court had occassion to
demonstrate trenchment adherence to this policy of the law. It held that "the fact that on
account of riots directed against the Chinese on October 18, 19, and 20, 1924, they were
prevented from praying their internal revenue taxes on time and by mutual agreement
closed their homes and stores and remained therein, does not authorize the Collector of
Internal Revenue to extend the time prescribed for the payment of the taxes or to accept
them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that
the modes adopted to enforce the taxes levied should be interfered with as little as possible.
Any delay in the proceedings of the officers, upon whom the duty is developed of
collecting the taxes, may derange the operations of government, and thereby, cause serious
detriment to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill
and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been delinquent in the payment of
inheritance tax and, therefore, liable for the payment of interest and surcharge provided by
law in such cases.
The delinquency in payment occurred on March 10, 1924, the date when Moore became
trustee. The interest due should be computed from that date and it is error on the part of the
defendant to compute it one month later. The provisions cases is mandatory (see and cf.
Lim Co Chui vs. Posadas, supra), and neither the Collector of Internal Revenuen or this
court may remit or decrease such interest, no matter how heavily it may burden the
taxpayer.
To the tax and interest due and unpaid within ten days after the date of notice and demand
thereof by the Collector of Internal Revenue, a surcharge of twenty-five per centum should
be added (sec. 1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made
by the Deputy Collector of Internal Revenue upon Moore in a communiction dated October
16, 1931 (Exhibit 29). The date fixed for the payment of the tax and interest was November
30, 1931. November 30 being an official holiday, the tenth day fell on December 1, 1931.
As the tax and interest due were not paid on that date, the estate became liable for the
payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned
by the plaintiff in his brief.
We shall now compute the tax, together with the interest and surcharge due from the estate
of Thomas Hanley inaccordance with the conclusions we have reached.
At the time of his death, the deceased left real properties valued at P27,920 and personal
properties worth P1,465, or a total of P29,385. Deducting from this amount the sum of
SUPREME COURT
The uncontradicted factual antecedents are summarized in the instant petition as follows:
Manila
THIRD DIVISION
G.R. No. 120082 September 11, 1996
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of
Republic Act No. 6958, mandated to "principally undertake the economical, efficient and
effective control, management and supervision of the Mactan International Airport in the
Province of Cebu and the Lahug Airport in Cebu City, . . . and such other Airports as may
be established in the Province of Cebu . . . (Sec. 3, RA 6958). It is also mandated to:
a) encourage, promote and develop international and domestic air traffic in the Central
Visayas and Mindanao regions as a means of making the regions centers of international
trade and tourism, and accelerating the development of the means of transportation and
communication in the country; and
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional
Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON.
TOMAS R. OSMEA, and EUSTAQUIO B. CESA, respondents.
b) upgrade the services and facilities of the airports and to formulate internationally
acceptable standards of airport accommodation and service.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its Charter.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on a pure question of law are the decision
of 22 March 1995 1 of the Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing
the petition for declaratory relief in Civil Case No. CEB-16900 entitled "Mactan Cebu
International Airport Authority vs. City of Cebu", and its order of 4, May 1995 2 denying
the motion to reconsider the decision.
We resolved to give due course to this petition for its raises issues dwelling on the scope of
the taxing power of local government-owned and controlled corporations.
Sec. 14. Tax Exemptions. The authority shall be exempt from realty taxes imposed by
the National Government or any of its political subdivisions, agencies and instrumentalities
...
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the
Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of
land belonging to the petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474,
109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio
Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified, claiming in its
favor the aforecited Section 14 of RA 6958 which exempt it from payment of realty taxes.
It was also asserted that it is an instrumentality of the government performing
governmental functions, citing section 133 of the Local Government Code of 1991 which
puts limitations on the taxing powers of local government units:
(a) . . .
xxx xxx xxx

Sec. 133. Common Limitations on the Taxing Powers of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangay shall not extend to the levy of the following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units. (Emphasis supplied)
Respondent City refused to cancel and set aside petitioner's realty tax account, insisting
that the MCIAA is a government-controlled corporation whose tax exemption privilege has
been withdrawn by virtue of Sections 193 and 234 of the Local Governmental Code that
took effect on January 1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons whether
natural or juridical, including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under RA No. 6938, non-stock, and non-profit
Code. (Emphasis supplied)
xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes. . . .
(c) . . .
Except as provided herein, any exemption from payment of real property tax previously
granted to, or presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations are hereby withdrawn upon the effectivity of
this Code.
As the City of Cebu was about to issue a warrant of levy against the properties of
petitioner, the latter was compelled to pay its tax account "under protest" and thereafter
filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu, Branch 20, on
December 29, 1994. MCIAA basically contended that the taxing powers of local
government units do not extend to the levy of taxes or fees of any kind on an
instrumentality of the national government. Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless stands on the same footing as an agency or
instrumentality of the national government. Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless stands on the same footing as an agency or
instrumentality of the national government by the very nature of its powers and functions.
Respondent City, however, asserted that MACIAA is not an instrumentality of the

government but merely a government-owned corporation performing proprietary functions
As such, all exemptions previously granted to it were deemed withdrawn by operation of
law, as provided under Sections 193 and 234 of the Local Government Code when it took
effect on January 1, 1992. 3
The petition for declaratory relief was docketed as Civil Case No. CEB-16900.
In its decision of 22 March 1995, 4 the trial court dismissed the petition in light of its
findings, to wit:
A close reading of the New Local Government Code of 1991 or RA 7160 provides the
express cancellation and withdrawal of exemption of taxes by government owned and
controlled corporation per Sections after the effectivity of said Code on January 1, 1992, to
wit: [proceeds to quote Sections 193 and 234]
Petitioners claimed that its real properties assessed by respondent City Government of
Cebu are exempted from paying realty taxes in view of the exemption granted under RA
6958 to pay the same (citing Section 14 of RA 6958).
However, RA 7160 expressly provides that "All general and special laws, acts, city
charters, decress [sic], executive orders, proclamations and administrative regulations, or
part or parts thereof which are inconsistent with any of the provisions of this Code are
hereby repealed or modified accordingly." ([f], Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption
provided for in RA 6958 creating petitioner had been expressly repealed by the provisions
of the New Local Government Code of 1991.
So that petitioner in this case has to pay the assessed realty tax of its properties effective
after January 1, 1992 until the present.
This Court's ruling finds expression to give impetus and meaning to the overall objectives
of the New Local Government Code of 1991, RA 7160. "It is hereby declared the policy of
the State that the territorial and political subdivisions of the State shall enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as self-reliant
communities and make them more effective partners in the attainment of national goals.
Towards this end, the State shall provide for a more responsive and accountable local
government structure instituted through a system of decentralization whereby local
government units shall be given more powers, authority, responsibilities, and resources.
The process of decentralization shall proceed from the national government to the local
government units. . . . 5
Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order,
the petitioner filed the instant petition based on the following assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS

VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN
THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO

PAY REAL PROPERTY TAXES TO THE CITY OF CEBU.
Anent the first assigned error, the petitioner asserts that although it is a government-owned
or controlled corporation it is mandated to perform functions in the same category as an
instrumentality of Government. An instrumentality of Government is one created to
perform governmental functions primarily to promote certain aspects of the economic life
of the people. 6 Considering its task "not merely to efficiently operate and manage the
Mactan-Cebu International Airport, but more importantly, to carry out the Government
policies of promoting and developing the Central Visayas and Mindanao regions as centers
of international trade and tourism, and accelerating the development of the means of
transportation and communication in the country," 7 and that it is an attached agency of the
Department of Transportation and Communication (DOTC), 8 the petitioner "may stand in
[sic] the same footing as an agency or instrumentality of the national government." Hence,
its tax exemption privilege under Section 14 of its Charter "cannot be considered
withdrawn with the passage of the Local Government Code of 1991 (hereinafter LGC)
because Section 133 thereof specifically states that the taxing powers of local government
units shall not extend to the levy of taxes of fees or charges of any kind on the national
government its agencies and instrumentalities."
As to the second assigned error, the petitioner contends that being an instrumentality of the
National Government, respondent City of Cebu has no power nor authority to impose realty
taxes upon it in accordance with the aforesaid Section 133 of the LGC, as explained in
Basco vs. Philippine Amusement and Gaming Corporation; 9
Local governments have no power to tax instrumentalities of the National Government.

PAGCOR is a government owned or controlled corporation with an original character, PD
1869. All its shares of stock are owned by the National Government. . . .
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter joke is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded
or subjected to control by a mere Local government.
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. (McCulloch v. Maryland, 4 Wheat
316, 4 L Ed. 579).
This doctrine emanates from the "supremacy" of the National Government over local
government.
Justice Holmes, speaking for the Supreme Court, make references to the entire absence of
power on the part of the States to touch, in that way (taxation) at least, the instrumentalities
of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a way as to prevent it
from consummating its federal responsibilities, or even to seriously burden it in the
accomplishment of them. (Antieau Modern Constitutional Law, Vol. 2, p. 140)
Otherwise mere creature of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the
power to tax as "a toll for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax
which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland,
supra) cannot be allowed to defeat an instrumentality or creation of the very entity which
has the inherent power to wield it. (Emphasis supplied)
It then concludes that the respondent Judge "cannot therefore correctly say that the
questioned provisions of the Code do not contain any distinction between a governmental
function as against one performing merely proprietary ones such that the exemption
privilege withdrawn under the said Code would apply to all government corporations." For
it is clear from Section 133, in relation to Section 234, of the LGC that the legislature
meant to exclude instrumentalities of the national government from the taxing power of the
local government units.
In its comment respondent City of Cebu alleges that as local a government unit and a
political subdivision, it has the power to impose, levy, assess, and collect taxes within its
jurisdiction. Such power is guaranteed by the Constitution 10 and enhanced further by the
LGC. While it may be true that under its Charter the petitioner was exempt from the
payment of realty taxes, 11 this exemption was withdrawn by Section 234 of the LGC. In
response to the petitioner's claim that such exemption was not repealed because being an
instrumentality of the National Government, Section 133 of the LGC prohibits local
government units from imposing taxes, fees, or charges of any kind on it, respondent City
of Cebu points out that the petitioner is likewise a government-owned corporation, and
Section 234 thereof does not distinguish between government-owned corporation, and
Section 234 thereof does not distinguish between government-owned corporation, and
Section 234 thereof does not distinguish between government-owned or controlled
corporations performing governmental and purely proprietary functions. Respondent city of
Cebu urges this the Manila International Airport Authority is a governmental-owned
corporation, 12 and to reject the application of Basco because it was "promulgated . . .
before the enactment and the singing into law of R.A. No. 7160," and was not, therefore,
decided "in the light of the spirit and intention of the framers of the said law.
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its
range, acknowledging in its very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the constituency
who are to pay it. Nevertheless, effective limitations thereon may be imposed by the people
through their Constitutions. 13 Our Constitution, for instance, provides that the rule of
taxation shall be uniform and equitable and Congress shall evolve a progressive system of
taxation. 14 So potent indeed is the power that it was once opined that "the power to tax
involves the power to destroy." 15 Verily, taxation is a destructive power which interferes
with the personal and property for the support of the government. Accordingly, tax statutes
must be construed strictly against the government and liberally in favor of the taxpayer. 16
But since taxes are what we pay for civilized society, 17 or are the lifeblood of the nation,
the law frowns against exemptions from taxation and statutes granting tax exemptions are
thus construed strictissimi juris against the taxpayers and liberally in favor of the taxing
authority. 18 A claim of exemption from tax payment must be clearly shown and based on
language in the law too plain to be mistaken. 19 Elsewise stated, taxation is the rule,
exemption therefrom is the exception. 20 However, if the grantee of the exemption is a

political subdivision or instrumentality, the rigid rule of construction does not apply
because the practical effect of the exemption is merely to reduce the amount of money that
has to be handled by the government in the course of its operations. 21
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may
be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of the
Constitution. 22 Under the latter, the exercise of the power may be subject to such
guidelines and limitations as the Congress may provide which, however, must be consistent
with the basic policy of local autonomy.
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts, legacies and other acquisitions mortis causa, except
as otherwise provided herein
(d) Customs duties, registration fees of vessels and wharfage on wharves, tonnage dues,
and all other kinds of customs fees charges and dues except wharfage on wharves
constructed and maintained by the local government unit concerned:
There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt
from the payment of realty taxes imposed by the National Government or any of its
political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the
rule and exemption therefrom the exception, the exemption may thus be withdrawn at the
pleasure of the taxing authority. The only exception to this rule is where the exemption was
granted to private parties based on material consideration of a mutual nature, which then
becomes contractual and is thus covered by the non-impairment clause of the Constitution.
23
(e) Taxes, fees and charges and other imposition upon goods carried into or out of, or
passing through, the territorial jurisdictions of local government units in the guise or
charges for wharfages, tolls for bridges or otherwise, or other taxes, fees or charges in any
form whatsoever upon such goods or merchandise;
The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the
exercise by local government units of their power to tax, the scope thereof or its
limitations, and the exemption from taxation.
(g) Taxes on business enterprise certified to be the Board of Investment as pioneer or nonpioneer for a period of six (6) and four (4) years, respectively from the date of registration;
Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units as follows:
Sec. 133. Common Limitations on the Taxing Power of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(f) Taxes fees or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;
(i) Percentage or value added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractor and person engage in the
transportation of passengers of freight by hire and common carriers by air, land, or water,
except as provided in this code;
(k) Taxes on premiums paid by ways reinsurance or retrocession;
(l) Taxes, fees, or charges for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving of thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine product actually exported, except as
otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprise and
Cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty nine
hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the
Philippines; and
(o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL

GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL
GOVERNMENT UNITS. (emphasis supplied)
Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or charges"
referred to are "of any kind", hence they include all of these, unless otherwise provided by
the LGC. The term "taxes" is well understood so as to need no further elaboration,
especially in the light of the above enumeration. The term "fees" means charges fixed by
law or Ordinance for the regulation or inspection of business activity, 24 while "charges"
are pecuniary liabilities such as rents or fees against person or property. 25
Section 234 of LGC provides for the exemptions from payment of real property taxes and
withdraws previous exemptions therefrom granted to natural and juridical persons,
including government owned and controlled corporations, except as provided therein. It
provides:
Sec. 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof had been granted, for reconsideration
or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenants thereto, mosques

nonprofits or religious cemeteries and all lands, building and improvements actually,
directly, and exclusively used for religious charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R.A. No.
6938; and;
(e) Machinery and equipment used for pollution control and environmental protection.
Among the "taxes" enumerated in the LGC is real property tax, which is governed by
Section 232. It reads as follows:
Sec. 232. Power to Levy Real Property Tax. A province or city or a municipality within
the Metropolitan Manila Area may levy on an annual ad valorem tax on real property such
as land, building, machinery and other improvements not hereafter specifically exempted.
Except as provided herein, any exemptions from payment of real property tax previously
granted to or presently enjoyed by, all persons whether natural or juridical, including all
government owned or controlled corporations are hereby withdrawn upon the effectivity of
his Code.
These exemptions are based on the ownership, character, and use of the property. Thus;
(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership
are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a
municipality, (v) a barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes on the basis of their
character are: (i) charitable institutions, (ii) houses and temples of prayer like churches,
parsonages or convents appurtenant thereto, mosques, and (iii) non profit or religious
cemeteries.
water districts, cooperatives duly registered under R.A. 6938, non stock and non profit
hospitals and educational constitutions, are hereby withdrawn upon the effectivity of this
Code.
On the other hand, the LGC authorizes local government units to grant tax exemption
privileges. Thus, Section 192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption Privileges. Local government units may,
through ordinances duly approved, grant tax exemptions, incentives or reliefs under such
terms and conditions as they may deem necessary.
(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct
and exclusive use to which they are devoted are: (i) all lands buildings and improvements
which are actually, directed and exclusively used for religious, charitable or educational
purpose; (ii) all machineries and equipment actually, directly and exclusively used or by
local water districts or by government-owned or controlled corporations engaged in the
supply and distribution of water and/or generation and transmission of electric power; and
(iii) all machinery and equipment used for pollution control and environmental protection.
The foregoing sections of the LGC speaks of: (a) the limitations on the taxing powers of
local government units and the exceptions to such limitations; and (b) the rule on tax
exemptions and the exceptions thereto. The use of exceptions of provisos in these section,
as shown by the following clauses:
To help provide a healthy environment in the midst of the modernization of the country, all
machinery and equipment for pollution control and environmental protection may not be
taxed by local governments.
(2) "Unless otherwise provided in this Code" in section 193;
(1) "unless otherwise provided herein" in the opening paragraph of Section 133;
(3) "not hereafter specifically exempted" in Section 232; and

2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or
juridical persons including government-owned or controlled corporations are withdrawn
upon the effectivity of the Code. 26
Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges.
It provides:
Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this
code, tax exemptions or incentives granted to or presently enjoyed by all persons, whether
natural or juridical, including government-owned, or controlled corporations, except local
(4) "Except as provided herein" in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the aforementioned
clause in section 133 seems to be inaccurately worded. Instead of the clause "unless
otherwise provided herein," with the "herein" to mean, of course, the section, it should have
used the clause "unless otherwise provided in this Code." The former results in absurdity
since the section itself enumerates what are beyond the taxing powers of local government
units and, where exceptions were intended, the exceptions were explicitly indicated in the
text. For instance, in item (a) which excepts the income taxes "when livied on banks and
other financial institutions", item (d) which excepts "wharfage on wharves constructed and
maintained by the local government until concerned"; and item (1) which excepts taxes,
fees, and charges for the registration and issuance of license or permits for the driving of
"tricycles". It may also be observed that within the body itself of the section, there are
exceptions which can be found only in other parts of the LGC, but the section
interchangeably uses therein the clause "except as otherwise provided herein" as in items
(c) and (i), or the clause "except as otherwise provided herein" as in items (c) and (i), or the
clause "excepts as provided in this Code" in item (j). These clauses would be obviously
unnecessary or mere surplus-ages if the opening clause of the section were" "Unless
otherwise provided in this Code" instead of "Unless otherwise provided herein". In any
event, even if the latter is used, since under Section 232 local government units have the
power to levy real property tax, except those exempted therefrom under Section 234, then
Section 232 must be deemed to qualify Section 133.
Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a general
rule, as laid down in Section 133 the taxing powers of local government units cannot
extend to the levy of inter alia, "taxes, fees, and charges of any kind of the National
Government, its agencies and instrumentalties, and local government units"; however,
pursuant to Section 232, provinces, cities, municipalities in the Metropolitan Manila Area
may impose the real property tax except on, inter alia, "real property owned by the
Republic of the Philippines or any of its political subdivisions except when the beneficial
used thereof has been granted, for consideration or otherwise, to a taxable person", as
provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical

persons, including government-owned and controlled corporations, Section 193 of the LGC
prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except
upon the effectivity of the LGC, except those granted to local water districts, cooperatives
duly registered under R.A. No. 6938, non stock and non-profit hospitals and educational
institutions, and unless otherwise provided in the LGC. The latter proviso could refer to
Section 234, which enumerates the properties exempt from real property tax. But the last
paragraph of Section 234 further qualifies the retention of the exemption in so far as the
real property taxes are concerned by limiting the retention only to those enumerated therein; all others not included in the enumeration lost the privilege upon the effectivity of the
LGC. Moreover, even as the real property is owned by the Republic of the Philippines, or
any of its political subdivisions covered by item (a) of the first paragraph of Section 234,
the exemption is withdrawn if the beneficial use of such property has been granted to
taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the
LGC, exemptions from real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and
the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that
its exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge
under any of the exceptions provided in Section 234, but not under Section 133, as it now
asserts, since, as shown above, the said section is qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing
powers of the local government units cannot extend to the levy of:
(o) taxes, fees, or charges of any kind on the National Government, its agencies, or
instrumentalities, and local government units.
I must show that the parcels of land in question, which are real property, are any one of
those enumerated in Section 234, either by virtue of ownership, character, or use of the
property. Most likely, it could only be the first, but not under any explicit provision of the
said section, for one exists. In light of the petitioner's theory that it is an "instrumentality of
the Government", it could only be within be first item of the first paragraph of the section
by expanding the scope of the terms Republic of the Philippines" to embrace . . . . . .
"instrumentalities" and "agencies" or expediency we quote:
(a) real property owned by the Republic of the Philippines, or any of the Philippines, or any
of its political subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
This view does not persuade us. In the first place, the petitioner's claim that it is an
instrumentality of the Government is based on Section 133(o), which expressly mentions
the word "instrumentalities"; and in the second place it fails to consider the fact that the
legislature used the phrase "National Government, its agencies and instrumentalities" "in
Section 133(o),but only the phrase "Republic of the Philippines or any of its political
subdivision "in Section 234(a).
The terms "Republic of the Philippines" and "National Government" are not
interchangeable. The former is boarder and synonymous with "Government of the Republic
of the Philippines" which the Administrative Code of the 1987 defines as the "corporate
governmental entity though which the functions of the government are exercised through at
the Philippines, including, saves as the contrary appears from the context, the various arms
through which political authority is made effective in the Philippines, whether pertaining to
the autonomous reason, the provincial, city, municipal or barangay subdivision or other
forms of local government." 27 These autonomous regions, provincial, city, municipal or
barangay subdivisions" are the political subdivision. 28
On the other hand, "National Government" refers "to the entire machinery of the central
government, as distinguished from the different forms of local Governments." 29 The
National Government then is composed of the three great departments the executive, the
legislative and the judicial. 30
An "agency" of the Government refers to "any of the various units of the Government,
including a department, bureau, office instrumentality, or government-owned or controlled
corporation, or a local government or a distinct unit therein;" 31 while an "instrumentality"
refers to "any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy;
usually through a charter. This term includes regulatory agencies, chartered institutions and
government-owned and controlled corporations". 32
If Section 234(a) intended to extend the exception therein to the withdrawal of the
exemption from payment of real property taxes under the last sentence of the said section
to the agencies and instrumentalities of the National Government mentioned in Section
133(o), then it should have restated the wording of the latter. Yet, it did not Moreover, that
Congress did not wish to expand the scope of the exemption in Section 234(a) to include
real property owned by other instrumentalities or agencies of the government including
government-owned and controlled corporations is further borne out by the fact that the
source of this exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real
Property Tax Code, which reads:
Sec 40. Exemption from Real Property Tax. The exemption shall be as follows:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions and any government-owned or controlled corporations so exempt by is
charter: Provided, however, that this exemption shall not apply to real property of the
above mentioned entities the beneficial use of which has been granted, for consideration or
otherwise, to a taxable person.
Note that as a reproduced in Section 234(a), the phrase "and any government-owned or
controlled corporation so exempt by its charter" was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to limit further tax exemption
privileges, specially in light of the general provision on withdrawal of exemption from
payment of real property taxes in the last paragraph of property taxes in the last paragraph
of Section 234. These policy considerations are consistent with the State policy to ensure
autonomy to local governments 33 and the objective of the LGC that they enjoy genuine
and meaningful local autonomy to enable them to attain their fullest development as selfreliant communities and make them effective partners in the attainment of national goals.
34 The power to tax is the most effective instrument to raise needed revenues to finance
and support myriad activities of local government units for the delivery of basic services
essential to the promotion of the general welfare and the enhancement of peace, progress,
and prosperity of the people. It may also be relevant to recall that the original reasons for
the withdrawal of tax exemption privileges granted to government-owned and controlled
corporations and all other units of government were that such privilege resulted in serious
tax base erosion and distortions in the tax treatment of similarly situated enterprises, and
there was a need for this entities to share in the requirements of the development, fiscal or
otherwise, by paying the taxes and other charges due from them. 35
The crucial issues then to be addressed are: (a) whether the parcels of land in question
belong to the Republic of the Philippines whose beneficial use has been granted to the
petitioner, and (b) whether the petitioner is a "taxable person".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport
facilities, runways, lands, buildings and other properties, movable or immovable, belonging
to or presently administered by the airports, and all assets, powers, rights, interests and
privileges relating on airport works, or air operations, including all equipment which are
necessary for the operations of air navigation, acrodrome control towers, crash, fire, and
rescue facilities are hereby transferred to the Authority: Provided however, that the
operations control of all equipment necessary for the operation of radio aids to air
navigation, airways communication, the approach control office, and the area control center
shall be retained by the Air Transportation Office. No equipment, however, shall be
removed by the Air Transportation Office from Mactan without the concurrence of the
authority. The authority may assist in the maintenance of the Air Transportation Office
equipment.
Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs.
Philippine Amusement and Gaming Corporation 39 is unavailing since it was decided
before the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing
that even instrumentalities or agencies of the government performing governmental
functions may be subject to tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan
International AirPort in the Province of Cebu", 36 which belonged to the Republic of the
Philippines, then under the Air Transportation Office (ATO). 37
WHEREFORE, the instant petition is DENIED. The challenged decision and order of the
Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.
No pronouncement as to costs.
It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then
administered by the Lahug Air Port and includes the parcels of land the respondent City of
Cebu seeks to levy on for real property taxes. This section involves a "transfer" of the
"lands" among other things, to the petitioner and not just the transfer of the beneficial use
thereof, with the ownership being retained by the Republic of the Philippines.
This "transfer" is actually an absolute conveyance of the ownership thereof because the
petitioner's authorized capital stock consists of, inter alia "the value of such real estate
owned and/or administered by the airports." 38 Hence, the petitioner is now the owner of
the land in question and the exception in Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a "taxable person" under its Charter.
It was only exempted from the payment of real property taxes. The grant of the privilege
only in respect of this tax is conclusive proof of the legislative intent to make it a taxable
person subject to all taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable person for purposes of real
property tax, in light of the forgoing disquisitions, it had already become even if it be
conceded to be an "agency" or "instrumentality" of the Government, a taxable person for
such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions
from the payment of real property taxes, which, as earlier adverted to, applies to the
petitioner.
SO ORDEREDP480.81, representing allowable deductions under secftion 1539 of the

Revised Administrative Code, we have P28,904.19 as the net value of the estate subject to
inheritance tax.
The primary tax, according to section 1536, subsection (c), of the Revised Administrative
Code, should be imposed at the rate of one per centum upon the first ten thousand pesos
and two per centum upon the amount by which the share exceed thirty thousand pesos, plus
an additional two hundred per centum. One per centum of ten thousand pesos is P100. Two
per centum of P18,904.19 is P378.08. Adding to these two sums an additional two hundred
per centum, or P965.16, we have as primary tax, correctly computed by the defendant, the
sum of P1,434.24.
To the primary tax thus computed should be added the sums collectible under section 1544
of the Revised Administrative Code. First should be added P1,465.31 which stands for
interest at the rate of twelve per centum per annum from March 10, 1924, the date of
delinquency, to September 15, 1932, the date of payment under protest, a period covering 8
years, 6 months and 5 days. To the tax and interest thus computed should be added the sum
of P724.88, representing a surhcarge of 25 per cent on both the tax and interest, and also
P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total of
P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is
legally due from the estate. This last sum is P390.42 more than the amount demanded by
the defendant in his counterclaim. But, as we cannot give the defendant more than what he
claims, we must hold that the plaintiff is liable only in the sum of P1,191.27 the amount
stated in the counterclaim.
The judgment of the lower court is accordingly modified, with costs against the plaintiff in
both instances. So ordered.
Avancea, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.
Villa-Real, J., concurs.

SUPREME COURT
Manila
EN BANC
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 onesixteenth (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 local governmental agencies the power to tax. 9 Under the New
Constitution, local governments are granted the autonomous authority to create their own
sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local
government unit shall have the power to create its sources of revenue and to levy taxes,
subject to such limitations as may be provided by law." Withal, it cannot be said that
Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power of local taxation.
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 defendantsappellees 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.

SUPREME COURT
Manila
EN BANC
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.
G.R. No. 88291 June 8, 1993
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.
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
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.
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 in
R.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).
(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
instrumentalities;
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:
(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

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:
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:
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;
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

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)
(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:
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:
investment as well as excess revenues from its operation, for expansion. To enable the
Corporation to pay to its indebtedness and obligations and in furtherance and effective
implementation of the policy 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
(a) That no such article of local manufacture are available in sufficient quantity and
comparable quality at reasonable prices;
II
(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.
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:
(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
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
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
. . . 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
and since there was a
In line with such policy, the law 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.
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
. . . 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. 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:
The law also declared that

1) The effect on the relative price levels;
[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
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

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:
4) In general the greater national interest to be served.
xxx xxx xxx
It was thus ordered that:
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.
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:
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:
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;
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;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential Decree No. 1789, as amended;
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
(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;
Since it was decided that:

e) those conferred under the four basic codes namely:
[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.
(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. 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.

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;
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.
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;
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
d) prescribe the date of period of effectivity of the restoration of tax and/or duty exemption;
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.
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.
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:
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."
a. Direct Tax the where the person supposed to pay the tax really pays it. WITHOUT
transferring the burden to someone else.
His point is not well-taken.
Examples: Individual income tax, corporate income tax, transfer taxes (estate tax, donor's
tax), residence tax, immigration tax
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.
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.
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.
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
When the NPC was authorized to contract with the IBRD for foreign financing, any loans
obtained were to be completely tax exempt.
IV
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.
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?
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:
(3) If there are taxes to be paid, who shall pay for these taxes?
[T]he Corporation is hereby declared exempt:
V
xxx xxx xxx
[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
(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)
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;

Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple
paragraph as follows:
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,
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:
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. 120 up 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.
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.
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.
It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both
direct and indirect taxes under P.D. No. 938.
The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:
VI
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
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.
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness contracted this subsection and the payment of the
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 said P.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 186, 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 Malacaang, 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)
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:

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
PRODUCT AD VALOREM
1. . . .
TAX RATE
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 valorem taxes paid by the oil
companies to the BIR from June 11, 1984 to the early part of 1986. 96
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.
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:
SO ORDERED.
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.
SUPREME COURT
Manila
EN BANC
G.R. No. L-4043
May 26, 1952
CENON S. CERVANTES, petitioner,

vs.
THE AUDITOR GENERAL, respondent.
Cenon Cervantes in his own behalf.

Office of the Solicitor General Pompeyo Diaz and Solicitor Felix V. Makasiar for
respondent.
REYES, J.:
This is a petition to review a decision of the Auditor General denying petitioner's claim for
quarters allowance as manager of the National Abaca and Other Fibers Corporation,
otherwise known as the NAFCO.
It appears that petitioner was in 1949 the manager of the NAFCO with a salary of P15,000
a year. By a resolution of the Board of Directors of this corporation approved on January
19 of that year, he was granted quarters allowance of not exceeding P400 a month effective
the first of that month. Submitted the Control Committee of the Government Enterprises
Council for approval, the said resolution was on August 3, 1949, disapproved by the said
Committee on strenght of the recommendation of the NAFCO auditor, concurred in by the
Auditor General, (1) that quarters allowance constituted additional compensation
prohibited by the charter of the NAFCO, which fixes the salary of the general manager
thereof at the sum not to exceed P15,000 a year, and (2) that the precarious financial
condition of the corporation did not warrant the granting of such allowance.
On March 16, 1949, the petitioner asked the Control Committee to reconsider its action and
approve his claim for allowance for January to June 15, 1949, amounting to P1,650. The
claim was again referred by the Control Committee to the auditor General for comment.
The latter, in turn referred it to the NAFCO auditor, who reaffirmed his previous
recommendation and emphasized that the fact that the corporation's finances had not
improved. In view of this, the auditor General also reiterated his previous opinion against
the granting of the petitioner's claim and so informed both the Control Committee and the
petitioner. But as the petitioner insisted on his claim the Auditor General Informed him on
June 19, 1950, of his refusal to modify his decision. Hence this petition for review.
The NAFCO was created by the Commonwealth Act No. 332, approved on June 18, 1939,
with a capital stock of P20,000,000, 51 per cent of which was to be able to be subscribed
by the National Government and the remainder to be offered to provincial, municipal, and
the city governments and to the general public. The management the corporation was
vested in a board of directors of not more than 5 members appointed by the president of the
Philippines with the consent of the Commission on Appointments. But the corporation was
made subject to the provisions of the corporation law in so far as they were compatible
with the provisions of its charter and the purposes of which it was created and was to enjoy
the general powers mentioned in the corporation law in addition to those granted in its
charter. The members of the board were to receive each a per diem of not to exceed P30 for
each day of meeting actually attended, except the chairman of the board, who was to be at
the same time the general manager of the corporation and to receive a salary not to exceed
P15,000 per annum.
On October 4, 1946, Republic Act No. 51 was approved authorizing the President of the
Philippines, among other things, to effect such reforms and changes in government owned
and controlled corporations for the purpose of promoting simplicity, economy and
efficiency in their operation Pursuant to this authority, the President on October 4, 1947,
promulgated Executive Order No. 93 creating the Government Enterprises Council to be
composed of the President of the Philippines as chairman, the Secretary of Commerce and
Industry as vice-chairman, the chairman of the board of directors and managing heads of
all such corporations as ex-officio members, and such additional members as the President
might appoint from time to time with the consent of the Commission on Appointments. The
council was to advise the President in the excercise of his power of supervision and control
over these corporations and to formulate and adopt such policy and measures as might be
necessary to coordinate their functions and activities. The Executive Order also provided
that the council was to have a Control Committee composed of the Secretary of Commerce
and Industry as chairman, a member to be designated by the President from among the
members of the council as vice-chairman and the secretary as ex-officio member, and with
the power, among others
(1) To supervise, for and under the direction of the President, all the corporations owned or
controlled by the Government for the purpose of insuring efficiency and economy in their
operations;
(2) To pass upon the program of activities and the yearly budget of expenditures approved
by the respective Boards of Directors of the said corporations; and
(3) To carry out the policies and measures formulated by the Government Enterprises
Council with the approval of the President. (Sec. 3, Executive Order No. 93.)
With its controlling stock owned by the Government and the power of appointing its
directors vested in the President of the Philippines, there can be no question that the
NAFCO is Government controlled corporation subject to the provisions of Republic Act
No. 51 and the executive order (No. 93) promulgated in accordance therewith.
Consequently, it was also subject to the powers of the Control Committee created in said
executive order, among which is the power of supervision for the purpose of insuring
efficiency and economy in the operations of the corporation and also the power to pass
upon the program of activities and the yearly budget of expenditures approved by the board
of directors. It can hardly be questioned that under these powers the Control Committee
had the right to pass upon, and consequently to approve or disapprove, the resolution of the
NAFCO board of directors granting quarters allowance to the petitioners as such allowance
necessarily constitute an item of expenditure in the corporation's budget. That the Control
Committee had good grounds for disapproving the resolution is also clear, for, as pointed
out by the Auditor General and the NAFCO auditor, the granting of the allowance
amounted to an illegal increase of petitioner's salary beyond the limit fixed in the corporate
charter and was furthermore not justified by the precarious financial condition of the
corporation.
It is argued, however, that Executive Order No. 93 is null and void, not only because it is
based on a law that is unconstitutional as an illegal delegation of legislature power to
executive, but also because it was promulgated beyond the period of one year limited in
said law.
The second ground ignores the rule that in the computation of the time for doing an act, the
first day is excluded and the last day included (Section 13 Rev. Ad. Code.) As the act was
approved on October 4, 1946, and the President was given a period of one year within
which to promulgate his executive order and that the order was in fact promulgated on
October 4, 1947, it is obvious that under the above rule the said executive order was
promulgated within the period given.
As to the first ground, the rule is that so long as the Legislature "lays down a policy and a
standard is established by the statute" there is no undue delegation. (11 Am. Jur. 957).
Republic Act No. 51 in authorizing the President of the Philippines, among others, to make
reforms and changes in government-controlled corporations, lays down a standard and
policy that the purpose shall be to meet the exigencies attendant upon the establishment of
the free and independent government of the Philippines and to promote simplicity,
economy and efficiency in their operations. The standard was set and the policy fixed. The
President had to carry the mandate. This he did by promulgating the executive order in
question which, tested by the rule above cited, does not constitute an undue delegation of
legislative power.
It is also contended that the quarters allowance is not compensation and so the granting of
it to the petitioner by the NAFCO board of directors does not contravene the provisions of
the NAFCO charter that the salary of the chairman of said board who is also to be general
manager shall not exceed P15,000 per anum. But regardless of whether quarters allowance
should be considered as compensation or not, the resolution of the board of the directors
authorizing payment thereof to the petitioner cannot be given effect since it was
disapproved by the Control Committee in the exercise of powers granted to it by Executive
Order No. 93. And in any event, petitioner's contention that quarters allowance is not
compensation, a proposition on which American authorities appear divided, cannot be
insisted on behalf of officers and employees working for the Government of the Philippines
and its Instrumentalities, including, naturally, government-controlled corporations. This is
so because Executive Order No. 332 of 1941, which prohibits the payment of additional
compensation to those working for the Government and its Instrumentalities, including
government-controlled corporations, was in 1945 amended by Executive Order No. 77 by
expressly exempting from the prohibition the payment of quarters allowance "in favor of
local government officials and employees entitled to this under existing law." The
amendment is a clear indication that quarters allowance was meant to be included in the
term "additional compensation", for otherwise the amendment would not have expressly
excepted it from the prohibition. This being so, we hold that, for the purpose of the
executive order just mentioned, quarters allowance is considered additional compensation
and, therefore, prohibited.
In view of the foregoing, the petition for review is dismissed, with costs.
Paras, C.J., Feria, Pablo, Bengzon, Tuason, Montemayor and Bautista Angelo, JJ., concur.
--------------------------------------------------------------------------------

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 90776 June 3, 1991
PHILIPPINE PETROLEUM CORPORATION, petitioner,

vs.
MUNICIPALITY OF PILILLA, RIZAL, Represented by MAYOR NICOMEDES F.
PATENIA, respondent.
Quiason, Makalintal, Barot, Torres & Ibarra for petitioner.
PARAS, J.:p
This is a petition for certiorari seeking to annul and set aside: (a) the March 17, 1989
decision * of the Regional Trial Court, Branch 80, Tanay, Rizal in Civil Case No. 057-T
entitled, "Municipality of Pililla, Rizal, represented by Mayor Nicomedes F. Patenia vs.
Philippine Petroleum Corporation", (PPC for short) upholding the legality of the taxes, fees
and charges being imposed in Pililla under Municipal Tax Ordinance No. 1 and directing
the herein petitioner to pay the amount of said taxes, fees and charges due the respondent:
and (b) the November 2, 1989 resolution of the same court denying petitioner's motion for
reconsideration of the said decision.
The undisputed facts of the case are:
Petitioner, Philippine Petroleum Corporation (PPC for short) is a business enterprise

engaged in the manufacture of lubricated oil basestock which is a petroleum product, with
its refinery plant situated at Malaya, Pililla, Rizal, conducting its business activities within
the territorial jurisdiction of the Municipality of Pililla, Rizal and is in continuous operation
up to the present (Rollo p. 60). PPC owns and maintains an oil refinery including forty-nine
storage tanks for its petroleum products in Malaya, Pililla, Rizal (Rollo, p. 12).
Under Section 142 of the National Internal Revenue Code of 1939, manufactured oils and
other fuels are subject to specific tax.
On June 28, 1973, Presidential Decree No. 231, otherwise known as the Local Tax Code
was issued by former President Ferdinand E. Marcos governing the exercise by provinces,
cities, municipalities and barrios of their taxing and other revenue-raising powers. Sections
19 and 19 (a) thereof, provide among others, that the municipality may impose taxes on
business, except on those for which fixed taxes are provided on manufacturers, importers
or producers of any article of commerce of whatever kind or nature, including brewers,
distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in
accordance with the schedule listed therein.
The Secretary of Finance issued Provincial Circular No. 26-73 dated December 27, 1973,
directed to all provincial, city and municipal treasurers to refrain from collecting any local
tax imposed in old or new tax ordinances in the business of manufacturing, wholesaling,
retailing, or dealing in petroleum products subject to the specific tax under the National
Internal Revenue Code (Rollo, p. 76).
Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued by the
Secretary of Finance instructing all City Treasurers to refrain from collecting any local tax
imposed in tax ordinances enacted before or after the effectivity of the Local Tax Code on
July 1, 1973, on the businesses of manufacturing, wholesaling, retailing, or dealing in,
petroleum products subject to the specific tax under the National Internal Revenue Code
(Rollo, p. 79).
Respondent Municipality of Pililla, Rizal, through Municipal Council Resolution No. 25,
S-1974 enacted Municipal Tax Ordinance No. 1, S-1974 otherwise known as "The Pililla
Tax Code of 1974" on June 14, 1974, which took effect on July 1, 1974 (Rollo, pp. 181182). Sections 9 and 10 of the said ordinance imposed a tax on business, except for those
for which fixed taxes are provided in the Local Tax Code on manufacturers, importers, or
producers of any article of commerce of whatever kind or nature, including brewers,
distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in
accordance with the schedule found in the Local Tax Code, as well as mayor's permit,
sanitary inspection fee and storage permit fee for flammable, combustible or explosive
substances (Rollo, pp. 183-187), while Section 139 of the disputed ordinance imposed
surcharges and interests on unpaid taxes, fees or charges (Ibid., p. 193).
On March 30, 1974, Presidential Decree No. 426 was issued amending certain provisions
of P.D. 231 but retaining Sections 19 and 19 (a) with adjusted rates and 22(b).
On April 13, 1974, P.D. 436 was promulgated increasing the specific tax on lubricating
oils, gasoline, bunker fuel oil, diesel fuel oil and other similar petroleum products levied
under Sections 142, 144 and 145 of the National Internal Revenue Code, as amended, and
granting provinces, cities and municipalities certain shares in the specific tax on such
products in lieu of local taxes imposed on petroleum products.
The questioned Municipal Tax Ordinance No. 1 was reviewed and approved by the
Provincial Treasurer of Rizal on January 13, 1975 (Rollo, p. 143), but was not implemented
and/or enforced by the Municipality of Pililla because of its having been suspended up to
now in view of Provincial Circular Nos. 26-73 and 26 A-73.
Provincial Circular No. 6-77 dated March 13, 1977 was also issued directing all city and
municipal treasurers to refrain from collecting the so-called storage fee on flammable or
combustible materials imposed under the local tax ordinance of their respective locality,
said fee partaking of the nature of a strictly revenue measure or service charge.
On March 17, 1987, the trial court rendered a decision against the petitioner, the dispositive
part of which reads as follows:
WHEREFORE, premises considered, this Court hereby renders judgment in favor of the
plaintiffs as against the defendants thereby directing the defendants to 1) pay the plaintiffs
the amount of P5,301,385.00 representing the Tax on Business due from the defendants
under Sec. 9 (A) of the Municipal Tax Ordinance of the plaintiffs for the period from 1979
to 1983 inclusive plus such amount of tax that may accrue until final determination of case;
2) to pay storage permit fee in the amount of P3,321,730.00 due from the defendants under
Sec. 10, par. z (13) (b) (1 C) of the Municipal Tax Ordinance of the plaintiffs for the period
from 1975 to 1986 inclusive plus such amount of fee that may accrue until final
determination of case; 3) to pay Mayor's Permit Fee due from the defendants under Sec. 10,
par. (P) (2) of the Municipal Tax Ordinance of the plaintiffs from 1975 to 1984 inclusive in
the amount of P12,120.00 plus such amount of fee that may accrue until final determination
of the case; and 4) to pay sanitary inspection fee in the amount of P1,010.00 for the period
from 1975 to 1984 plus such amount that may accrue until final determination of case and
5) to pay the costs of suit.
SO ORDERED. (Rollo, pp. 49-50)

On June 3, 1977, P.D. 1158 otherwise known as the National Internal Revenue Code of
1977 was enacted, Section 153 of which specifically imposes specific tax on refined and
manufactured mineral oils and motor fuels.
Enforcing the provisions of the above-mentioned ordinance, the respondent filed a

complaint on April 4, 1986 docketed as Civil Case No. 057-T against PPC for the
collection of the business tax from 1979 to 1986; storage permit fees from 1975 to 1986;
mayor's permit and sanitary inspection fees from 1975 to 1984. PPC, however, have
already paid the last-named fees starting 1985 (Rollo, p. 74).
After PPC filed its answer, a pre-trial conference was held on August 24, 1988 where the
parties thru their respective counsel, after coming up with certain admissions and
stipulations agreed to the submission of the case for decision based on documentary
evidence offered with their respective comments (Rollo, p. 41).
PPC moved for reconsideration of the decision, but this was denied by the lower court in a
resolution of November 2, 1989, hence, the instant petition.
The Court resolved to give due course to the petition and required both parties to submit
simultaneous memoranda (June 21, 1990 Resolution; Rollo, p. 305).
PPC assigns the following alleged errors:
1. THE RTC ERRED IN ORDERING THE PAYMENT OF THE BUSINESS TAX

UNDER SECTION 9 (A) OF THE TAX ORDINANCE IN THE LIGHT OF
PROVINCIAL CIRCULARS NOS. 26-73 AND 26 A-73;.
2. THE RTC ERRED IN HOLDING THAT PETITIONER WAS LIABLE FOR THE
PAYMENT OF STORAGE PERMIT FEE UNDER SECTION 10 Z (13) (b) (1-c) OF THE
TAX ORDINANCE CONSIDERING THE ISSUANCE OF PROVINCIAL CIRCULAR
NO. 6-77;
regard to manufacturers, retailers, wholesalers or dealers in petroleum products subject to

the specific tax under the National Internal Revenue Code NIRC, in view of Section 22 (b)
of the Code regarding non-imposition by municipalities of taxes on articles, subject to
specific tax under the provisions of the NIRC.
3. THE RTC ERRED IN FAILING TO HOLD THAT RESPONDENTS COMPUTATION

OF TAX LIABILITY HAS ABSOLUTELY NO BASIS;
There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the assailed
taxes, fees and charges is valid especially Section 9 (A) which according to the trial court
"was lifted in toto and/or is a literal reproduction of Section 19 (a) of the Local Tax Code as
amended by P.D. No. 426." It conforms with the mandate of said law.
4. THE RTC ERRED IN ORDERING THE PAYMENT OF MAYOR'S PERMIT AND

SANITARY INSPECTION FEES CONSIDERING THAT THE SAME HAS BEEN
VALIDLY AND LEGALLY WAIVED BY THE MAYOR;
5. THE RTC ERRED IN FAILING TO HOLD THAT THE TAXES AND DUTIES NOT
COLLECTED FROM PETITIONER PRIOR TO THE FIVE (5) YEAR PERIOD FROM
THE FILING OF THIS CASE ON APRIL 4, 1986 HAS ALREADY PRESCRIBED.
The crucial issue in this case is whether or not petitioner PPC whose oil products are
subject to specific tax under the NIRC, is still liable to pay (a) tax on business and (b)
storage fees, considering Provincial Circular No. 6-77; and mayor's permit and sanitary
inspection fee unto the respondent Municipality of Pililla, Rizal, based on Municipal
Ordinance No. 1.
Petitioner PPC contends that: (a) Provincial Circular No. 2673 declared as contrary to
national economic policy the imposition of local taxes on the manufacture of petroleum
products as they are already subject to specific tax under the National Internal Revenue
Code; (b) the above declaration covers not only old tax ordinances but new ones, as well as
those which may be enacted in the future; (c) both Provincial Circulars (PC) 26-73 and 26
A-73 are still effective, hence, unless and until revoked, any effort on the part of the
respondent to collect the suspended tax on business from the petitioner would be illegal and
unauthorized; and (d) Section 2 of P.D. 436 prohibits the imposition of local taxes on
petroleum products.
PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax ordinances
imposing a tax on business under Section 19 (a) of the Local Tax Code (P.D. No. 231), with
But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial
Circular Nos. 26-73 and 26 A-73 issued by the Secretary of Finance when Sections 19 and
19 (a), were carried over into P.D. No. 426 and no exemptions were given to
manufacturers, wholesalers, retailers, or dealers in petroleum products.
Well-settled is the rule that administrative regulations must be in harmony with the
provisions of the law. In case of discrepancy between the basic law and an implementing
rule or regulation, the former prevails (Shell Philippines, Inc. v. Central Bank of the
Philippines, 162 SCRA 628 [1988]). As aptly held by the court a quo:
Necessarily, there could not be any other logical conclusion than that the framers of P.D.
No. 426 really and actually intended to terminate the effectivity and/or enforceability of
Provincial Circulars Nos. 26-73 and 26 A-73 inasmuch as clearly these circulars are in
contravention with Sec. 19 (a) of P.D. 426-the amendatory law to P.D. No. 231. That
intention to terminate is very apparent and in fact it is expressed in clear and unequivocal
terms in the effectivity and repealing clause of P.D. 426 . . .
Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on
petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as
amended by P.D. 426, wherein the municipality is granted the right to levy taxes on
business of manufacturers, importers, producers of any article of commerce of whatever
kind or nature. A tax on business is distinct from a tax on the article itself. Thus, if the
imposition of tax on business of manufacturers, etc. in petroleum products contravenes a
declared national policy, it should have been expressly stated in P.D. No. 436.
The exercise by local governments of the power to tax is ordained by the present
Constitution. To allow the continuous effectivity of the prohibition set forth in PC No. 2673 (1) would be tantamount to restricting their power to tax by mere administrative
issuances. Under Section 5, Article X of the 1987 Constitution, only guidelines and
limitations that may be established by Congress can define and limit such power of local
governments. Thus:
Each local government unit shall have the power to create its own sources of revenues and
to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress
may provide, consistent with the basic policy of local autonomy . . .
Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain from
collecting the so-called storage fee on flammable or combustible materials imposed in the
local tax ordinance of their respective locality frees petitioner PPC from the payment of
storage permit fee.
The storage permit fee being imposed by Pililla's tax ordinance is a fee for the installation
and keeping in storage of any flammable, combustible or explosive substances. Inasmuch
as said storage makes use of tanks owned not by the municipality of Pililla, but by
petitioner PPC, same is obviously not a charge for any service rendered by the municipality
as what is envisioned in Section 37 of the same Code.
from the payment of said fees, the waiver cannot be recognized. As already stated, it is the
law-making body, and not an executive like the mayor, who can make an exemption. Under
Section 36 of the Code, a permit fee like the mayor's permit, shall be required before any
individual or juridical entity shall engage in any business or occupation under the
provisions of the Code.
However, since the Local Tax Code does not provide the prescriptive period for collection
of local taxes, Article 1143 of the Civil Code applies. Said law provides that an action upon
an obligation created by law prescribes within ten (10) years from the time the right of
action accrues. The Municipality of Pililla can therefore enforce the collection of the tax on
business of petitioner PPC due from 1976 to 1986, and NOT the tax that had accrued prior
to 1976.
PREMISES CONSIDERED, with the MODIFICATION that business taxes accruing

PRIOR to 1976 are not to be paid by PPC (because the same have prescribed) and that
storage fees are not also to be paid by PPC (for the storage tanks are owned by PPC and not
by the municipality, and therefore cannot be a charge for service by the municipality), the
assailed DECISION is hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera, Padilla and Regalado, JJ., concur.
Sarmiento, J., is on leave.

Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a permit fee is a
permit fee allowed under Section 36 of the amended Code.

SUPREME COURT
As to the authority of the mayor to waive payment of the mayor's permit and sanitary
inspection fees, the trial court did not err in holding that "since the power to tax includes
the power to exempt thereof which is essentially a legislative prerogative, it follows that a
municipal mayor who is an executive officer may not unilaterally withdraw such an
expression of a policy thru the enactment of a tax." The waiver partakes of the nature of an
exemption. It is an ancient rule that exemptions from taxation are construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing authority (Esso Standard
Eastern, Inc. v. Acting Commissioner of Customs, 18 SCRA 488 [1966]). Tax exemptions
are looked upon with disfavor (Western Minolco Corp. v. Commissioner of Internal
Revenue, 124 SCRA 121 [1983]). Thus, in the absence of a clear and express exemption
Manila
EN BANC
G.R. No. L-25043
April 26, 1968
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective
behalf and as judicial co-guardians of JOSE ROXAS, petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE,
respondents.
Leido, Andrada, Perez and Associates for petitioners.

Office of the Solicitor General for respondents.
BENGZON, J.P., J.:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their
grandchildren by hereditary succession the following properties:
(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of
Nasugbu, Batangas province;
parcels which they actually occupied. For its part, the Government, in consonance with the
constitutional mandate to acquire big landed estates and apportion them among landless
tenants-farmers, persuaded the Roxas brothers to part with their landholdings. Conferences
were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed
to sell 13,500 hectares to the Government for distribution to actual occupants for a price of
P2,079,048.47 plus P300,000.00 for survey and subdivision expenses.
It turned out however that the Government did not have funds to cover the purchase price,
and so a special arrangement was made for the Rehabilitation Finance Corporation to
advance to Roxas y Cia. the amount of P1,500,000.00 as loan. Collateral for such loan were
the lands proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed
the farmers to buy the lands for the same price but by installment, and contracted with the
Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly
amortizations paid by the farmers.
In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of
P42,480.83 and P29,500.71. Fifty percent of said net gain was reported for income tax
purposes as gain on the sale of capital asset held for more than one year pursuant to Section
34 of the Tax Code.
RESIDENTIAL HOUSE
(2) A residential house and lot located at Wright St., Malate, Manila; and
(3) Shares of stocks in different corporations.
To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo
Roxas and Jose Roxas, formed a partnership called Roxas y Compania.
AGRICULTURAL LANDS
At the conclusion of the Second World War, the tenants who have all been tilling the lands
in Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the
During their bachelor days the Roxas brothers lived in the residential house at Wright St.,
Malate, Manila, which they inherited from their grandparents. After Antonio and Eduardo
got married, they resided somewhere else leaving only Jose in the old house. In fairness to
his brothers, Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a year.
ASSESSMENTS
On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the
payment of real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00
compromise penalty for late payment, and P150.00 tax for dealers of securities for 1952
plus P10.00 compromise penalty for late payment. The assessment for real estate dealer's
tax was based on the fact that Roxas y Cia. received house rentals from Jose Roxas in the
amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who
derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered
a real estate dealer and is liable to pay the corresponding fixed tax.
The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of
securities against Roxas y Cia., on the fact that said partnership made profits from the
purchase and sale of securities.
In the same assessment, the Commissioner assessed deficiency income taxes against the
Roxas Brothers for the years 1953 and 1955, as follows:
ROXAS Y CIA.:
1953
Tickets for Banquet in honor of

S. Osmea P 40.00
Gifts of San Miguel beer 28.00
Contributions to
1953
Philippine Air Force Chapel
1955
100.00
Antonio Roxas P7,010.00 P5,813.00
Manila Police Trust Fund
Eduardo Roxas 7,281.00 5,828.00
150.00
Jose Roxas 6,323.00 5,588.00

Philippines Herald's fund for Manila's neediest families
The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the
unreported 50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu
farm lands to the tenants, and the disallowance of deductions from gross income of various
business expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For
the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the
farmers on installment, the Commissioner considered the partnership as engaged in the
business of real estate, hence, 100% of the profits derived therefrom was taxed.
100.00
1955
Contributions to Contribution to
The following deductions were disallowed:
Our Lady of Fatima Chapel, FEU 50.00
50.00
ANTONIO ROXAS:
EDUARDO ROXAS:
1953
1953
Contributions to
Contributions to
Pasay City Firemen Christmas Fund
25.00
Hijas de Jesus' Retiro de Manresa

450.00
Pasay City Police Dept. X'mas fund

50.00
Philippines Herald's fund for Manila's neediest families

100.00
1955
1955
Contributions to
Baguio City Police Christmas fund
Contributions to Philippines
25.00
Herald's fund for Manila's

neediest families 120.00
Pasay City Firemen Christmas fund

25.00
JOSE ROXAS:
Pasay City Police Christmas fund
1955
(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers?
Contributions to Philippines
Herald's fund for Manila's
neediest families 120.00
The Roxas brothers protested the assessment but inasmuch as said protest was denied, they
instituted an appeal in the Court of Tax Appeals on January 9, 1961. The Tax Court heard
the appeal and rendered judgment on July 31, 1965 sustaining the assessment except the
demand for the payment of the fixed tax on dealer of securities and the disallowance of the
deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro
de Manresa. The Tax Court's judgment reads:
WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners
Antonio Roxas, Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the
respondent Commissioner of Internal Revenue the amounts of P12,808.00, P12,887.00 and
P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5%
surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and
modified with respect to the partnership Roxas y Cia. in the sense that it should pay only
P150.00, as real estate dealer's tax. With costs against petitioners.
Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The
Commissioner of Internal Revenue did not appeal.
The issues:
The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a
real estate dealer because it engaged in the business of selling real estate. The business
activity alluded to was the act of subdividing the Nasugbu farm lands and selling them to
the farmers-occupants on installment. To bolster his stand on the point, he cites one of the
purposes of Roxas y Cia. as contained in its articles of partnership, quoted below:
4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer

a ella en el futuro, alquilandoles por los plazos y demas condiciones, estime convenientes y
vendiendo aquellas que a juicio de sus gerentes no deben conservarse;
The above-quoted purpose notwithstanding, the proposition of the Commissioner of

Internal Revenue cannot be favorably accepted by Us in this isolated transaction with its
peculiar circumstances in spite of the fact that there were hundreds of vendees. Although
they paid for their respective holdings in installment for a period of ten years, it would
nevertheless not make the vendor Roxas y Cia. a real estate dealer during the ten-year
amortization period.
It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who
tilled them for generations was not only in consonance with, but more in obedience to the
request and pursuant to the policy of our Government to allocate lands to the landless. It
was the bounden duty of the Government to pay the agreed compensation after it had
persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among
the farmers at very reasonable terms and prices. However, the Government could not
comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the
Government's burden, went out of its way and sold lands directly to the farmers in the same
way and under the same terms as would have been the case had the Government done it
itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution
expressing the people's gratitude.
(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence
100% taxable?
(2) Are the deductions for business expenses and contributions deductible?
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. It does not conform with
Our sense of justice in the instant case for the Government to persuade the taxpayer to lend
it a helping hand and later on to penalize him for duly answering the urgent call.
In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question.
Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital
assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent
of 50%.
DISALLOWED DEDUCTIONS
Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet
given in honor of Sergio Osmena and P28.00 for San Miguel beer given as gifts to various
persons. The deduction were claimed as representation expenses. Representation expenses
are deductible from gross income as expenditures incurred in carrying on a trade or
business under Section 30(a) of the Tax Code provided the taxpayer proves that they are
reasonable in amount, ordinary and necessary, and incurred in connection with his
business. In the case at bar, the evidence does not show such link between the expenses and
the business of Roxas y Cia. The findings of the Court of Tax Appeals must therefore be
sustained.
The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City
Firemen, and Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines
Herald's fund for Manila's neediest families and Our Lady of Fatima chapel at Far Eastern
University.
The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and
Baguio City Police are not deductible for the reason that the Christmas funds were not
spent for public purposes but as Christmas gifts to the families of the members of said
entities. Under Section 39(h), a contribution to a government entity is deductible when
used exclusively for public purposes. For this reason, the disallowance must be sustained.
On the other hand, the contribution to the Manila Police trust fund is an allowable
deduction for said trust fund belongs to the Manila Police, a government entity, intended to
be used exclusively for its public functions.
The contributions to the Philippines Herald's fund for Manila's neediest families were
disallowed on the ground that the Philippines Herald is not a corporation or an association
contemplated in Section 30 (h) of the Tax Code. It should be noted however that the
contributions were not made to the Philippines Herald but to a group of civic spirited
citizens organized by the Philippines Herald solely for charitable purposes. There is no
question that the members of this group of citizens do not receive profits, for all the funds
they raised were for Manila's neediest families. Such a group of citizens may be classified
as an association organized exclusively for charitable purposes mentioned in Section 30(h)
of the Tax Code.
Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of
Fatima chapel at the Far Eastern University on the ground that the said university gives
dividends to its stockholders. Located within the premises of the university, the chapel in
question has not been shown to belong to the Catholic Church or any religious
organization. On the other hand, the lower court found that it belongs to the Far Eastern
University, contributions to which are not deductible under Section 30(h) of the Tax Code
for the reason that the net income of said university injures to the benefit of its
stockholders. The disallowance should be sustained.
Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it,
because although it earned a rental income of P8,000.00 per annum in 1952, said rental
income came from Jose Roxas, one of the partners. Section 194 of the Tax Code, in
considering as real estate dealers owners of real estate receiving rentals of at least
P3,000.00 a year, does not provide any qualification as to the persons paying the rentals.
The law, which states: 1wph1.t
. . . "Real estate dealer" includes any person engaged in the business of buying, selling,
exchanging, leasing or renting property on his own account as principal and holding
himself out as a full or part-time dealer in real estate or as an owner of rental property or
properties rented or offered to rent for an aggregate amount of three thousand pesos or
more a year: . . . (Emphasis supplied) .
is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or,
this point is sustained.1wph1.t
To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo
Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of
P109.00, P91.00 and P49.00, respectively, computed as follows: *
Less: Exemptions
4,200.00
Net taxable income
--------------------------------------------------------------------------------
ANTONIO ROXAS
P311,463.26
Tax due 154,169.00
Net income per return P315,476.59

Add: 1/3 share, profits in Roxas y Cia. P 153,249.15
Tax paid 154,060.00

Deficiency
Less amount declared 146,135.46
--------------------------------------------------------------------------------
Amount understated
P 109.00
--------------------------------------------------------------------------------
==========
P 7,113.69
Contributions disallowed 115.00
EDUARDO ROXAS
Net income per return

-------------------------------------------------------------------------------P 7,228.69
P 304,166.92
Add: 1/3 share, profits in Roxas y Cia P 153,249.15
Less 1/3 share of contributions amounting to P21,126.06 disallowed from partnership but
allowed to partners 7,042.02 186.67
Less profits declared 146,052.58
Net income per review
Amount understated
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------P 7,196.57
-------------------------------------------------------------------------------P315,663.26
Less 1/3 share in contributions amounting to P21,126.06 disallowed from partnership but
allowed to partners 7,042.02 155.55
--------------------------------------------------------------------------------
Less amount reported 146,135.46

Amount understated
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
7,113.69
P304,322.47
Less 1/3 share of contributions disallowed from partnership but allowed as deductions to
partners 7,042.02 71.67
Less: Exemptions
4,800.00
Net taxable income

--------------------------------------------------------------------------------
-------------------------------------------------------------------------------P299,592.47
Tax Due P147,250.00
Tax paid 147,159.00

Deficiency
-------------------------------------------------------------------------------P91.00
===========
JOSE ROXAS
Net income per return

P222,681.76
Add: 1/3 share, profits in Roxas y Cia. P153,429.15

SUPREME COURT
Manila
EN BANC
G.R. No. L-59431 July 25, 1984
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
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.
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.
Antero Sison for petitioner and for his own behalf.
This Court finds such a plea more than justified. The petition must be dismissed.
The Solicitor General for respondents.
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 welldefined 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
ANTERO M. SISON, JR., petitioner,

vs.
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 National Internal 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
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.
P222,753.43
Less: Exemption
1,800.00
Net income subject to tax
-------------------------------------------------------------------------------P220,953.43
Tax due P102,763.00
Tax paid 102,714.00

Deficiency
-------------------------------------------------------------------------------P 49.00
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.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De

la Fuente and Cuevas, JJ., concur.
===========
WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to
pay the sum of P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas,
Eduardo Roxas and Jose Roxas are ordered to pay the respective sums of P109.00, P91.00
and P49.00 as their individual deficiency income tax all corresponding for the year 1955.
No costs. So ordered.
Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Zaldivar, J., took no part.
Teehankee, J., concurs in the result.
Plana, J., took no part.
Concepcion, C.J., is on leave.

SUPREME COURT
Manila
EN BANC
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN

PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA;
and OFELIA L. DIMALANTA, petitioners,
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
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 of Finance, respondents.
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115754 October 30, 1995
G.R. No. 115525 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA),

petitioner,
vs.
JUAN T. DAVID, petitioner,
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
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. 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. 115544 October 30, 1995

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 of Finance, respondents.
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.
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 Representatives as 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."
RESOLUTION
The contention has no merit.
MENDOZA, J.:
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.
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO

REQUIRE THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS 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

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).
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

House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
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
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
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A NEW
SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
5. R.A. NO. 7656

House Bill No. 9187, November 3, 1993
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 NATIONAL INTERNAL REVENUE CODE, AS AMENDED,
ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES
(December 23, 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
House Bill No. 7789, May 31, 1993
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.
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 concur with amendments.
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."
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:
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 on Ways 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 moment
was 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 yeas and 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 of Attorneys 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 copies thereof 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:
No. 7716.
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. . . .
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:
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.
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)

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.
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.
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.
(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
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.
(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.
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).
(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.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary
restraining order previously issued is hereby lifted.
SO ORDERED
SUPREME COURT
Manila
EN BANC
G.R. No. L-7859
December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio
Jayme Ledesma, plaintiff-appellant,
a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
According to section 6 of the law
Ernesto J. Gonzaga for appellant.

Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General
Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid
out only for any or all of the following purposes or to attain any or all of the following
objectives, as may be provided by law.
REYES, J.B L., J.:
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of
the preferntial position of the Philippine sugar in the United States market, and ultimately
to insure its continued existence notwithstanding the loss of that market and the consequent
necessity of meeting competition in the free markets of the world;
This case was initiated in the Court of First Instance of Negros Occidental to test the
legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the
Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of

emergency, due to the threat to our industry by the imminent imposition of export taxes
upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its
preferential position in the United States market"; wherefore, the national policy was
expressed "to obtain a readjustment of the benefits derived from the sugar industry by the
component elements thereof" and "to stabilize the sugar industry so as to prepare it for the
eventuality of the loss of its preferential position in the United States market and the
imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the
manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while
section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar
cane and ceded to others for a consideration, on lease or otherwise
Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof the mill, the landowner, the planter of the sugar cane, and the laborers
in the factory and in the field so that all might continue profitably to engage
therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production
thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living
and working conditions: Provided, That the President of the Philippines may, until the
adjourment of the next regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the establishment and operation of sugar
experiment station or stations and the undertaking of researchers (a) to increase the
recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs,
(b) to produce and propagate higher yielding varieties of sugar cane more adaptable to
different district conditions in the Philippines, (c) to lower the costs of raising sugar cane,
(d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e) to
determine the possibility of utilizing the other by-products of the industry, (f) to determine
what crop or crops are suitable for rotation and for the utilization of excess cane lands, and
(g) on other problems the solution of which would help rehabilitate and stabilize the
industry, and (2) for the improvement of living and working conditions in sugar mills and
sugar plantations, authorizing him to organize the necessary agency or agencies to take
charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore
enumerated, and, likewise, authorizing the disbursement from the fund herein created of
the necessary amount or amounts needed for salaries, wages, travelling expenses,
equipment, and other sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of
Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum
of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years
1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied
for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not
a public purpose for which a tax may be constitutioally levied. The action having been
dismissed by the Court of First Instance, the plaintifs appealed the case directly to this
Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act,
and particularly of section 6 (heretofore quoted in full), will show that the tax is levied with
a regulatory purpose, to provide means for the rehabilitation and stabilization of the
threatened sugar industry. In other words, the act is primarily an exercise of the police
power.
This Court can take judicial notice of the fact that sugar production is one of the great
industries of our nation, sugar occupying a leading position among its export products; that
it gives employment to thousands of laborers in fields and factories; that it is a great source
of the state's wealth, is one of the important sources of foreign exchange needed by our
government, and is thus pivotal in the plans of a regime committed to a policy of currency
stability. Its promotion, protection and advancement, therefore redounds greatly to the
general welfare. Hence it was competent for the legislature to find that the general welfare
demanded that the sugar industry should be stabilized in turn; and in the wide field of its
police power, the lawmaking body could provide that the distribution of benefits therefrom
be readjusted among its components to enable it to resist the added strain of the increase in
taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs.
State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So.
121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida
The protection of a large industry constituting one of the great sources of the state's wealth
and therefore directly or indirectly affecting the welfare of so great a portion of the
population of the State is affected to such an extent by public interests as to be within the
police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a
matter of public concern, it follows that the Legislature may determine within reasonable
bounds what is necessary for its protection and expedient for its promotion. Here, the
legislative discretion must be allowed fully play, subject only to the test of reasonableness;
and it is not contended that the means provided in section 6 of the law (above quoted) bear
no relation to the objective pursued or are oppressive in character. If objective and methods
are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise
funds for their prosecution and attainment. Taxation may be made the implement of the
state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193;
U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L.
Ed. 579).
That the tax to be levied should burden the sugar producers themselves can hardly be a
ground of complaint; indeed, it appears rational that the tax be obtained precisely from
SUPREME COURT
Manila
EN BANC
G.R. No. L-23645
October 29, 1968
BENJAMIN P. GOMEZ, petitioner-appellee,
The pertinent portions of Adm. Order 3 read as follows:
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R.
VALENCIA, in his capacity as Secretary of Public Works and Communications, and
DOMINGO GOPEZ, in his capacity as Acting Postmaster of San Fernando, Pampanga,
respondent-appellants.
Such semi-postal stamps could not be made available during the period from August 19 to
September 30, 1957, for lack of time. However, two denominations of such stamps, one at
"5 + 5" centavos and another at "10 + 5" centavos, will soon be released for use by the
public on their mails to be posted during the same period starting with the year 1958.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
xxx
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C.
Zaballero and Solicitor Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by
Republic Act 2631,2 which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order
for the period from August nineteen to September thirty every year the printing and issue of
semi-postal stamps of different denominations with face value showing the regular postage
charge plus the additional amount of five centavos for the said purpose, and during the said
period, no mail matter shall be accepted in the mails unless it bears such semi-postal
stamps: Provided, That no such additional charge of five centavos shall be imposed on
newspapers. The additional proceeds realized from the sale of the semi-postal stamps shall
constitute a special fund and be deposited with the National Treasury to be expended by the
Philippine Tuberculosis Society in carrying out its noble work to prevent and eradicate
tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4)
administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28,
1958), and 10 (July 15, 1960). All these administrative orders were issued with the
approval of the respondent Secretary of Public Works and Communications.
xxx
xxx
During the period from August 19 to September 30 each year starting in 1958, no mail
matter of whatever class, and whether domestic or foreign, posted at any Philippine Post
Office and addressed for delivery in this country or abroad, shall be accepted for mailing
unless it bears at least one such semi-postal stamp showing the additional value of five
centavos intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or
impressions of postage meters, each piece of such mail shall bear at least one such semipostal stamp if posted during the period above stated starting with the year 1958, in
addition to being charged the usual postage prescribed by existing regulations. In the case
of business reply envelopes and cards mailed during said period, such stamp should be
collected from the addressees at the time of delivery. Mails entitled to franking privilege
like those from the office of the President, members of Congress, and other offices to
which such privilege has been granted, shall each also bear one such semi-postal stamp if
posted during the said period.
Mails posted during the said period starting in 1958, which are found in street or postoffice mail boxes without the required semi-postal stamp, shall be returned to the sender, if
known, with a notation calling for the affixing of such stamp. If the sender is unknown, the
mail matter shall be treated as nonmailable and forwarded to the Dead Letter Office for
proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking
privilege which are not exempted from the payment of the five centavos intended for the
Philippine Tuberculosis Society, such extra charge may be collected in cash, for which
official receipt (General Form No. 13, A) shall be issued, instead of affixing the semi-postal
stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of
five centavos for the Philippine Tuberculosis Society shall be collected on each separatelyaddressed piece of second-class mail matter, and the total sum thus collected shall be
entered in the same official receipt to be issued for the postage at the second-class rate. In
making such entry, the total number of pieces of second-class mail posted shall be stated,
thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered
separate from the postage in both of the official receipt and the Record of Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed
under permits issued by this Bureau shall each be charged the usual postage, in addition to
the five-centavo extra charge intended for said society. The total extra charge thus received
shall be entered in the same official receipt to be issued for the postage collected, as in
subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under
metered mail permit issued by this Bureau, the extra charge of five centavos for said
society shall be collected in cash and an official receipt issued for the total sum thus
received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and
envelopes to holders of business reply permits, the five-centavo charge intended for said
society shall be collected in cash on each reply card or envelope delivered, in addition to
the required postage which may also be paid in cash. An official receipt shall be issued for
the total postage and total extra charge received, in the manner shown in subparagraph 1.
provided that such mails are presented at the post-office window, where the five-centavo
extra charge for said society shall be collected on each piece of such mail matter. In such
case, an official receipt shall be issued for the total sum thus collected, in the manner stated
in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office
window shall be affixed with the necessary semi-postal stamps. If found in mail boxes
without such stamps, they shall be treated in the same way as herein provided for other
mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its
Agencies and Instrumentalities Performing Governmental Functions." Adm. Order 10,
amending Adm. Order 3, as amended, exempts "copies of periodical publications received
for mailing under any class of mail matter, including newspapers and magazines admitted
as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at
the post office in San Fernando, Pampanga. Because this letter, addressed to a certain
Agustin Aquino of 1014 Dagohoy Street, Singalong, Manila did not bear the special antiTB stamp required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of
First Instance of Pampanga, to test the constitutionality of the statute, as well as the
implementing administrative orders issued, contending that it violates the equal protection
clause of the Constitution as well as the rule of uniformity and equality of taxation. The
lower court declared the statute and the orders unconstitutional; hence this appeal by the
respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
5. Mails entitled to franking privilege. Government agencies, officials, and other
persons entitled to the franking privilege under existing laws may pay in cash such extra
charge intended for said society, instead of affixing the semi-postal stamps to their mails,
Before reaching the merits, we deem it necessary to dispose of the respondents' contention
that declaratory relief is unavailing because this suit was filed after the petitioner had
committed a breach of the statute. While conceding that the mailing by the petitioner of a
letter without the additional anti-TB stamp was a violation of Republic Act 1635, as
amended, the trial court nevertheless refused to dismiss the action on the ground that under
section 6 of Rule 64 of the Rules of Court, "If before the final termination of the case a
breach or violation of ... a statute ... should take place, the action may thereupon be
converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before
breach or violation" of the statute has been committed. Rule 64, section 1 so provides.
Section 6 of the same rule, which allows the court to treat an action for declaratory relief as
an ordinary action, applies only if the breach or violation occurs after the filing of the
action but before the termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the
firing of this action, then indeed the remedy of declaratory relief cannot be availed of,
much less can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did
not constitute a breach of the statute because the statute appears to be addressed only to
postal authorities. The statute, it is true, in terms provides that "no mail matter shall be
accepted in the mails unless it bears such semi-postal stamps." It does not follow, however,
that only postal authorities can be guilty of violating it by accepting mails without the
payment of the anti-TB stamp. It is obvious that they can be guilty of violating the statute
only if there are people who use the mails without paying for the additional anti-TB stamp.
Just as in bribery the mere offer constitutes a breach of the law, so in the matter of the antiTB stamp the mere attempt to use the mails without the stamp constitutes a violation of the
statute. It is not required that the mail be accepted by postal authorities. That requirement is
relevant only for the purpose of fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because
this suit was filed not only with respect to the letter which he mailed on September 15,
1963, but also with regard to any other mail that he might send in the future. Thus, in his
complaint, the petitioner prayed that due course be given to "other mails without the semipostal stamps which he may deliver for mailing ... if any, during the period covered by
Republic Act 1635, as amended, as well as other mails hereafter to be sent by or to other
mailers which bear the required postage, without collection of additional charge of five
centavos prescribed by the same Republic Act." As one whose mail was returned, the
petitioner is certainly interested in a ruling on the validity of the statute requiring the use of
additional stamps.
II.
We now consider the constitutional objections raised against the statute and the
implementing orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution.
More specifically the claim is made that it constitutes mail users into a class for the purpose
of the tax while leaving untaxed the rest of the population and that even among postal
patrons the statute discriminatorily grants exemption to newspapers while Administrative
Order 9 of the respondent Postmaster General grants a similar exemption to offices
performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. As
such the objections levelled against it must be viewed in the light of applicable principles
of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects
of taxation and to grant exemptions.4 This power has aptly been described as "of wide
range and flexibility."5 Indeed, it is said that in the field of taxation, more than in other
areas, the legislature possesses the greatest freedom in classification.6 The reason for this is
that traditionally, classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the
petitioner asserts is that statutory classification of mail users must bear some reasonable
relationship to the end sought to be attained, and that absent such relationship the selection
of mail users is constitutionally impermissible. This is altogether a different proposition. As
explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between classification
made by the legislation and its purpose is undoubtedly true in some contexts, it has no
application to a measure whose sole purpose is to raise revenue ... So long as the
classification imposed is based upon some standard capable of reasonable comprehension,
be that standard based upon ability to produce revenue or some other legitimate distinction,
equal protection of the law has been afforded. See Allied Stores of Ohio, Inc. v. Bowers,
supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v. Commonwealth of
Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest
demonstration that it sanctions invidious discrimination, which is all that the Constitution
forbids. The remedy for unwise legislation must be sought in the legislature. Now, the
classification of mail users is not without any reason. It is based on ability to pay, let alone
the enjoyment of a privilege, and on administrative convinience. In the allocation of the tax
burden, Congress must have concluded that the contribution to the anti-TB fund can be
assured by those whose who can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it

is now a settled principle of law that "consideration of practical administrative convenience
and cost in the administration of tax laws afford adequate ground for imposing a tax on a
well recognized and defined class."9 In the case of the anti-TB stamps, undoubtedly, the
single most important and influential consideration that led the legislature to select mail
users as subjects of the tax is the relative ease and convenienceof collecting the tax through
the post offices. The small amount of five centavos does not justify the great expense and
inconvenience of collecting through the regular means of collection. On the other hand, by
placing the duty of collection on postal authorities the tax was made almost self-enforcing,
with as little cost and as little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a
class. Mail users were already a class by themselves even before the enactment of the
statue and all that the legislature did was merely to select their class. Legislation is
essentially empiric and Republic Act 1635, as amended, no more than reflects a distinction
that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in
fact is living law; to disregard [them] and concentrate on some abstract identities is lifeless
logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption
must likewise be conceded as a necessary corollary. Tax exemptions are too common in the
law; they have never been thought of as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted
from the levy the law and administrative officials have sanctioned an invidious
discrimination offensive to the Constitution. The application of the lower courts theory
would require all mail users to be taxed, a conclusion that is hardly tenable in the light of
differences in status of mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of
the tax in order to foster what it conceives to be a beneficent enterprise.11 This is the case
of newspapers which, under the amendment introduced by Republic Act 2631, are exempt
from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's
sovereign immunity from taxation. The State cannot be taxed without its consent and such
consent, being in derogation of its sovereignty, is to be strictly construed.12 Administrative
Order 9 of the respondent Postmaster General, which lists the various offices and
instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but
a restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to
the exclusion of other diseases which, it is said, are equally a menace to public health. But
it is never a requirement of equal protection that all evils of the same genus be eradicated
or none at all.13 As this Court has had occasion to say, "if the law presumably hits the evil
where it is most felt, it is not to be overthrown because there are other instances to which it
might have been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not
levied for a public purpose as no special benefits accrue to mail users as taxpayers, and
second, because it violates the rule of uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the
petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient
answer to say that the only benefit to which the taxpayer is constitutionally entitled is that
derived from his enjoyment of the privileges of living in an organized society, established
and safeguarded by the devotion of taxes to public purposes. Any other view would
preclude the levying of taxes except as they are used to compensate for the burden on those
who pay them and would involve the abandonment of the most fundamental principle of
government that it exists primarily to provide for the common good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat
rate rather than a graduated tax. A tax need not be measured by the weight of the mail or
the extent of the service rendered. We have said that considerations of administrative
convenience and cost afford an adequate ground for classification. The same considerations
may induce the legislature to impose a flat tax which in effect is a charge for the
transaction, operating equally on all persons within the class regardless of the amount
involved.16 As Mr. Justice Holmes said in sustaining the validity of a stamp act which
imposed a flat rate of two cents on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The
inequality of the tax, so far as actual values are concerned, is manifest. But, here again
equality in this sense has to yield to practical considerations and usage. There must be a
fixed and indisputable mode of ascertaining a stamp tax. In another sense, moreover, there
is equality. When the taxes on two sales are equal, the same number of shares is sold in
each case; that is to say, the same privilege is used to the same extent. Valuation is not the
only thing to be considered. As was pointed out by the court of appeals, the familiar stamp
tax of 2 cents on checks, irrespective of income or earning capacity, and many others,
illustrate the necessity and practice of sometimes substituting count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent
for the benefit of the Philippine Tuberculosis Society, a private organization, without
appropriation by law. But as the Solicitor General points out, the Society is not really the
beneficiary but only the agency through which the State acts in carrying out what is
essentially a public function. The money is treated as a special fund and as such need not
be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the
respondents had to issue administrative orders far beyond their powers. Indeed, this is one
of the grounds on which the lower court invalidated Republic Act 1631, as amended,
namely, that it constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for
certain classes of mail matters (such as mail permits, metered mails, business reply cards,
etc.), the five-centavo charge may be paid in cash instead of the purchase of the anti-TB
stamp. It further states that mails deposited during the period August 19 to September 30 of
each year in mail boxes without the stamp should be returned to the sender, if known,
otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except
through the sale of anti-TB stamps, but such authority may be implied in so far as it may be
necessary to prevent a failure of the undertaking. The authority given to the Postmaster
General to raise funds through the mails must be liberally construed, consistent with the
principle that where the end is required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of
the additional charge but also that of the regular postage. In the case of business reply
cards, for instance, it is obvious that to require mailers to affix the anti-TB stamp on their
cards would be to make them pay much more because the cards likewise bear the amount
of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not
bear the anti-TB stamp, but a declaration therein that "no mail matter shall be accepted in
the mails unless it bears such semi-postal stamp" is a declaration that such mail matter is
nonmailable within the meaning of section 1952 of the Administrative Code.
Administrative Order 7 of the Postmaster General is but a restatement of the law for the
guidance of postal officials and employees. As for Administrative Order 9, we have already
said that in listing the offices and entities of the Government exempt from the payment of
the stamp, the respondent Postmaster General merely observed an established principle,
namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without
pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano, JJ.,
concur.
Zaldivar, J., is on leave.

SUPREME COURT
Manila
EN BANC
G.R. No. L-75697 June 18, 1987
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES,
petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA
COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA, respondents.
Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete protection
of their rights and that their "survival and very existence is threatened by the unregulated
proliferation of film piracy." The Intervenors were thereafter allowed to file their Comment
in Intervention.
Nelson Y. Ng for petitioner.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as
follows:
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and
purportedly on behalf of other videogram operators adversely affected. It assails the
constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the Videogram
Regulatory Board" with broad powers to regulate and supervise the videogram industry
(hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5,
1985 and took effect on April 10, 1986, fifteen (15) days after completion of its publication
in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree,

Presidential Decree No. 1994 amended the National Internal Revenue Code providing,
inter alia:
1. WHEREAS, the proliferation and unregulated circulation of videograms including,

among others, videotapes, discs, cassettes or any technical improvement or variation
thereof, have greatly prejudiced the operations of moviehouses and theaters, and have
caused a sharp decline in theatrical attendance by at least forty percent (40%) and a
tremendous drop in the collection of sales, contractor's specific, amusement and other
taxes, thereby resulting in substantial losses estimated at P450 Million annually in
government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per

annum from rentals, sales and disposition of videograms, and such earnings have not been
subjected to tax, thereby depriving the Government of approximately P180 Million in taxes
each year;
3. WHEREAS, the unregulated activities of videogram establishments have also affected

the viability of the movie industry, particularly the more than 1,200 movie houses and
theaters throughout the country, and occasioned industry-wide displacement and
unemployment due to the shutdown of numerous moviehouses and theaters;
SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette,
ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax.
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the

Government to create an environment conducive to growth and development of all business
industries, including the movie industry which has an accumulated investment of about P3
Billion;
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie
Producers, Importers and Distributors Association of the Philippines, and Philippine
Motion Pictures Producers Association, hereinafter collectively referred to as the
5. WHEREAS, proper taxation of the activities of videogram establishments will not only
alleviate the dire financial condition of the movie industry upon which more than 75,000
families and 500,000 workers depend for their livelihood, but also provide an additional
source of revenue for the Government, and at the same time rationalize the heretofore
uncontrolled distribution of videograms;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is not.
6. WHEREAS, the rampant and unregulated showing of obscene videogram features
constitutes a clear and present danger to the moral and spiritual well-being of the youth,
and impairs the mandate of the Constitution for the State to support the rearing of the youth
for civic efficiency and the development of moral character and promote their physical,
intellectual, and social well-being;
We shall consider the foregoing objections in seriatim.
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. The Constitutional requirement that "every bill shall embrace only one subject which
shall be expressed in the title thereof" 1 is sufficiently complied with if the title be
comprehensive enough to include the general purpose which a statute seeks to achieve. It is
not necessary that the title express each and every end that the statute wishes to
accomplish. The requirement is satisfied if all the parts of the statute are related, and are
germane to the subject matter expressed in the title, or as long as they are not inconsistent
with or foreign to the general subject and title. 2 An act having a single general subject,
indicated in the title, may contain any number of provisions, no matter how diverse they
may be, so long as they are not inconsistent with or foreign to the general subject, and may
be considered in furtherance of such subject by providing for the method and means of
carrying out the general object." 3 The rule also is that the constitutional requirement as to
the title of a bill should not be so narrowly construed as to cripple or impede the power of
legislation. 4 It should be given practical rather than technical construction. 5
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
Tested by the foregoing criteria, petitioner's contention that the tax provision of the
DECREE is a rider is without merit. That section reads, inter alia:
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution;
Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any

provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of
the purchase price or rental rate, as the case may be, for every sale, lease or disposition of a
videogram containing a reproduction of any motion picture or audiovisual program. Fifty
percent (50%) of the proceeds of the tax collected shall accrue to the province, and the
other fifty percent (50%) shall acrrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila Commission.
7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb
these blatant malpractices which have flaunted our censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of the
people and betraying the national economic recovery program, bold emergency measures
must be adopted with dispatch; ... (Numbering of paragraphs supplied).
3. There is no factual nor legal basis for the exercise by the President of the vast powers
conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;

xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the DECREE, which is the regulation of the video
industry through the Videogram Regulatory Board as expressed in its title. The tax
provision is not inconsistent with, nor foreign to that general subject and title. As a tool for
regulation 6 it is simply one of the regulatory and control mechanisms scattered
throughout the DECREE. The express purpose of the DECREE to include taxation of the
video industry in order to regulate and rationalize the heretofore uncontrolled distribution
of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the
motives of the lawmaker in presenting the measure. The title of the DECREE, which is the
creation of the Videogram Regulatory Board, is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covers all its provisions. It is
unnecessary to express all those objectives in the title or that the latter be an index to the
body of the DECREE. 7
tapes. And while it was also an objective of the DECREE to protect the movie industry, the
tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that "inequities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation". 12 Taxation has been
made the implement of the state's police power. 13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does
not cease to be valid merely because it regulates, discourages, or even definitely deters the
activities taxed. 8 The power to impose taxes is one so unlimited in force and so searching
in extent, that the courts scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority which exercises it. 9 In
imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation. 10
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the
DECREE by the former President under Amendment No. 6 of the 1973 Constitution
providing that "whenever in the judgment of the President ... , there exists a grave
emergency or a threat or imminence thereof, or whenever the interim Batasang Pambansa
or the regular National Assembly fails or is unable to act adequately on any matter for any
reason that in his judgment requires immediate action, he may, in order to meet the
exigency, issue the necessary decrees, orders, or letters of instructions, which shall form
part of the law of the land."
The tax imposed by the DECREE is not only a regulatory but also a revenue measure
prompted by the realization that earnings of videogram establishments of around P600
million per annum have not been subjected to tax, thereby depriving the Government of an
additional source of revenue. It is an end-user tax, imposed on retailers for every
videogram they make available for public viewing. It is similar to the 30% amusement tax
imposed or borne by the movie industry which the theater-owners pay to the government,
but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden
on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram
operators.
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas"
clause sufficiently summarizes the justification in that grave emergencies corroding the
moral values of the people and betraying the national economic recovery program
necessitated bold emergency measures to be adopted with dispatch. Whatever the reasons
"in the judgment" of the then President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends resolution in several
other cases, we reserve resolution of the question raised at the proper time.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the
need for regulating the video industry, particularly because of the rampant film piracy, the
flagrant violation of intellectual property rights, and the proliferation of pornographic video
4. Neither can it be successfully argued that the DECREE contains an undue delegation of
legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to
"solicit the direct assistance of other agencies and units of the government and deputize, for
a fixed and limited period, the heads or personnel of such agencies and units to perform
enforcement functions for the Board" is not a delegation of the power to legislate but
merely a conferment of authority or discretion as to its execution, enforcement, and
implementation. "The true distinction is between the delegation of power to make the law,
which necessarily involves a discretion as to what it shall be, and conferring authority or
discretion as to its execution to be exercised under and in pursuance of the law. The first
cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very
language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed
and limited period" with the deputized agencies concerned being "subject to the direction
and control of the BOARD." That the grant of such authority might be the source of graft
and corruption would not stigmatize the DECREE as unconstitutional. Should the
eventuality occur, the aggrieved parties will not be without adequate remedy in law.
... it is now well settled that "there is no constitutional objection to the passage of a law
providing that the presumption of innocence may be overcome by a contrary presumption
founded upon the experience of human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856
[1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL
LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have
been proved that they shall be prima facie evidence of the existence of the guilt of the
accused and shift the burden of proof provided there be a rational connection between the
facts proved and the ultimate facts presumed so that the inference of the one from proof of
the others is not unreasonable and arbitrary because of lack of connection between the two
in common experience". 16
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is,
among other categories, one which "alters the legal rules of evidence, and authorizes
conviction upon less or different testimony than the law required at the time of the
commission of the offense." It is petitioner's position that Section 15 of the DECREE in
providing that:
Applied to the challenged provision, there is no question that there is a rational connection
between the fact proved, which is non-registration, and the ultimate fact presumed which is
violation of the DECREE, besides the fact that the prima facie presumption of violation of
the DECREE attaches only after a forty-five-day period counted from its effectivity and is,
therefore, neither retrospective in character.
All videogram establishments in the Philippines are hereby given a period of forty-five (45)
days after the effectivity of this Decree within which to register with and secure a permit
from the BOARD to engage in the videogram business and to register with the BOARD all
their inventories of videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or otherwise
disposed of. Thereafter any videogram found in the possession of any person engaged in
the videogram business without the required proof of registration by the BOARD, shall be
prima facie evidence of violation of the Decree, whether the possession of such videogram
be for private showing and/or public exhibition.
6. We do not share petitioner's fears that the video industry is being over-regulated and
being eased out of existence as if it were a nuisance. Being a relatively new industry, the
need for its regulation was apparent. While the underlying objective of the DECREE is to
protect the moribund movie industry, there is no question that public welfare is at bottom of
its enactment, considering "the unfair competition posed by rampant film piracy; the
erosion of the moral fiber of the viewing public brought about by the availability of
unclassified and unreviewed video tapes containing pornographic films and films with
brutally violent sequences; and losses in government revenues due to the drop in theatrical
attendance, not to mention the fact that the activities of video establishments are virtually
untaxed since mere payment of Mayor's permit and municipal license fees are required to
engage in business. 17
raises immediately a prima facie evidence of violation of the DECREE when the required
proof of registration of any videogram cannot be presented and thus partakes of the nature
of an ex post facto law.
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of
the video industry. On the contrary, video establishments are seen to have proliferated in
many places notwithstanding the 30% tax imposed.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of
Appeals, et al. 15
In the last analysis, what petitioner basically questions is the necessity, wisdom and
expediency of the DECREE. These considerations, however, are primarily and exclusively
a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action taken, may be the
basis for declaring a statute invalid. This is as it ought to be. The principle of separation of
powers has in the main wisely allocated the respective authority of each department and
confined its jurisdiction to such a sphere. There would then be intrusion not allowable
under the Constitution if on a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to the rule of law, as there ought to
be, the last offender should be courts of justice, to which rightly litigants submit their
controversy precisely to maintain unimpaired the supremacy of legal norms and
prescriptions. The attack on the validity of the challenged provision likewise insofar as
there may be objections, even if valid and cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a
challenged statute. We find no clear violation of the Constitution which would justify us in
pronouncing Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED
SUPREME COURT
Manila
EN BANC
G.R. No. 166494
June 29, 2007
CARLOS SUPERDRUG CORP., doing business under the name and style "Carlos
Superdrug," ELSIE M. CANO, doing business under the name and style "Advance Drug,"
Dr. SIMPLICIO L. YAP, JR., doing business under the name and style "City Pharmacy,"
MELVIN S. DELA SERNA, doing business under the name and style "Botica dela Serna,"
and LEYTE SERV-WELL CORP., doing business under the name and style "Leyte ServWell Drugstore," petitioners,
vs.
DEPARTMENT OF SOCIAL WELFARE and DEVELOPMENT (DSWD),
DEPARTMENT OF HEALTH (DOH), DEPARTMENT OF FINANCE (DOF),
DEPARTMENT OF JUSTICE (DOJ), and DEPARTMENT OF INTERIOR and LOCAL
GOVERNMENT (DILG), respondents.
DECISION
AZCUNA, J.:
This is a petition1 for Prohibition with Prayer for Preliminary Injunction assailing the
constitutionality of Section 4(a) of Republic Act (R.A.) No. 9257,2 otherwise known as the
"Expanded Senior Citizens Act of 2003."
Petitioners are domestic corporations and proprietors operating drugstores in the

Philippines.
Public respondents, on the other hand, include the Department of Social Welfare and
Development (DSWD), the Department of Health (DOH), the Department of Finance
(DOF), the Department of Justice (DOJ), and the Department of Interior and Local
Government (DILG) which have been specifically tasked to monitor the drugstores
compliance with the law; promulgate the implementing rules and regulations for the
effective implementation of the law; and prosecute and revoke the licenses of erring
drugstore establishments.
The antecedents are as follows:
On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432,3 was signed into law by
President Gloria Macapagal-Arroyo and it became effective on March 21, 2004. Section
4(a) of the Act states:
SEC. 4. Privileges for the Senior Citizens. The senior citizens shall be entitled to the
following:
(a) the grant of twenty percent (20%) discount from all establishments relative to the
utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers, and purchase of medicines in all establishments for the exclusive use or
enjoyment of senior citizens, including funeral and burial services for the death of senior
citizens;
...
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax
deduction based on the net cost of the goods sold or services rendered: Provided, That the
cost of the discount shall be allowed as deduction from gross income for the same taxable
year that the discount is granted. Provided, further, That the total amount of the claimed tax
deduction net of value added tax if applicable, shall be included in their gross sales receipts
for tax purposes and shall be subject to proper documentation and to the provisions of the
National Internal Revenue Code, as amended.4
On May 28, 2004, the DSWD approved and adopted the Implementing Rules and
Regulations of R.A. No. 9257, Rule VI, Article 8 of which states:
Article 8. Tax Deduction of Establishments. The establishment may claim the discounts
granted under Rule V, Section 4 Discounts for Establishments;5 Section 9, Medical and
Dental Services in Private Facilities[,]6 and Sections 107 and 118 Air, Sea and Land
Transportation as tax deduction based on the net cost of the goods sold or services
rendered. Provided, That the cost of the discount shall be allowed as deduction from gross
income for the same taxable year that the discount is granted; Provided, further, That the
total amount of the claimed tax deduction net of value added tax if applicable, shall be
included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code, as amended;
Provided, finally, that the implementation of the tax deduction shall be subject to the
Revenue Regulations to be issued by the Bureau of Internal Revenue (BIR) and approved
by the Department of Finance (DOF).9
On July 10, 2004, in reference to the query of the Drug Stores Association of the
Philippines (DSAP) concerning the meaning of a tax deduction under the Expanded Senior
Citizens Act, the DOF, through Director IV Ma. Lourdes B. Recente, clarified as follows:
1) The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax
Deduction (under the Expanded Senior Citizens Act).
1.1. The provision of Section 4 of R.A. No. 7432 (the old Senior Citizens Act) grants
twenty percent (20%) discount from all establishments relative to the utilization of
transportation services, hotels and similar lodging establishment, restaurants and recreation
centers and purchase of medicines anywhere in the country, the costs of which may be
claimed by the private establishments concerned as tax credit.
Under this scheme, the establishment concerned is allowed to deduct from gross income, in
computing for its tax liability, the amount of discounts granted to senior citizens.
Effectively, the government loses in terms of foregone revenues an amount equivalent to
the marginal tax rate the said establishment is liable to pay the government. This will be an
amount equivalent to 32% of the twenty percent (20%) discounts so granted. The
establishment shoulders the remaining portion of the granted discounts.
It may be necessary to note that while the burden on [the] government is slightly
diminished in terms of its percentage share on the discounts granted to senior citizens, the
number of potential establishments that may claim tax deductions, have however, been
broadened. Aside from the establishments that may claim tax credits under the old law,
more establishments were added under the new law such as: establishments providing
medical and dental services, diagnostic and laboratory services, including professional fees
of attending doctors in all private hospitals and medical facilities, operators of domestic air
and sea transport services, public railways and skyways and bus transport services.
A simple illustration might help amplify the points discussed above, as follows:
Tax Deduction Tax Credit

Effectively, a tax credit is a peso-for-peso deduction from a taxpayers tax liability due to
the government of the amount of discounts such establishment has granted to a senior
citizen. The establishment recovers the full amount of discount given to a senior citizen and
hence, the government shoulders 100% of the discounts granted.
Gross Sales x x x x x x x x x x x x
Less : Cost of goods sold x x x x x x x x x x

It must be noted, however, that conceptually, a tax credit scheme under the Philippine tax
system, necessitates that prior payments of taxes have been made and the taxpayer is
attempting to recover this tax payment from his/her income tax due. The tax credit scheme
under R.A. No. 7432 is, therefore, inapplicable since no tax payments have previously
occurred.
Net Sales x x x x x x x x x x x x
Less: Operating Expenses:

1.2. The provision under R.A. No. 9257, on the other hand, provides that the establishment
concerned may claim the discounts under Section 4(a), (f), (g) and (h) as tax deduction
from gross income, based on the net cost of goods sold or services rendered.
Tax Deduction on Discounts x x x x --
Other deductions: x x x x x x x x
Net Taxable Income x x x x x x x x x x
Tax Due x x x x x x
Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior Citizens Act
based on the following grounds:13
1) The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which
provides that private property shall not be taken for public use without just compensation;
2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution
which states that "no person shall be deprived of life, liberty or property without due
process of law, nor shall any person be denied of the equal protection of the laws;" and
Less: Tax Credit -- ______x x
Net Tax Due -- x x
3) The 20% discount on medicines violates the constitutional guarantee in Article XIII,
Section 11 that makes "essential goods, health and other social services available to all
people at affordable cost."14
As shown above, under a tax deduction scheme, the tax deduction on discounts was
subtracted from Net Sales together with other deductions which are considered as operating
expenses before the Tax Due was computed based on the Net Taxable Income. On the other
hand, under a tax credit scheme, the amount of discounts which is the tax credit item, was
deducted directly from the tax due amount.10
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes
deprivation of private property. Compelling drugstore owners and establishments to grant
the discount will result in a loss of profit
Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or the Policies and
Guidelines to Implement the Relevant Provisions of Republic Act 9257, otherwise known
as the "Expanded Senior Citizens Act of 2003"11 was issued by the DOH, providing the
grant of twenty percent (20%) discount in the purchase of unbranded generic medicines
from all establishments dispensing medicines for the exclusive use of the senior citizens.
On November 12, 2004, the DOH issued Administrative Order No 17712 amending A.O.
No. 171. Under A.O. No. 177, the twenty percent discount shall not be limited to the
purchase of unbranded generic medicines only, but shall extend to both prescription and
non-prescription medicines whether branded or generic. Thus, it stated that "[t]he grant of
twenty percent (20%) discount shall be provided in the purchase of medicines from all
establishments dispensing medicines for the exclusive use of the senior citizens."
and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded

medicines; and 2) the law failed to provide a scheme whereby drugstores will be justly
compensated for the discount.
Examining petitioners arguments, it is apparent that what petitioners are ultimately

questioning is the validity of the tax deduction scheme as a reimbursement mechanism for
the twenty percent (20%) discount that they extend to senior citizens.
Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse
petitioners for the discount privilege accorded to senior citizens. This is because the
discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross
income and results in a lower taxable income. Stated otherwise, it is an amount that is
allowed by law15 to reduce the income prior to the application of the tax rate to compute
the amount of tax which is due.16 Being a tax deduction, the discount does not reduce
taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes owed.
SEC. 2. Republic Act No. 7432 is hereby amended to read as follows:

Theoretically, the treatment of the discount as a deduction reduces the net income of the
private establishments concerned. The discounts given would have entered the coffers and
formed part of the gross sales of the private establishments, were it not for R.A. No. 9257.
The permanent reduction in their total revenues is a forced subsidy corresponding to the
taking of private property for public use or benefit.17 This constitutes compensable taking
for which petitioners would ordinarily become entitled to a just compensation.
Just compensation is defined as the full and fair equivalent of the property taken from its
owner by the expropriator. The measure is not the takers gain but the owners loss. The
word just is used to intensify the meaning of the word compensation, and to convey the
idea that the equivalent to be rendered for the property to be taken shall be real, substantial,
full and ample.18
A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it
would not meet the definition of just compensation.19
Having said that, this raises the question of whether the State, in promoting the health and
welfare of a special group of citizens, can impose upon private establishments the burden
of partly subsidizing a government program.
The Court believes so.
The Senior Citizens Act was enacted primarily to maximize the contribution of senior
citizens to nation-building, and to grant benefits and privileges to them for their
improvement and well-being as the State considers them an integral part of our society.20
The priority given to senior citizens finds its basis in the Constitution as set forth in the law
itself. Thus, the Act provides:
SECTION 1. Declaration of Policies and Objectives. Pursuant to Article XV, Section 4 of

the Constitution, it is the duty of the family to take care of its elderly members while the
State may design programs of social security for them. In addition to this, Section 10 in the
Declaration of Principles and State Policies provides: "The State shall provide social justice
in all phases of national development." Further, Article XIII, Section 11, provides: "The
State shall adopt an integrated and comprehensive approach to health development which
shall endeavor to make essential goods, health and other social services available to all the
people at affordable cost. There shall be priority for the needs of the underprivileged sick,
elderly, disabled, women and children." Consonant with these constitutional principles the
following are the declared policies of this Act:
...
(f) To recognize the important role of the private sector in the improvement of the welfare
of senior citizens and to actively seek their partnership.21
To implement the above policy, the law grants a twenty percent discount to senior citizens
for medical and dental services, and diagnostic and laboratory fees; admission fees charged
by theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure
and amusement; fares for domestic land, air and sea travel; utilization of services in hotels
and similar lodging establishments, restaurants and recreation centers; and purchases of
medicines for the exclusive use or enjoyment of senior citizens. As a form of
reimbursement, the law provides that business establishments extending the twenty percent
discount to senior citizens may claim the discount as a tax deduction.
The law is a legitimate exercise of police power which, similar to the power of eminent
domain, has general welfare for its object. Police power is not capable of an exact
definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient and
flexible response to conditions and circumstances, thus assuring the greatest benefits. 22
Accordingly, it has been described as "the most essential, insistent and the least limitable of
powers, extending as it does to all the great public needs."23 It is "[t]he power vested in the
legislature by the constitution to make, ordain, and establish all manner of wholesome and
reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to
the constitution, as they shall judge to be for the good and welfare of the commonwealth,
and of the subjects of the same."24
For this reason, when the conditions so demand as determined by the legislature, property
rights must bow to the primacy of police power because property rights, though sheltered
by due process, must yield to general welfare.25
Police power as an attribute to promote the common good would be diluted considerably if
on the mere plea of petitioners that they will suffer loss of earnings and capital, the
questioned provision is invalidated. Moreover, in the absence of evidence demonstrating
the alleged confiscatory effect of the provision in question, there is no basis for its
nullification in view of the presumption of validity which every law has in its favor.26
Given these, it is incorrect for petitioners to insist that the grant of the senior citizen
discount is unduly oppressive to their business, because petitioners have not taken time to
calculate correctly and come up with a financial report, so that they have not been able to
show properly whether or not the tax deduction scheme really works greatly to their
disadvantage.27
In treating the discount as a tax deduction, petitioners insist that they will incur losses
because, referring to the DOF Opinion, for every P1.00 senior citizen discount that
petitioners would give, P0.68 will be shouldered by them as only P0.32 will be refunded by
the government by way of a tax deduction.
To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive
maintenance drug Norvasc as an example. According to the latter, it acquires Norvasc from
the distributors at P37.57 per tablet, and retails it at P39.60 (or at a margin of 5%). If it
grants a 20% discount to senior citizens or an amount equivalent to P7.92, then it would
have to sell Norvasc at P31.68 which translates to a loss from capital of P5.89 per tablet.
Even if the government will allow a tax deduction, only P2.53 per tablet will be refunded
and not the full amount of the discount which is P7.92. In short, only 32% of the 20%
discount will be reimbursed to the drugstores.28
Petitioners computation is flawed. For purposes of reimbursement, the law states that the
cost of the discount shall be deducted from gross income,29 the amount of income derived
from all sources before deducting allowable expenses, which will result in net income.
Here, petitioners tried to show a loss on a per transaction basis, which should not be the
case. An income statement, showing an accounting of petitioners sales, expenses, and net
profit (or loss) for a given period could have accurately reflected the effect of the discount
on their income. Absent any financial statement, petitioners cannot substantiate their claim
that they will be operating at a loss should they give the discount. In addition, the
computation was erroneously based on the assumption that their customers consisted
wholly of senior citizens. Lastly, the 32% tax rate is to be imposed on income, not on the
amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the
prices of their medicines given the cutthroat nature of the players in the industry. It is a
business decision on the part of petitioners to peg the mark-up at 5%. Selling the medicines
below acquisition cost, as alleged by petitioners, is merely a result of this decision.
Inasmuch as pricing is a property right, petitioners cannot reproach the law for being
oppressive, simply because they cannot afford to raise their prices for fear of losing their
customers to competition.
The Court is not oblivious of the retail side of the pharmaceutical industry and the
competitive pricing component of the business. While the Constitution protects property
rights, petitioners must accept the realities of business and the State, in the exercise of
police power, can intervene in the operations of a business which may result in an
impairment of property rights in the process.
Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the precept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the regulation of contracts and public
utilities, continuously serve as a reminder that the right to property can be relinquished
upon the command of the State for the promotion of public good.30
Undeniably, the success of the senior citizens program rests largely on the support imparted
by petitioners and the other private establishments concerned. This being the case, the
means employed in invoking the active participation of the private sector, in order to
achieve the purpose or objective of the law, is reasonably and directly related. Without
sufficient proof that Section 4(a) of R.A. No. 9257 is arbitrary, and that the continued
implementation of the same would be unconscionably detrimental to petitioners, the Court

will refrain from quashing a legislative act.31
WHEREFORE, the petition is DISMISSED for lack of merit.
No costs.
SO ORDERED

SUPREME COURT
THIRD DIVISION
G.R. No. 159647 April 15, 2005
COMMISSIONER OF INTERNAL REVENUE, Petitioners,
The CA narrated the antecedent facts as follows:
vs.
CENTRAL LUZON DRUG CORPORATION, Respondent.
"Respondent is a domestic corporation primarily engaged in retailing of medicines and

other pharmaceutical products. In 1996, it operated six (6) drugstores under the business
name and style Mercury Drug.
DECISION
PANGANIBAN, J.:
The 20 percent discount required by the law to be given to senior citizens is a tax credit,
not merely a tax deduction from the gross income or gross sale of the establishment
concerned. A tax credit is used by a private establishment only after the tax has been
computed; a tax deduction, before the tax is computed. RA 7432 unconditionally grants a
tax credit to all covered entities. Thus, the provisions of the revenue regulation that
withdraw or modify such grant are void. Basic is the rule that administrative regulations
cannot amend or revoke the law.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set
aside the August 29, 2002 Decision2 and the August 11, 2003 Resolution3 of the Court of
Appeals (CA) in CA-GR SP No. 67439. The assailed Decision reads as follows:
"WHEREFORE, premises considered, the Resolution appealed from is AFFIRMED in toto.

No costs."4
The assailed Resolution denied petitioners Motion for Reconsideration.
"From January to December 1996, respondent granted twenty (20%) percent sales discount
to qualified senior citizens on their purchases of medicines pursuant to Republic Act No.
[R.A.] 7432 and its Implementing Rules and Regulations. For the said period, the amount
allegedly representing the 20% sales discount granted by respondent to qualified senior
citizens totaled P904,769.00.
"On April 15, 1997, respondent filed its Annual Income Tax Return for taxable year 1996
declaring therein that it incurred net losses from its operations.
"On January 16, 1998, respondent filed with petitioner a claim for tax refund/credit in the
amount of P904,769.00 allegedly arising from the 20% sales discount granted by
respondent to qualified senior citizens in compliance with [R.A.] 7432. Unable to obtain
affirmative response from petitioner, respondent elevated its claim to the Court of Tax
Appeals [(CTA or Tax Court)] via a Petition for Review.
"On February 12, 2001, the Tax Court rendered a Decision5 dismissing respondents
Petition for lack of merit. In said decision, the [CTA] justified its ruling with the following
ratiocination:
x x x, if no tax has been paid to the government, erroneously or illegally, or if no amount

is due and collectible from the taxpayer, tax refund or tax credit is unavailing. Moreover,
whether the recovery of the tax is made by means of a claim for refund or tax credit, before
recovery is allowed[,] it must be first established that there was an actual collection and
receipt by the government of the tax sought to be recovered. x x x.
The Facts
x x x x x x x x x
Hence this Petition.8

Prescinding from the above, it could logically be deduced that tax credit is premised on the
existence of tax liability on the part of taxpayer. In other words, if there is no tax liability,
tax credit is not available.
The Issues
"Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed resolution,6
granted respondents motion for reconsideration and ordered herein petitioner to issue a
Tax Credit Certificate in favor of respondent citing the decision of the then Special Fourth
Division of [the CA] in CA G.R. SP No. 60057 entitled Central [Luzon] Drug Corporation
vs. Commissioner of Internal Revenue promulgated on May 31, 2001, to wit:
Petitioner raises the following issues for our consideration:
However, Sec. 229 clearly does not apply in the instant case because the tax sought to be
refunded or credited by petitioner was not erroneously paid or illegally collected. We take
exception to the CTAs sweeping but unfounded statement that both tax refund and tax
credit are modes of recovering taxes which are either erroneously or illegally paid to the
government. Tax refunds or credits do not exclusively pertain to illegally collected or
erroneously paid taxes as they may be other circumstances where a refund is warranted.
The tax refund provided under Section 229 deals exclusively with illegally collected or
erroneously paid taxes but there are other possible situations, such as the refund of excess
estimated corporate quarterly income tax paid, or that of excess input tax paid by a VATregistered person, or that of excise tax paid on goods locally produced or manufactured but
actually exported. The standards and mechanics for the grant of a refund or credit under
these situations are different from that under Sec. 229. Sec. 4[.a)] of R.A. 7432, is yet
another instance of a tax credit and it does not in any way refer to illegally collected or
erroneously paid taxes, x x x."7
"Whether the Court of Appeals erred in holding that respondent is entitled to a refund."9
"Whether the Court of Appeals erred in holding that respondent may claim the 20% sales
discount as a tax credit instead of as a deduction from gross income or gross sales.
These two issues may be summed up in only one: whether respondent, despite incurring a
net loss, may still claim the 20 percent sales discount as a tax credit.
The Courts Ruling
The Petition is not meritorious.
Sole Issue:
Ruling of the Court of Appeals
Claim of 20 Percent Sales Discount
The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering
petitioner to issue a tax credit certificate in favor of respondent in the reduced amount of
P903,038.39. It reasoned that Republic Act No. (RA) 7432 required neither a tax liability
nor a payment of taxes by private establishments prior to the availment of a tax credit.
Moreover, such credit is not tantamount to an unintended benefit from the law, but rather a
just compensation for the taking of private property for public use.
as Tax Credit Despite Net Loss
Section 4a) of RA 743210 grants to senior citizens the privilege of obtaining a 20 percent
discount on their purchase of medicine from any private establishment in the country.11
The latter may then claim the cost of the discount as a tax credit.12 But can such credit be
claimed, even though an establishment operates at a loss?
We answer in the affirmative.
Tax Credit versus
Tax Deduction
Although the term is not specifically defined in our Tax Code,13 tax credit generally refers
to an amount that is "subtracted directly from ones total tax liability."14 It is an "allowance
against the tax itself"15 or "a deduction from what is owed"16 by a taxpayer to the
government. Examples of tax credits are withheld taxes, payments of estimated tax, and
investment tax credits.17
Tax credit should be understood in relation to other tax concepts. One of these is tax
deduction -- defined as a subtraction "from income for tax purposes,"18 or an amount that
is "allowed by law to reduce income prior to [the] application of the tax rate to compute the
amount of tax which is due."19 An example of a tax deduction is any of the allowable
deductions enumerated in Section 3420 of the Tax Code.
Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax
liability before the tax credit can be applied. Without that liability, any tax credit
application will be useless. There will be no reason for deducting the latter when there is, to
begin with, no existing obligation to the government. However, as will be presented
shortly, the existence of a tax credit or its grant by law is not the same as the availment or
use of such credit. While the grant is mandatory, the availment or use is not.
If a net loss is reported by, and no other taxes are currently due from, a business
establishment, there will obviously be no tax liability against which any tax credit can be
applied.24 For the establishment to choose the immediate availment of a tax credit will be
premature and impracticable. Nevertheless, the irrefutable fact remains that, under RA
7432, Congress has granted without conditions a tax credit benefit to all covered
establishments.
Although this tax credit benefit is available, it need not be used by losing ventures, since
there is no tax liability that calls for its application. Neither can it be reduced to nil by the
quick yet callow stroke of an administrative pen, simply because no reduction of taxes can
instantly be effected. By its nature, the tax credit may still be deducted from a future, not a
present, tax liability, without which it does not have any use. In the meantime, it need not
move. But it breathes.
Prior Tax Payments Not

A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax due,
including -- whenever applicable -- the income tax that is determined after applying the
corresponding tax rates to taxable income.21 A tax deduction, on the other, reduces the
income that is subject to tax22 in order to arrive at taxable income.23 To think of the
former as the latter is to avoid, if not entirely confuse, the issue. A tax credit is used only
after the tax has been computed; a tax deduction, before.
Tax Liability Required
for Tax Credit
Required for Tax Credit
While a tax liability is essential to the availment or use of any tax credit, prior tax payments
are not. On the contrary, for the existence or grant solely of such credit, neither a tax
liability nor a prior tax payment is needed. The Tax Code is in fact replete with provisions
granting or allowing tax credits, even though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to
certain limitations -- for estate taxes paid to a foreign country. Also found in Section
101(C) is a similar provision for donors taxes -- again when paid to a foreign country -- in
computing for the donors tax due. The tax credits in both instances allude to the prior
payment of taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax)- registered person engaging in transactions -whether or not subject to the VAT -- is also allowed a tax credit that includes a ratable
portion of any input tax not directly attributable to either activity. This input tax may either
be the VAT on the purchase or importation of goods or services that is merely due from -not necessarily paid by -- such VAT-registered person in the course of trade or business; or
the transitional input tax determined in accordance with Section 111(A). The latter type
may in fact be an amount equivalent to only eight percent of the value of a VAT-registered
persons beginning inventory of goods, materials and supplies, when such amount -- as
computed -- is higher than the actual VAT paid on the said items.25 Clearly from this
provision, the tax credit refers to an input tax that is either due only or given a value by
mere comparison with the VAT actually paid -- then later prorated. No tax is actually paid
prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is
allowed. For the purchase of primary agricultural products used as inputs -- either in the
processing of sardines, mackerel and milk, or in the manufacture of refined sugar and
cooking oil -- and for the contract price of public work contracts entered into with the
government, again, no prior tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zerorated may, under Section 112(A), apply for the issuance of a tax credit certificate for the
amount of creditable input taxes merely due -- again not necessarily paid to -- the
government and attributable to such sales, to the extent that the input taxes have not been
applied against output taxes.26 Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales,
the amount of creditable input taxes due that are not directly and entirely attributable to any
one of these transactions shall be proportionately allocated on the basis of the volume of
sales. Indeed, in availing of such tax credit for VAT purposes, this provision -- as well as
the one earlier mentioned -- shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax
credit allowed, even though no prior tax payments are not required. Specifically, in this
provision, the imposition of a final withholding tax rate on cash and/or property dividends
received by a nonresident foreign corporation from a domestic corporation is subjected to

the condition that a foreign tax credit will be given by the domiciliary country in an amount
equivalent to taxes that are merely deemed paid.27 Although true, this provision actually
refers to the tax credit as a condition only for the imposition of a lower tax rate, not as a
deduction from the corresponding tax liability. Besides, it is not our government but the
domiciliary country that credits against the income tax payable to the latter by the foreign
corporation, the tax to be foregone or spared.28
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as

credits, against the income tax imposable under Title II, the amount of income taxes merely
incurred -- not necessarily paid -- by a domestic corporation during a taxable year in any
foreign country. Moreover, Section 34(C)(5) provides that for such taxes incurred but not
paid, a tax credit may be allowed, subject to the condition precedent that the taxpayer shall
simply give a bond with sureties satisfactory to and approved by petitioner, in such sum as
may be required; and further conditioned upon payment by the taxpayer of any tax found
due, upon petitioners redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and
special laws that grant or allow tax credits, even though no prior tax payments have been
made.
Under the treaties in which the tax credit method is used as a relief to avoid double
taxation, income that is taxed in the state of source is also taxable in the state of residence,
but the tax paid in the former is merely allowed as a credit against the tax levied in the
latter.29 Apparently, payment is made to the state of source, not the state of residence. No
tax, therefore, has been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit
incentives. To illustrate, the incentives provided for in Article 48 of Presidential Decree No.
(PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax credits equivalent to
either five percent of the net value earned, or five or ten percent of the net local content of
exports.30 In order to avail of such credits under the said law and still achieve its
objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable
to the availment of a tax credit. Thus, the CA correctly held that the availment under RA
7432 did not require prior tax payments by private establishments concerned.31 However,
we do not agree with its finding32 that the carry-over of tax credits under the said special
law to succeeding taxable periods, and even their application against internal revenue taxes,
did not necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly important in the availment or use,
not the existence or grant, of a tax credit. Regarding this matter, a private establishment
reporting a net loss in its financial statements is no different from another that presents a
net income. Both are entitled to the tax credit provided for under RA 7432, since the law
itself accords that unconditional benefit. However, for the losing establishment to
immediately apply such credit, where no tax is due, will be an improvident usance.
common of which is that affecting the income statement39 or financial report upon which
the income tax is based.
Business Discounts
Deducted from Gross Sales
A cash discount, for example, is one granted by business establishments to credit customers
for their prompt payment.40 It is a "reduction in price offered to the purchaser if payment
is made within a shorter period of time than the maximum time specified."41 Also referred
to as a sales discount on the part of the seller and a purchase discount on the part of the
buyer, it may be expressed in such
Sections 2.i and 4 of Revenue
terms as "5/10, n/30."42
Regulations No. 2-94 Erroneous
A quantity discount, however, is a "reduction in price allowed for purchases made in large
quantities, justified by savings in packaging, shipping, and handling."43 It is also called a
volume or bulk discount.44
RA 7432 specifically allows private establishments to claim as tax credit the amount of
discounts they grant.33 In turn, the Implementing Rules and Regulations, issued pursuant
thereto, provide the procedures for its availment.34 To deny such credit, despite the plain
mandate of the law and the regulations carrying out that mandate, is indefensible.
First, the definition given by petitioner is erroneous. It refers to tax credit as the amount
representing the 20 percent discount that "shall be deducted by the said establishments
from their gross income for income tax purposes and from their gross sales for value-added
tax or other percentage tax purposes."35 In ordinary business language, the tax credit
represents the amount of such discount. However, the manner by which the discount shall
be credited against taxes has not been clarified by the revenue regulations.
By ordinary acceptation, a discount is an "abatement or reduction made from the gross

amount or value of anything."36 To be more precise, it is in business parlance "a deduction
or lowering of an amount of money;"37 or "a reduction from the full amount or value of
something, especially a price."38 In business there are many kinds of discount, the most
A "percentage reduction from the list price x x x allowed by manufacturers to wholesalers

and by wholesalers to retailers"45 is known as a trade discount. No entry for it need be
made in the manual or computerized books of accounts, since the purchase or sale is
already valued at the net price actually charged the buyer.46 The purpose for the discount is
to encourage trading or increase sales, and the prices at which the purchased goods may be
resold are also suggested.47 Even a chain discount -- a series of discounts from one list
price -- is recorded at net.48
Finally, akin to a trade discount is a functional discount. It is "a suppliers price discount
given to a purchaser based on the [latters] role in the [formers] distribution system."49
This role usually involves warehousing or advertising.
Based on this discussion, we find that the nature of a sales discount is peculiar. Applying
generally accepted accounting principles (GAAP) in the country, this type of discount is
reflected in the income statement50 as a line item deducted -- along with returns,
allowances, rebates and other similar expenses -- from gross sales to arrive at net sales.51
This type of presentation is resorted to, because the accounts receivable and sales figures
that arise from sales discounts, -- as well as from quantity, volume or bulk discounts -- are
recorded in the manual and computerized books of accounts and reflected in the financial
statements at the gross amounts of the invoices.52 This manner of recording credit sales -known as the gross method -- is most widely used, because it is simple, more convenient to
apply than the net method, and produces no material errors over time.53
However, under the net method used in recording trade, chain or functional discounts, only
the net amounts of the invoices -- after the discounts have been deducted -- are recorded in
the books of accounts54 and reflected in the financial statements. A separate line item
cannot be shown,55 because the transactions themselves involving both accounts
receivable and sales have already been entered into, net of the said discounts.
The term sales discounts is not expressly defined in the Tax Code, but one provision
adverts to amounts whose sum -- along with sales returns, allowances and cost of goods
sold56 -- is deducted from gross sales to come up with the gross income, profit or
margin57 derived from business.58 In another provision therein, sales discounts that are
granted and indicated in the invoices at the time of sale -- and that do not depend upon the
happening of any future event -- may be excluded from the gross sales within the same
quarter they were given.59 While determinative only of the VAT, the latter provision also
appears as a suitable reference point for income tax purposes already embraced in the
former. After all, these two provisions affirm that sales discounts are amounts that are
always deductible from gross sales.
Reason for the Senior Citizen Discount:
The Law, Not Prompt Payment
A distinguishing feature of the implementing rules of RA 7432 is the private

establishments outright deduction of the discount from the invoice price of the medicine
sold to the senior citizen.60 It is, therefore, expected that for each retail sale made under
this law, the discount period lasts no more than a day, because such discount is given -- and
the net amount thereof collected -- immediately upon perfection of the sale.61 Although
prompt payment is made for an arms-length transaction by the senior citizen, the real and
compelling reason for the private establishment giving the discount is that the law itself
makes it mandatory.
What RA 7432 grants the senior citizen is a mere discount privilege, not a sales discount or
any of the above discounts in particular. Prompt payment is not the reason for (although a
necessary consequence of) such grant. To be sure, the privilege enjoyed by the senior
citizen must be equivalent to the tax credit benefit enjoyed by the private establishment
granting the discount. Yet, under the revenue regulations promulgated by our tax
authorities, this benefit has been erroneously likened and confined to a sales discount.
To a senior citizen, the monetary effect of the privilege may be the same as that resulting
from a sales discount. However, to a private establishment, the effect is different from a
simple reduction in price that results from such discount. In other words, the tax credit
benefit is not the same as a sales discount. To repeat from our earlier discourse, this benefit
cannot and should not be treated as a tax deduction.
To stress, the effect of a sales discount on the income statement and income tax return of an
establishment covered by RA 7432 is different from that resulting from the availment or
use of its tax credit benefit. While the former is a deduction before, the latter is a deduction
after, the income tax is computed. As mentioned earlier, a discount is not necessarily a sales
discount, and a tax credit for a simple discount privilege should not be automatically
treated like a sales discount. Ubi lex non distinguit, nec nos distinguere debemus. Where
the law does not distinguish, we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20
percent discount deductible from gross income for income tax purposes, or from gross sales
for VAT or other percentage tax purposes. In effect, the tax credit benefit under RA 7432 is
related to a sales discount. This contrived definition is improper, considering that the latter
has to be deducted from gross sales in order to compute the gross income in the income
statement and cannot be deducted again, even for purposes of computing the income tax.
When the law says that the cost of the discount may be claimed as a tax credit, it means
that the amount -- when claimed -- shall be treated as a reduction from any tax liability,
plain and simple. The option to avail of the tax credit benefit depends upon the existence of
a tax liability, but to limit the benefit to a sales discount -- which is not even identical to the
discount privilege that is granted by law -- does not define it at all and serves no useful
purpose. The definition must, therefore, be stricken down.
Availment of Tax
Credit Voluntary
Laws Not Amended
by Regulations
Second, the law cannot be amended by a mere regulation. In fact, a regulation that
"operates to create a rule out of harmony with
the statute is a mere nullity";62 it cannot prevail.
It is a cardinal rule that courts "will and should respect the contemporaneous construction
placed upon a statute by the executive officers whose duty it is to enforce it x x x."63 In the
scheme of judicial tax administration, the need for certainty and predictability in the
implementation of tax laws is crucial.64 Our tax authorities fill in the details that "Congress
may not have the opportunity or competence to provide."65 The regulations these
authorities issue are relied upon by taxpayers, who are certain that these will be followed
by the courts.66 Courts, however, will not uphold these authorities interpretations when
clearly absurd, erroneous or improper.
In the present case, the tax authorities have given the term tax credit in Sections 2.i and 4 of
RR 2-94 a meaning utterly in contrast to what RA 7432 provides. Their interpretation has
muddled up the intent of Congress in granting a mere discount privilege, not a sales
discount. The administrative agency issuing these regulations may not enlarge, alter or
restrict the provisions of the law it administers; it cannot engraft additional requirements
not contemplated by the legislature.67
In case of conflict, the law must prevail.68 A "regulation adopted pursuant to law is law."69
Conversely, a regulation or any portion thereof not adopted pursuant to law is no law and
has neither the force nor the effect of law.70
Third, the word may in the text of the statute71 implies that the
availability of the tax credit benefit is neither unrestricted nor mandatory.72 There is no
absolute right conferred upon respondent, or any similar taxpayer, to avail itself of the tax
credit remedy whenever it chooses; "neither does it impose a duty on the part of the
government to sit back and allow an important facet of tax collection to be at the sole
control and discretion of the taxpayer."73 For the tax authorities to compel respondent to
deduct the 20 percent discount from either its gross income or its gross sales74 is,
therefore, not only to make an imposition without basis in law, but also to blatantly
contravene the law itself.
What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive, not
imperative. Respondent is given two options -- either to claim or not to claim the cost of
the discounts as a tax credit. In fact, it may even ignore the credit and simply consider the
gesture as an act of beneficence, an expression of its social conscience.
Granting that there is a tax liability and respondent claims such cost as a tax credit, then the
tax credit can easily be applied. If there is none, the credit cannot be used and will just have
to be carried over and revalidated75 accordingly. If, however, the business continues to
operate at a loss and no other taxes are due, thus compelling it to close shop, the credit can
never be applied and will be lost altogether.
In other words, it is the existence or the lack of a tax liability that determines whether the
cost of the discounts can be used as a tax credit. RA 7432 does not give respondent the
unfettered right to avail itself of the credit whenever it pleases. Neither does it allow our
tax administrators to expand or contract the legislative mandate. "The plain meaning rule
or verba legis in statutory construction is thus applicable x x x. Where the words of a
statute are clear, plain and free from ambiguity, it must be given its literal meaning and
applied without attempted interpretation."76
Tax Credit Benefit
Deemed Just Compensation
Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of
eminent domain. Be it stressed that the privilege enjoyed by senior citizens does not come
directly from the State, but rather from the private establishments concerned. Accordingly,
the tax credit benefit granted to these establishments can be deemed as their just
compensation for private property taken by the State for public use.77
The concept of public use is no longer confined to the traditional notion of use by the
public, but held synonymous with public interest, public benefit, public welfare, and public
convenience.78 The discount privilege to which our senior citizens are entitled is actually a
benefit enjoyed by the general public to which these citizens belong. The discounts given
would have entered the coffers and formed part of the gross sales of the private
establishments concerned, were it not for RA 7432. The permanent reduction in their total
revenues is a forced subsidy corresponding to the taking of private property for public use
or benefit.
As a result of the 20 percent discount imposed by RA 7432, respondent becomes entitled to

a just compensation. This term refers not only to the issuance of a tax credit certificate
indicating the correct amount of the discounts given, but also to the promptness in its
release. Equivalent to the payment of property taken by the State, such issuance -- when
not done within a reasonable time from the grant of the discounts -- cannot be considered
as just compensation. In effect, respondent is made to suffer the consequences of being
immediately deprived of its revenues while awaiting actual receipt, through the certificate,
of the equivalent amount it needs to cope with the reduction in its revenues.79
Besides, the taxation power can also be used as an implement for the exercise of the power
of eminent domain.80 Tax measures are but "enforced contributions exacted on pain of
penal sanctions"81 and "clearly imposed for a public purpose."82 In recent years, the
power to tax has indeed become a most effective tool to realize social justice, public
welfare, and the equitable distribution of wealth.83
While it is a declared commitment under Section 1 of RA 7432, social justice "cannot be

invoked to trample on the rights of property owners who under our Constitution and laws
are also entitled to protection. The social justice consecrated in our [C]onstitution [is] not
intended to take away rights from a person and give them to another who is not entitled
thereto."84 For this reason, a just compensation for income that is taken away from
respondent becomes necessary. It is in the tax credit that our legislators find support to
realize social justice, and no administrative body can alter that fact.
To put it differently, a private establishment that merely breaks even85 -- without the
discounts yet -- will surely start to incur losses because of such discounts. The same effect
is expected if its mark-up is less than 20 percent, and if all its sales come from retail
purchases by senior citizens. Aside from the observation we have already raised earlier, it
will also be grossly unfair to an establishment if the discounts will be treated merely as
deductions from either its gross income or its gross sales. Operating at a loss through no
fault of its own, it will realize that the tax credit limitation under RR 2-94 is inutile, if not
improper. Worse, profit-generating businesses will be put in a better position if they avail
themselves of tax credits denied those that are losing, because no taxes are due from the
latter.
Grant of Tax Credit
Intended by the Legislature
Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by the
community as a whole and to establish a program beneficial to them.86 These objectives
are consonant with the constitutional policy of making "health x x x services available to
all the people at affordable cost"87 and of giving "priority for the needs of the x x x
elderly."88 Sections 2.i and 4 of RR 2-94, however, contradict these constitutional policies
and statutory objectives.
Furthermore, Congress has allowed all private establishments a simple tax credit, not a
deduction. In fact, no cash outlay is required from the government for the availment or use
of such credit. The deliberations on February 5, 1992 of the Bicameral Conference
Committee Meeting on Social Justice, which finalized RA 7432, disclose the true intent of
our legislators to treat the sales discounts as a tax credit, rather than as a deduction from
gross income. We quote from those deliberations as follows:
"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions from
taxable income. I think we incorporated there a provision na - on the responsibility of the
private hospitals and drugstores, hindi ba?
SEN. ANGARA. Oo.
THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision here about
the deductions from taxable income of that private hospitals, di ba ganon 'yan?
MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting government and
public institutions, so, puwede na po nating hindi isama yung mga less deductions ng
taxable income.
SEN. ANGARA. In the case of private hospitals they got the grant of 15% discount,
provided that, the private hospitals can claim the expense as a tax credit.
REP. AQUINO. Yah could be allowed as deductions in the perpetrations of (inaudible)

income.
SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?
REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng establishments na
covered.
THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.
REP. AQUINO. Ano ba yung establishments na covered?

THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals. Yung
isiningit natin?
SEN. ANGARA. Restaurant lodging houses, recreation centers.
MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the
microphone).
SEN. ANGARA. Hindi pa, hindi pa.
REP. AQUINO. All establishments covered siguro?
SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung ganon. Can
we go back to Section 4 ha?
THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?

REP. AQUINO. Oho.
SEN. ANGARA. Oo. You want to insert that?
THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.
SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20% discount
from all establishments et cetera, et cetera, provided that said establishments - provided
that private establishments may claim the cost as a tax credit. Ganon ba 'yon?
REP. AQUINO. Yah.
SEN. ANGARA. Dahil kung government, they don't need to claim it.
THE CHAIRMAN. (Rep. Unico). Tax credit.
SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.
REP. AQUINO Okay.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168557
February 16, 2007
FELS ENERGY, INC., Petitioner,

vs.
THE PROVINCE OF BATANGAS and
On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30
MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract,
denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five
years. Article 10 reads:
THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents.
x----------------------------------------------------x
G.R. No. 170628
February 16, 2007
10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes,
import duties, fees, charges and other levies imposed by the National Government of the
Republic of the Philippines or any agency or instrumentality thereof to which POLAR may
be or become subject to or in relation to the performance of their obligations under this
agreement (other than (i) taxes imposed or calculated on the basis of the net income of
POLAR and Personal Income Taxes of its employees and (ii) construction permit fees,
environmental permit fees and other similar fees and charges) and (b) all real estate taxes
and assessments, rates and other charges in respect of the Power Barges.6
NATIONAL POWER CORPORATION, Petitioner,

vs.
LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA,
in his capacity as the Assessor of the Province of Batangas, and the PROVINCE OF
BATANGAS represented by its Provincial Assessor, Respondents.
Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The
NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the
Agreement.
CALLEJO, SR., J.:
On August 7, 1995, FELS received an assessment of real property taxes on the power
barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax,
which likewise covered those due for 1994, amounted to P56,184,088.40 per annum. FELS
referred the matter to NPC, reminding it of its obligation under the Agreement to pay all
real estate taxes. It then gave NPC the full power and authority to represent it in any
conference regarding the real property assessment of the Provincial Assessor.
Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628,
which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation
(NPC), respectively. The first is a petition for review on certiorari assailing the August 25,
2004 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its
Resolution2 dated June 20, 2005; the second, also a petition for review on certiorari,
challenges the February 9, 2005 Decision3 and November 23, 2005 Resolution4 of the CA
in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of prescription.
In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial

Assessors decision to assess real property taxes on the power barges. However, the motion
was denied on September 22, 1995, and the Provincial Assessor advised NPC to pay the
assessment.8 This prompted NPC to file a petition with the Local Board of Assessment
Appeals (LBAA) for the setting aside of the assessment and the declaration of the barges as
non-taxable items; it also prayed that should LBAA find the barges to be taxable, the
Provincial Assessor be directed to make the necessary corrections.9
DECISION
The pertinent facts are as follows:
In its Answer to the petition, the Provincial Assessor averred that the barges were real
property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.
14, 1996, praying that the Provincial Assessor be further restrained by the CBAA from
enforcing the disputed assessment during the pendency of the appeal.
Before the case was decided by the LBAA, NPC filed a Manifestation, informing the
LBAA that the Department of Finance (DOF) had rendered an opinion10 dated May 20,
1996, where it is clearly stated that power barges are not real property subject to real
property assessment.
On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the
properties of FELS in order not to preempt and render ineffectual, nugatory and illusory
any resolution or judgment which the Board would issue.
On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo
reads:
WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax
in the amount of P56,184,088.40, for the year 1994.
Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the
proceedings before the CBAA. This was approved by the CBAA in an Order16 dated
September 22, 1998.
During the pendency of the case, both FELS and NPC filed several motions to admit bond
to guarantee the payment of real property taxes assessed by the Provincial Assessor (in the
event that the judgment be unfavorable to them). The bonds were duly approved by the
CBAA.
SO ORDERED.12
The LBAA ruled that the power plant facilities, while they may be classified as movable or
personal property, are nevertheless considered real property for taxation purposes because
they are installed at a specific location with a character of permanency. The LBAA also
pointed out that the owner of the bargesFELS, a private corporationis the one being
taxed, not NPC. A mere agreement making NPC responsible for the payment of all real
estate taxes and assessments will not justify the exemption of FELS; such a privilege can
only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that
the petition was filed out of time.
Aggrieved, FELS appealed the LBAAs ruling to the Central Board of Assessment Appeals
(CBAA).
On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and
Warrant by Distraint13 over the power barges, seeking to collect real property taxes
amounting to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially
served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November
On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from
real property tax. The dispositive portion reads:
WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province
of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of
Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 01800958 from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer
of Batangas is hereby directed to act accordingly.
SO ORDERED.18
Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to
NPC; since they are actually, directly and exclusively used by it, the power barges are
covered by the exemptions under Section 234(c) of R.A. No. 7160.19 As to the other
jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from
pursuing its claim for tax exemption in accordance with Section 206 of R.A. No. 7160. The
Provincial Assessor filed a motion for reconsideration, which was opposed by FELS and
NPC.
In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its
earlier decision. The fallo of the resolution reads:
Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its
motion for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter
petition who should resolve the request for reconsideration.
NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth
Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the
petition on the ground of prescription. The decretal portion of the decision reads:
WHEREFORE, premises considered, it is the resolution of this Board that:
(a) The decision of the Board dated 6 April 2000 is hereby reversed.
(b) The petition of FELS, as well as the intervention of NPC, is dismissed.
(c) The resolution of the Local Board of Assessment Appeals of Batangas is hereby
affirmed,
(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is
likewise hereby affirmed.
SO ORDERED.21
FELS and NPC filed separate motions for reconsideration, which were timely opposed by
the Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated
October 19, 2001.
Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No.
67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.
On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP

No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a
WHEREFORE, the petition for review is DENIED for lack of merit and the assailed
Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment
Appeals are AFFIRMED.
SO ORDERED.24
On September 20, 2004, FELS timely filed a motion for reconsideration seeking the
reversal of the appellate courts decision in CA-G.R. SP No. 67490.
Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court,
docketed as G.R. No. 165113, assailing the appellate courts decision in CA-G.R. SP No.
67490. The petition was, however, denied in this Courts Resolution25 of November 8,
2004, for NPCs failure to sufficiently show that the CA committed any reversible error in
the challenged decision. NPC filed a motion for reconsideration, which the Court denied
with finality in a Resolution26 dated January 19, 2005.
Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that
the right to question the assessment of the Provincial Assessor had already prescribed upon
the failure of FELS to appeal the disputed assessment to the LBAA within the period
prescribed by law. Since FELS had lost the right to question the assessment, the right of the
Provincial Government to collect the tax was already absolute.
NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the
February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a
Resolution27 dated November 23, 2005.
E.
The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier
denied for lack of merit in a Resolution28 dated June 20, 2005.
On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court,
raising the following issues:
Whether the right of the petitioner to question the patently null and void real property tax
assessment on the petitioners personal properties is imprescriptible.29
On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No.
170628), indicating the following errors committed by the CA:
A.
I
Whether power barges, which are floating and movable, are personal properties and
therefore, not subject to real property tax.
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO

THE LBAA WAS FILED OUT OF TIME.
B.
II
Assuming that the subject power barges are real properties, whether they are exempt from
real estate tax under Section 234 of the Local Government Code ("LGC").
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE

POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.
C.
III
Assuming arguendo that the subject power barges are subject to real estate tax, whether or
not it should be NPC which should be made to pay the same under the law.
D.
Assuming arguendo that the subject power barges are real properties, whether or not the
same is subject to depreciation just like any other personal properties.
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE

ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE
WITH LAW.30
Considering that the factual antecedents of both cases are similar, the Court ordered the
consolidation of the two cases in a Resolution31 dated March 8, 2006.1awphi1.net
In an earlier Resolution dated February 1, 2006, the Court had required the parties to
submit their respective Memoranda within 30 days from notice. Almost a year passed but
the parties had not submitted their respective memoranda. Considering that taxesthe
lifeblood of our economyare involved in the present controversy, the Court was
prompted to dispense with the said pleadings, with the end view of advancing the interests
of justice and avoiding further delay.
In both petitions, FELS and NPC maintain that the appeal before the LBAA was not timebarred. FELS argues that when NPC moved to have the assessment reconsidered on
September 7, 1995, the running of the period to file an appeal with the LBAA was tolled.
For its part, NPC posits that the 60-day period for appealing to the LBAA should be
reckoned from its receipt of the denial of its motion for reconsideration.
Petitioners contentions are bereft of merit.
Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991,
provides:
SECTION 226. Local Board of Assessment Appeals. Any owner or person having legal
interest in the property who is not satisfied with the action of the provincial, city or
municipal assessor in the assessment of his property may, within sixty (60) days from the
date of receipt of the written notice of assessment, appeal to the Board of Assessment
Appeals of the province or city by filing a petition under oath in the form prescribed for the
purpose, together with copies of the tax declarations and such affidavits or documents
submitted in support of the appeal.
We note that the notice of assessment which the Provincial Assessor sent to FELS on
August 7, 1995, contained the following statement:
If you are not satisfied with this assessment, you may, within sixty (60) days from the date
of receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a
petition under oath on the form prescribed for the purpose, together with copies of
ARP/Tax Declaration and such affidavits or documents submitted in support of the
appeal.32
Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC
opted to file a motion for reconsideration of the Provincial Assessors decision, a remedy
not sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action of the
provincial, city or municipal assessor in the assessment of the property. It follows then that
the determination made by the respondent Provincial Assessor with regard to the taxability
of the subject real properties falls within its power to assess properties for taxation
purposes subject to appeal before the LBAA.33
We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CAG.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta v.
Office of the Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35
the last action of the local assessor on a particular assessment shall be the notice of
assessment; it is this last action which gives the owner of the property the right to appeal to
the LBAA. The procedure likewise does not permit the property owner the remedy of filing
a motion for reconsideration before the local assessor. The pertinent holding of the Court in
Callanta is as follows:
x x x [T]he same Code is equally clear that the aggrieved owners should have brought their
appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their
respective notices of assessment, the owners chose to bring their requests for a
review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow
this procedure would indeed invite corruption in the system of appraisal and assessment. It
conveniently courts a graft-prone situation where values of real property may be initially
set unreasonably high, and then subsequently reduced upon the request of a property
owner. In the latter instance, allusions of a possible covert, illicit trade-off cannot be
avoided, and in fact can conveniently take place. Such occasion for mischief must be
prevented and excised from our system.36
For its part, the appellate court declared in CA-G.R. SP No. 67491:
x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the
owner or lawful possessor of real property of its revised assessed value, the former shall no
longer have any jurisdiction to entertain any request for a review or readjustment. The
appropriate forum where the aggrieved party may bring his appeal is the LBAA as provided
by law. It follows ineluctably that the 60-day period for making the appeal to the LBAA
runs without interruption. This is what We held in SP 67490 and reaffirm today in SP
67491.37
To reiterate, if the taxpayer fails to appeal in due course, the right of the local government
to collect the taxes due with respect to the taxpayers property becomes absolute upon the
expiration of the period to appeal.38 It also bears stressing that the taxpayers failure to
question the assessment in the LBAA renders the assessment of the local assessor final,
executory and demandable, thus, precluding the taxpayer from questioning the correctness
of the assessment, or from invoking any defense that would reopen the question of its
liability on the merits.39
In fine, the LBAA acted correctly when it dismissed the petitioners appeal for having been
filed out of time; the CBAA and the appellate court were likewise correct in affirming the
dismissal. Elementary is the rule that the perfection of an appeal within the period therefor
is both mandatory and jurisdictional, and failure in this regard renders the decision final
and executory.40
In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is
barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where
there was a final determination on the issue of prescription), effectively precludes the
claims herein; and that the filing of the instant petition after an adverse judgment in G.R.
No. 165113 constitutes forum shopping.
FELS maintains that the argument of the Provincial Assessor is completely misplaced since
it was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It
avers that it did not participate in the aforesaid proceeding, and the Supreme Court never
acquired jurisdiction over it. As to the issue of forum shopping, petitioner claims that no
forum shopping could have been committed since the elements of litis pendentia or res
judicata are not present.
We do not agree.
Res judicata pervades every organized system of jurisprudence and is founded upon two
grounds embodied in various maxims of common law, namely: (1) public policy and
necessity, which makes it to the interest of the
State that there should be an end to litigation republicae ut sit litium; and (2) the hardship
on the individual of being vexed twice for the same cause nemo debet bis vexari et eadem
causa. A conflicting doctrine would subject the public peace and quiet to the will and
dereliction of individuals and prefer the regalement of the litigious disposition on the part
of suitors to the preservation of the public tranquility and happiness.41 As we ruled in
Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42
x x x An existing final judgment or decree rendered upon the merits, without fraud or
collusion, by a court of competent jurisdiction acting upon a matter within its authority is
conclusive on the rights of the parties and their privies. This ruling holds in all other actions
or suits, in the same or any other judicial tribunal of concurrent jurisdiction, touching on
the points or matters in issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will not allow the same
parties or their privies to litigate anew a question once it has been considered and decided
with finality. Litigations must end and terminate sometime and somewhere. The effective
and efficient administration of justice requires that once a judgment has become final, the
prevailing party should not be deprived of the fruits of the verdict by subsequent suits on
the same issues filed by the same parties.
This is in accordance with the doctrine of res judicata which has the following elements:
(1) the former judgment must be final; (2) the court which rendered it had jurisdiction over
the subject matter and the parties; (3) the judgment must be on the merits; and (4) there
must be between the first and the second actions, identity of parties, subject matter and
causes of action. The application of the doctrine of res judicata does not require absolute
identity of parties but merely substantial identity of parties. There is substantial identity of
parties when there is community of interest or privity of interest between a party in the first
and a party in the second case even if the first case did not implead the latter.43
To recall, FELS gave NPC the full power and authority to represent it in any proceeding
regarding real property assessment. Therefore, when petitioner NPC filed its petition for
review docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of
FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court
was the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the
petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the
principle of privity of interest. In fine, FELS and NPC are substantially "identical parties"
as to warrant the application of res judicata. FELSs argument that it is not bound by the
erroneous petition filed by NPC is thus unavailing.
Having found that the elements of res judicata and forum shopping are present in the
consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for
the peace and contentment of petitioners, we shall shed light on the merits of the case.
On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists
when, as a result of an adverse judgment in one forum, a party seeks another and possibly
favorable judgment in another forum other than by appeal or special civil action or
certiorari. There is also forum shopping when a party institutes two or more actions or
proceedings grounded on the same cause, on the gamble that one or the other court would
make a favorable disposition.44
As found by the appellate court, the CBAA and LBAA power barges are real property and
are thus subject to real property tax. This is also the inevitable conclusion, considering that
G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax
assessments by tax examiners are presumed correct and made in good faith, with the
taxpayer having the burden of proving otherwise.48 Besides, factual findings of
administrative bodies, which have acquired expertise in their field, are generally binding
and conclusive upon the Court; we will not assume to interfere with the sensible exercise of
the judgment of men especially trained in appraising property. Where the judicial mind is
left in doubt, it is a sound policy to leave the assessment undisturbed.49 We find no reason
to depart from this rule in this case.
Petitioner FELS alleges that there is no forum shopping since the elements of res judicata
are not present in the cases at bar; however, as already discussed, res judicata may be
properly applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos.
168557 and 170628 after the petition for review in G.R. No. 165116. Indeed, petitioners
went from one court to another trying to get a favorable decision from one of the tribunals
which allowed them to pursue their cases.
In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et
al.,50 a power company brought an action to review property tax assessment. On the citys
motion to dismiss, the Supreme Court of New York held that the barges on which were
mounted gas turbine power plants designated to generate electrical power, the fuel oil
barges which supplied fuel oil to the power plant barges, and the accessory equipment
mounted on the barges were subject to real property taxation.
It must be stressed that an important factor in determining the existence of forum shopping
is the vexation caused to the courts and the parties-litigants by the filing of similar cases to
claim substantially the same reliefs.45 The rationale against forum shopping is that a party
should not be allowed to pursue simultaneous remedies in two different fora. Filing
multiple petitions or complaints constitutes abuse of court processes, which tends to
degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and
adds to the congestion of the heavily burdened dockets of the courts.46
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures
which, though floating, are intended by their nature and object to remain at a fixed place on
a river, lake, or coast" are considered immovable property. Thus, power barges are
categorized as immovable property by destination, being in the nature of machinery and
other implements intended by the owner for an industry or work which may be carried on
in a building or on a piece of land and which tend directly to meet the needs of said
industry or work.51
Thus, there is forum shopping when there exist: (a) identity of parties, or at least such
parties as represent the same interests in both actions, (b) identity of rights asserted and
relief prayed for, the relief being founded on the same facts, and (c) the identity of the two
preceding particulars is such that any judgment rendered in the pending case, regardless of
which party is successful, would amount to res judicata in the other.47
Petitioners maintain nevertheless that the power barges are exempt from real estate tax
under Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively
used by petitioner NPC, a government- owned and controlled corporation engaged in the
supply, generation, and transmission of electric power.
We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is
petitioner FELS, which in fine, is the entity being taxed by the local government. As
stipulated under Section 2.11, Article 2 of the Agreement:
It is a basic rule that obligations arising from a contract have the force of law between the
parties. Not being contrary to law, morals, good customs, public order or public policy, the
parties to the contract are bound by its terms and conditions.54
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the
fixtures, fittings, machinery and equipment on the Site used in connection with the Power
Barges which have been supplied by it at its own cost. POLAR shall operate, manage and
maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into
electricity.52
Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception.55 The law does not look with favor on tax exemptions and the entity that would
seek to be thus privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted.56 Thus, applying the rule of strict construction of laws
granting tax exemptions, and the rule that doubts should be resolved in favor of provincial
corporations, we hold that FELS is considered a taxable entity.
It follows then that FELS cannot escape liability from the payment of realty taxes by
invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from
payment of the real property tax:
xxx
(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power; x x x
Indeed, the law states that the machinery must be actually, directly and exclusively used by
the government owned or controlled corporation; nevertheless, petitioner FELS still cannot
find solace in this provision because Section 5.5, Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the
supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will
operate the Power Barges to convert such Fuel into electricity in accordance with Part A of
Article 7.53
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall
be responsible for the payment of all real estate taxes and assessments, does not justify the
exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The
covenant is between FELS and NPC and does not bind a third person not privy thereto, in
this case, the Province of Batangas.
It must be pointed out that the protracted and circuitous litigation has seriously resulted in
the local governments deprivation of revenues. The power to tax is an incident of
sovereignty and is unlimited in its magnitude, acknowledging in its very nature no
perimeter so that security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who are to pay for it.57 The right of
local government units to collect taxes due must always be upheld to avoid severe tax
erosion. This consideration is consistent with the State policy to guarantee the autonomy of
local governments58 and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to empower them to achieve their fullest
development as self-reliant communities and make them effective partners in the
attainment of national goals.59
In conclusion, we reiterate that the power to tax is the most potent instrument to raise the
needed revenues to finance and support myriad activities of the local government units for
the delivery of basic services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people.60
WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions
AFFIRMED.
SO ORDERED.
the other is general creates a presumption that the special is to be considered as remaining
an exception to the general,91 one as a general law of the land, the other as the law of a
particular case."92 "It is a canon of statutory construction that a later statute, general in its
terms and not expressly repealing a prior special statute, will ordinarily not affect the
special provisions of such earlier statute."93
SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".89
Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a general
law. "x x x [T]he rule is that on a specific matter the special law shall prevail over the
general law, which shall
be resorted to only to supply deficiencies in the former."90 In addition, "[w]here there are
two statutes, the earlier special and the later general -- the terms of the general broad
enough to include the matter provided for in the special -- the fact that one is special and
RA 7432 is an earlier law not expressly repealed by, and therefore remains an exception to,
the Tax Code -- a later law. When the former states that a tax credit may be claimed, then
the requirement of prior tax payments under certain provisions of the latter, as discussed
above, cannot be made to apply. Neither can the instances of or references to a tax
deduction under the Tax Code94 be made to restrict RA 7432. No provision of any revenue
regulation can supplant or modify the acts of Congress.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution of
the Court of Appeals AFFIRMED. No pronouncement as to costs.
SO ORDERED

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Republic of the Philippines

G.R. No. L-31364 March 30, 1979

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

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

Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and Melencio-Herrera, JJ., concur.

Republic of the Philippines

G.R. No. 149110

NATIONAL POWER CORPORATION, petitioner,

Petitioner is a government-owned and controlled corporation created under Commonwealth

'Local governments have no power to tax instrumentalities of the National Government.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN

Petitioner also alleges that it is an instrumentality of the National Government,25 and as

"Local governments have no power to tax instrumentalities of the National Government.

The petition is without merit.

In its general signification, a franchise is a privilege conferred by government authority,

These contentions must necessarily fail.

"A government-owned or controlled corporation is a stock or a non-stock corporation,

Governmental functions are those pertaining to the administration of government, and as

Petitioner was created to "undertake the development of hydroelectric generation of power

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Republic of the Philippines

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

COMMISSIONER OF INTERNAL REVENUE, petitioner,

xxx xxx xxx

The nature of cement as a "manufactured product" (rather than a "mineral product") is

Teehankee, C.J., Narvasa, Paras and Gancayco, JJ., concur

Republic of the Philippines

1. Deficiency income tax

September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

Add: 5% surcharge 88.98

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

Compromise for late filing 80.00

Office of the Solicitor General for petitioner.

Total amount due

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

BENGZON, J.P., J.:

Deficiency income tax

Pineda is liable for the assessment as an heir and as a holder-transferee of property

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

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby

Republic of the Philippines

G.R. No. 86785 November 21, 1991

COMMISSIONER OF INTERNAL REVENUE, petitioner,

Redentor G. Guyala for private respondent.

M.L. Gadioma Law Office collaborating counsel for private respondent.

The petition cannot prosper.

The pertinent provisions of the old Tax Code read as follows:

Thus, respondent Court of Appeals oppositely declares:

On the promise, therefore, that the extraction or removal by private respondent of

ON THE FOREGOING CONSIDERATIONS, the petition at bar is DENIED and the

Republic of the Philippines

G.R. No. 185371

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

METRO STAR SUPERAMA, INC., Respondent.

On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a

ASSESSMENT NOTICE NO. 067-99-003-579-072

VALUE ADDED TAX

Gross Sales P1,697,718.90