Republic

SUPREME
Manila

of

the

Philippines
COURT

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.
Nelson Y. Ng for petitioner.

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.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie
Producers, Importers and Distributors Association of the Philippines, and
Philippine Motion Pictures Producers Association, hereinafter collectively referred
to as the Intervenors, were permitted by the Court to intervene in the case, over
petitioner's opposition, upon the allegations that intervention was necessary for
the complete protection of their rights and that their "survival and very existence
is threatened by the unregulated proliferation of film piracy." The Intervenors
were thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular
clauses as follows:

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;
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;
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;

8. WHEREAS, in the face of these grave emergencies corroding the

moral values of the people and betraying the national economic
recovery program, bold emergency measures must be adopted with
dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following
grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government is a RIDER and the same
is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in
unlawful restraint of trade in violation of the due process clause of
the Constitution;
3. There is no factual nor legal basis for the exercise by the
President of the vast powers conferred upon him by Amendment
No. 6;
4. There is undue delegation of power and authority;

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 wellbeing;
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;

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.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject
which shall be expressed in the title thereof" 1 is sufficiently complied with if the
title be comprehensive enough to include the general purpose which a statute
seeks to achieve. It is not necessary that the title express each and every end
that the statute wishes to accomplish. The requirement is satisfied if all the parts

of the statute are related, and are germane to the subject matter expressed in the
title, or as long as they are not inconsistent with or foreign to the general subject
and title. 2 An act having a single general subject, indicated in the title, may
contain any number of provisions, no matter how diverse they may be, so long as
they are not inconsistent with or foreign to the general subject, and may be
considered in furtherance of such subject by providing for the method and means
of carrying out the general object." 3 The rule also is that the constitutional
requirement as to the title of a bill should not be so narrowly construed as to
cripple or impede the power of legislation. 4 It should be given practical rather
than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of
the DECREE is a rider is without merit. That section reads, inter alia:
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.
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
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and
oppressive, confiscatory, and in restraint of trade. However, it is beyond serious
question that a tax does not cease to be valid merely because it regulates,
discourages, or even definitely deters the activities taxed. 8 The power to impose
taxes is one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any restrictions whatever, except
such as rest in the discretion of the authority which exercises it. 9 In imposing a
tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue
measure prompted by the realization that earnings of videogram establishments
of around P600 million per annum have not been subjected to tax, thereby
depriving the Government of an additional source of revenue. It is an end-user
tax, imposed on retailers for every videogram they make available for public
viewing. It is similar to the 30% amusement tax imposed or borne by the movie
industry which the theater-owners pay to the government, but which is passed on
to the entire cost of the admission ticket, thus shifting the tax burden on the
buying or the viewing public. It is a tax that is imposed uniformly on all videogram
operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to
answer the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was also an objective of the
DECREE to protect the movie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor one
industry over another. 11
It is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that
"inequities which result from a singling out of one particular class
for
taxation
or
exemption
infringe
no
constitutional
limitation". 12 Taxation has been made the implement of the
state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation
of the DECREE by the former President under Amendment No. 6 of the 1973
Constitution providing that "whenever in the judgment of the President ... , there
exists a grave emergency or a threat or imminence thereof, or whenever the
interim Batasang Pambansa or the regular National Assembly fails or is unable to
act adequately on any matter for any reason that in his judgment requires
immediate action, he may, in order to meet the exigency, issue the necessary
decrees, orders, or letters of instructions, which shall form part of the law of the
land."
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.
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.
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:
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.

raises immediately a prima facie evidence of violation of the DECREE when the
required proof of registration of any videogram cannot be presented and thus
partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs.
Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to
the passage of a law providing that the presumption of innocence
may be overcome by a contrary presumption founded upon the
experience of human conduct, and enacting what evidence shall be
sufficient to overcome such presumption of innocence" (People 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
Applied to the challenged provision, there is no question that there is a rational
connection between the fact proved, which is non-registration, and the ultimate
fact presumed which is violation of the DECREE, besides the fact that the prima
facie presumption of violation of the DECREE attaches only after a forty-five-day
period counted from its effectivity and is, therefore, neither retrospective in
character.
6. We do not share petitioner's fears that the video industry is being overregulated and being eased out of existence as if it were a nuisance. Being a
relatively new industry, the need for its regulation was apparent. While the
underlying objective of the DECREE is to protect the moribund movie industry,
there is no question that public welfare is at bottom of its enactment, considering

"the unfair competition posed by rampant film piracy; the erosion of the moral
fiber of the viewing public brought about by the availability of unclassified and
unreviewed video tapes containing pornographic films and films with brutally
violent sequences; and losses in government revenues due to the drop in
theatrical attendance, not to mention the fact that the activities of video
establishments are virtually untaxed since mere payment of Mayor's permit and
municipal license fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the
"demise" of the video industry. On the contrary, video establishments are seen to
have proliferated in many places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom
and expediency of the DECREE. These considerations, however, are primarily and
exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the
action taken, may be the basis for 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.
Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. L-28896 February 17, 1988
COMMISSIONER
OF
INTERNAL
REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue
correctly disallowed the P75,000.00 deduction claimed by private respondent
Algue as legitimate business expenses in its income tax returns. The corollary
issue is whether or not the appeal of the private respondent from the decision of
the Collector of Internal Revenue was made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic
corporation engaged in engineering, construction and other allied activities,
received a letter from the petitioner assessing it in the total amount of
P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On
January 18, 1965, Algue flied a letter of protest or request for reconsideration,
which letter was stamp received on the same day in the office of the
petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to
the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who
refused to receive it on the ground of the pending protest. 3 A search of the
protest in the dockets of the case proved fruitless. Atty. Guevara produced his file
copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of
the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR
was not taking any action on the protest and it was only then that he accepted
the warrant of distraint and levy earlier sought to be served. 5Sixteen days later,
on April 23, 1965, Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to
Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the
decision or ruling challenged. 7 It is true that as a rule the warrant of distraint and
levy is "proof of the finality of the assessment" 8 and renders hopeless a request
for reconsideration," 9 being "tantamount to an outright denial thereof and makes
the said request deemed rejected." 10 But there is a special circumstance in the
case at bar that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was apparently
not taken into account before the warrant of distraint and levy was issued;
indeed, such protest could not be located in the office of the petitioner. It was only
after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was
premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private
respondent was not pro forma and was based on strong legal considerations. It
thus had the effect of suspending on January 18, 1965, when it was filed, the
reglementary period which started on the date the assessment was received, viz.,
January 14, 1965. The period started running again only on April 7, 1965, when
the private respondent was definitely informed of the implied rejection of the said
protest and the warrant was finally served on it. Hence, when the appeal was filed
on April 23, 1965, only 20 days of the reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or necessary business
expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it
held that the said amount had been legitimately paid by the private respondent
for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable
Oil Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed
these promotional fees to be personal holding company income 12 but later
conformed to the decision of the respondent court rejecting this assertion. 13 In
fact, as the said court found, the amount was earned through the joint efforts of
the persons among whom it was distributed It has been established that the
Philippine Sugar Estate Development Company had earlier appointed Algue as its
agent, authorizing it to sell its land, factories and oil manufacturing process.
Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel
Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the
Vegetable Oil Investment Corporation, inducing other persons to invest in
it. 14 Ultimately, after its incorporation largely through the promotion of the said
persons, this new corporation purchased the PSEDC properties. 15 For this sale,
Algue received as agent a commission of P126,000.00, and it was from this
commission that the P75,000.00 promotional fees were paid to the aforenamed
individuals. 16

There is no dispute that the payees duly reported their respective shares of the
fees in their income tax returns and paid the corresponding taxes thereon. 17 The
Court of Tax Appeals also found, after examining the evidence, that no distribution
of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the
payees are members of the same family in control of Algue. It is argued that no
indication was made as to how such payments were made, whether by check or
in cash, and there is not enough substantiation of such payments. In short, the
petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by
involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent
when its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus,
testified that the payments were not made in one lump sum but periodically and
in different amounts as each payee's need arose. 19 It should be remembered that
this was a family corporation where strict business procedures were not applied
and immediate issuance of receipts was not required. Even so, at the end of the
year, when the books were to be closed, each payee made an accounting of all of
the fees received by him or her, to make up the total of P75,000.00. 20 Admittedly,
everything seemed to be informal. This arrangement was understandable,
however, in view of the close relationship among the persons in the family
corporation.
We agree with the respondent court that the amount of the promotional fees was
not excessive. The total commission paid by the Philippine Sugar Estate
Development Co. to the private respondent was P125,000.00. 21After deducting
the said fees, Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total commission. This
was a reasonable proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate properties. This
finding of the respondent court is in accord with the following provision of the Tax
Code:

SEC. 30. Deductions from gross income.--In computing net income

there shall be allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary
and necessary expenses paid or incurred in carrying on any trade
or business may be included a reasonable allowance for salaries or
other compensation for personal services actually rendered. The
test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for
service. This test and deductibility in the case of compensation
payments is whether they are reasonable and are, in fact,
payments purely for service. This test and its practical application
may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the
purchase price of services, is not deductible. (a) An ostensible
salary paid by a corporation may be a distribution of a dividend on
stock. This is likely to occur in the case of a corporation having few
stockholders, Practically all of whom draw salaries. If in such a case
the salaries are in excess of those ordinarily paid for similar
services, and the excessive payment correspond or bear a close
relationship to the stockholdings of the officers of employees, it
would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings

upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18,
325.)
It is worth noting at this point that most of the payees were not in the regular
employ of Algue nor were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer
to prove the validity of the claimed deduction. In the present case, however, we
find that the onus has been discharged satisfactorily. The private respondent has
proved that the payment of the fees was necessary and reasonable in the light of
the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in
a new business requiring millions of pesos. This was no mean feat and should be,
as it was, sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one's hard
earned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material
values. This symbiotic relationship is the rationale of taxation and should dispel
the erroneous notion that it is an arbitrary method of exaction by those in the
seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.

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

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in

toto, without costs.
SO ORDERED.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. 147062-64

December 14, 2001

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL

COMMISSION
ON
GOOD
GOVERNMENT
(PCGG), petitioner,
vs.
COCOFED, ET AL. and BALLARES, ET AL.,1 EDUARDO M. COJUANGCO JR.
and the SANDIGANBAYAN (First Division) respondents.
PANGANIBAN, J.:
The right to vote sequestered shares of stock registered in the names of private
individuals or entitles and alleged to have been acquired with ill-gotten wealth

shall, as a rule, be exercised by the registered owner. The PCGG may, however,
be granted such voting right provided in can (1) show prima facie evidence that
the wealth and/or the shares are indeed ill-gotten; and (2) demonstrate imminent
danger of dissipation of the assets, thus necessitating their continued
sequestration and voting by the government until a decision, ruling with finality
on their ownership, is promulgated by the proper court.1wphi1.nt
However, the foregoing "two-tiered" test does not apply when the sequestered
stocks are acquired with funds that are prima facie public in character or, at least,
are affected with public interest. Inasmuch as the subject UCPB shares in the
present case were undisputably acquired with coco levy funds which are public in
character, then the right to vote them shall be exercised by the PCGG. In sum, the
"public character" test, not the "two-tiered" one, applies in the instant
controversy.
The Case
Before us is a Petition for Certiorari with a prayer for the issuance of a temporary
restraining order and/or a writ of preliminary injunction under Rule 65 of the Rules
of Court, seeking to set aside the February 28, 2001 Order 2 of the First Division of
the Sandiganbayan3 in Civil Case Nos. 0033-A, 0033-B and 0033-F. The pertinent
portions of the assailed Order read as follows:
"In view hereof, the movants COCOFED, et al. and Ballares, et al. as well as
Eduardo Cojuangco, et al., who were acknowledged to be registered
stockholders of the UCPB are authorized, as are all other registered
stockholders of the United Coconut Planters Bank, until further orders from
this Court, to exercise their rights to vote their shares of stock and
themselves to be voted upon in the United Coconut Planters Bank (UCPB)
at the scheduled Stockholders' Meeting on March 6, 2001 or on any
subsequent continuation or resetting thereof, and to perform such acts as
will normally follow in the exercise of these rights as registered
stockholders.

"Since by way of form, the pleadings herein had been labeled as praying
for an injunction, the right of the movants to exercise their right as
abovementioned will be subject to the posting of a nominal bond in the
amount of FIFTY THOUSAND PESOS (P50,000.00) jointly for the defendants
COCOFED, et al. and Ballares, et al., as well as all other registered
stockholders of sequestered shares in that bank, and FIFTY THOUSAND
PESOS (P50,000.00) for Eduardo Cojuangco, Jr., et al., to answer for any
undue damage or injury to the United Coconut Planters Bank as may be
attributed to their exercise of their rights as registered stockholders." 4
The Antecedents
The very roots of this case are anchored on the historic events that transpired
during the change of government in 1986. Immediately after the 1986 EDSA
Revolution, then President Corazon C. Aquino issued Executive Order (EO) Nos.
1,5 26 and 14.7
"On the explicit premise that 'vast resources of the government have been
amassed by former President Ferdinand E. Marcos, his immediate family,
relatives, and close associates both here and abroad,' the Presidential
Commission on Good Government (PCGG) was created by Executive Order No. 1
to assist the President in the recovery of the ill-gotten wealth thus accumulated
whether located in the Philippines or abroad." 8
Executive Order No. 2 states that the ill-gotten assets and properties are in the
form of bank accounts, deposits, trust accounts, shares of stocks, buildings,
shopping centers, condominiums, mansions, residences, estates, and other kinds
of real and personal properties in the Philippines and in various countries of the
world.9
Executive Order No. 14, on the other hand, empowered the PCGG, with the
assistance of the Office of the Solicitor General and other government
agencies, inter alia, to file and prosecute all cases investigated by it under EO
Nos. 1 and 2.

Pursuant to these laws, the PCGG issued and implemented numerous

sequestrations, freeze orders and provisional takeovers of allegedly ill-gotten
companies, assets and properties, real or personal.10
Among the properties sequestered by the Commission were shares of stock in the
United Coconut Planters Bank (UCPB) registered in the names of the alleged "one
million coconut farmers," the so-called Coconut Industry Investment Fund
companies (CIIF companies) and Private Respondent Eduardo Cojuangco Jr.
(hereinafter "Cojuangco").
In connection with the sequestration of the said UCPB shares, the PCGG, on July
31, 1987, instituted an action for reconveyance, reversion, accounting, restitution
and damages docketed as Case No. 0033 in the Sandiganbayan.
On November 15, 1990, upon Motion11 of Private Respondent COCOFED, the
Sandiganbayan issued a Resolution12 lifting the sequestration of the subject UCPB
shares on the ground that herein private respondents in particular, COCOFED
and the so-called CIIF companies had not been impleaded by the PCGG as
parties-defendants in its July 31, 1987 Complaint for reconveyance, reversion,
accounting, restitution and damages. The Sandiganbayan ruled that the Writ of
Sequestration issued by the Commission was automatically lifted for PCGG's
failure to commence the corresponding judicial action within the six-month period
ending on August 2, 1987 provided under Section 26, Article XVIII of the 1987
Constitution. The anti-graft court noted that though these entities were listed in
an annex appended to the Complaint, they had not been named as partiesrespondents.
This Sandiganbayan Resolution was challenged by the PCGG in a Petition for
Certiorari docketed as GR No. 96073 in this Court. Meanwhile, upon motion of
Cojuangco, the anti-graft court ordered the holding of elections for the Board of
Directors of UCPB. However, the PCGG applied for and was granted by this Court
a Restraining Order enjoining the holding of the election. Subsequently, the Court
lifted the Restraining Order and ordered the UCPB to proceed with the election of

its board of directors. Furthermore, it allowed the sequestered shares to be voted

by their registered owners.
The victory of the registered shareholders was fleeting because the Court, acting
on the solicitor general's Motion for Clarification/Manifestation, issued a
Resolution on February 16, 1993, declaring that "the right of petitioners [herein
private respondents] to vote stock in their names at the meetings of the UCPB
cannot be conceded at this time. That right still has to be established by them
before the Sandiganbayan. Until that is done, they cannot be deemed legitimate
owners of UCPB stock and cannot be accorded the right to vote them." 13 The
dispositive portion of the said Resolution reads as follows:
"IN VIEW OF THE FOREGOING, the Court recalls and sets aside the
Resolution dated March 3, 1992 and, pending resolution on the merits of
the action at bar, and until further orders, suspends the effectivity of the
lifting of the sequestration decreed by the Sandiganbayan on November
15, 1990, and directs the restoration of the status quo ante, so as to allow
the PCGG to continue voting the shares of stock under sequestration at the
meetings of the United Coconut Planters Bank."14
On January 23, 1995, the Court rendered its final Decision in GR No. 96073,
nullifying and setting aside the November 15, 1990 Resolution of the
Sandiganbayan which, as earlier stated, lifted the sequestration of the subject
UCPB shares. The express impleading of herein Respondents COCOFED et al. was
deemed unnecessary because "the judgment may simply be directed against the
shares of stock shown to have been issued in consideration of ill-gotten
wealth."15 Furthermore, the companies "are simply the res in the actions for the
recovery of illegally acquires wealth, and there is, in principle, no cause of action
against them and no ground to implead them as defendants in said case." 16
A month thereafter, the PCGG pursuant to an Order of the Sandiganbayan
subdivided Case No. 0033 into eight Complaints and docketed them as Case Nos.
0033-A to 0033-H.

Six years later, on February 13, 2001, the Board of Directors of UCPB received
from the ACCRA Law Office a letter written on behalf of the COCOFED and the
alleged nameless one million coconut farmers, demanding the holding of a
stockholders' meeting for the purpose of, among others, electing the board of
directors. In response, the board approved a Resolution calling for a stockholders'
meeting on March 6, 2001 at three o'clock in the afternoon.

Magsasaka at Manggagawa ng Niyugan (PKSMMN). The coalition claims that its

members have been excluded from the benefits of the coconut levy fund. Inter
alia, it joined petitioner in praying for the exclusion of private respondents in
voting the sequestered shares.

On February 23, 2001, "COCOFED, et al. and Ballares, et al." filed the "Class
Action Omnibus Motion"17 referred to earlier in Sandiganbayan Civil Case Nos.
0033-A, 0033-B and 0033-F, asking the court a quo:

Petitioner submits the following issues for our consideration:24

"1. To enjoin the PCGG from voting the UCPB shares of stock registered in
the respective names of the more than one million coconut farmers; and
"2. To enjoin the PCGG from voting the SMC shares registered in the names
of the 14 CIIF holding companies including those registered in the name of
the PCGG."18
On February 28, 2001, respondent court, after hearing the parties on oral
argument, issued the assailed Order.
Hence, this Petition by the Republic of the Philippines represented by the PCGG. 19
The case had initially been raffled to this Court's Third Division which, by a vote of
3-2,20 issued a Resolution21requiring the parties to maintain the status quo
existing before the issuance of the questioned Sandiganbayan Order dated
February 28, 2001. On March 7, 2001, Respondent COCOFED et al. moved that
the instant Petition be heard by the Court en banc. 22 The Motion was unanimously
granted by the Third Division.
On March 13, 2001, the Court en banc resolved to accept the Third Division's
referral.23 It heard the case on Oral Argument in Baguio City on April 17, 2001.
During the hearing, it admitted the intervention of a group of coconut farmers and
farm worker organizations, the Pambansang Koalisyon ng mga Samahang

Issues

"A.
Despite the fact that the subject sequestered shares were purchased with
coconut levy funds (which were declared public in character) and the
continuing effectivity of Resolution dated February 16, 1993 in G.R. No.
96073 which allows the PCGG to vote said sequestered shares,
Respondent Sandiganbayan, with grave abuse of discretion, issued its
Order dated February 20, 2001 enjoining PCGG from voting the
sequestered shares of stock in UCPB.
"B.
The Respondent Sandiganbayan violated petitioner's right to due process
by taking cognizance of the Class Action Omnibus Motion dated 23
February 2001 despite gross lack of sufficient notice and by issuing the
writ of preliminary injunction despite the obvious fact that there was no
actual pressing necessity or urgency to do so."
In its Resolution dated April 17, 2001, the Court defined the issue to be resolved
in the instant case simply as follows:
This Court's Ruling
The Petition is impressed with merit.

Main Issue:
Who May Vote the Sequestered Shares of Stock?
Simply stated, the gut substantive issue to be resolved in the present Petition is:
"Who may vote the sequestered UCPB shares while the main case for their
reversion to the State is pending in the Sandiganbayan?"
This Court holds that the government should be allowed to continue voting those
shares inasmuch as they were purchased with coconut levy funds that are prima
facie public in character or, at the very least, are "clearly affected with public
interest."
General Rule: Sequestered Shares
Are Voted by the Registered Holder
At the outset, it is necessary to restate the general rule that the registered owner
of the shares of a corporation exercises the right and the privilege of voting. 25 This
principle applies even to shares that are sequestered by the government, over
which the PCGG as a mere conservator cannot, as a general rule, exercise acts of
dominion.26On the other hand, it is authorized to vote these sequestered shares
registered in the names of private persons and acquired with allegedly ill-gotten
wealth, if it is able to satisfy the two-tiered test devised by the Court inCojuangco
v. Calpo27 and PCGG v. Cojuangco Jr.,28 as follows:
(1) Is there prima facie evidence showing that the said shares are ill-gotten
and thus belong to the State?
(2) Is there an imminent danger of dissipation, thus necessitating their
continued sequestration and voting by the PCGG, while the main issue is
pending with the Sandiganbayan?
Sequestered Shares Acquired with Public Funds are an Exception

From the foregoing general principle, the Court in Baseco v. PCGG29 (hereinafter
"Baseco") and Cojuangco Jr. v. Roxas 30 ("Cojuangco-Roxas") has provided two
clear "public character" exceptions under which the government is granted the
authority to vote the shares:
(1) Where government shares are taken over by private persons or entities
who/which registered them in their own names, and
(2) Where the capitalization or shares that were acquired with public funds
somehow landed in private hands.
The exceptions are based on the common-sense principle that legal fiction must
yield to truth; that public property registered in the names of non-owners is
affected with trust relations; and that the prima facie beneficial owner should be
given the privilege of enjoying the rights flowing from the prima facie fact of
ownership.
In Baseco, a private corporation known as the Bataan Shipyard and Engineering
Co. was placed under sequestration by the PCGG. Explained the Court:
"The facts show that the corporation known as BASECO was owned and
controlled by President Marcos 'during his administration, through
nominees, by taking undue advantage of his public office and/or using his
powers, authority, or influence,' and that it was by and through the same
means, that BASECO had taken over the business and/or assets of the
National Shipyard and Engineering Co., Inc., and other government-owned
or controlled entities."31
Given this factual background, the Court discussed PCGG's right over BASECO in
the following manner:
"Now, in the special instance of a business enterprise shown by evidence
to have been 'taken over by the government of the Marcos Administration
or by entities or persons close to former President Marcos,' the PCGG is

given power and authority, as already adverted to, to 'provisionally take

(it) over in the public interest or to prevent * * (its) disposal or dissipation;'
and since the term is obviously employed in reference to going concerns,
or business enterprises in operation, something more than mere physical
custody is connoted; the PCGG may in this case exercise some measure of
control in the operation, running, or management of the business itself." 32
Citing an earlier Resolution, it ruled further:
"Petitioner has failed to make out a case of grave abuse or excess of
jurisdiction in respondents' calling and holding of a stockholders' meeting
for the election of directors as authorized by the Memorandum of the
President * * (to the PCGG) dated June 26, 1986, particularly, where as in
this case, the government can, through its designated directors, properly
exercise control and management over what appear to be properties and
assets owned and belonging to the government itself and over which the
persons who appear in this case on behalf of BASECO have failed to show
any right or even any shareholding in said corporation." 33 (Italics supplied)
The Court granted PCGG the right to vote the sequestered shares because they
appeared to be "assets belonging to the government itself." The Concurring
Opinion of Justice Ameurfina A. Melencio-Herrera, in which she was joined by
Justice Florentino P. Feliciano, explained this principle as follows:
"I have no objection to according the right to vote sequestered stock in
case of a take-over of business actually belonging to the government
or whose capitalization comes from public funds but which, somehow,
landed in the hands of private persons, as in the case of BASECO. To my
mind, however, caution and prudence should be exercised in the case of
sequestered shares of an on-going private business enterprise, specially
the sensitive ones, since the true and real ownership of said shares is yet
to be determined and proven more conclusively by the Courts." 34 (Italics
supplied)

The exception was cited again by the Court in Cojuangco-Roxas35 in this wise:
"The rule in this jurisdiction is, therefore, clear. The PCGG cannot perform
acts of strict ownership of sequestered property. It is a mere conservator. It
may not vote the shares in a corporation and elect the members of the
board of directors. The only conceivable exception is in a case of a
takeover of a business belonging to the government or whose
capitalization comes from public funds, but which landed in private hands
as in BASECO."36 (Italics supplied)
The "public character" test was reiterated in many subsequent cases; most
recently,
in Antiporda
v.
Sandiganbayan.37 Expressly
citing Conjuangco38
Roxas, this Court said that in determining the issue of whether the PCGG should
be allowed to vote sequestered shares, it was crucial to find out first whether
these were purchased with public funds, as follows:
"It is thus important to determine first if the sequestered corporate shares
came from public funds that landed in private hands." 39
In short, when sequestered shares registered in the names of private individuals
or entities are alleged to have been acquired with ill-gotten wealth, then the twotiered test is applied. However, when the sequestered shares in the name of
private individuals or entities are shown, prima facie, to have been (1) originally
government shares, or (2) purchased with public funds or those affected with
public interest, then the two-tiered test does not apply. Rather, the public
character exceptions in Baseco v. PCGG and Cojuangco Jr. v. Roxas prevail; that is,
the government shall vote the shares.
UCPB Shares Were Acquired With Coconut Levy Funds
In the present case before the Court, it is not disputed that the money used to
purchase the sequestered UCPB shares came from the Coconut Consumer
Stabilization Fund (CCSF), otherwise known as the coconut levy funds.

This fact was plainly admitted by private respondent's counsel, Atty. Teresita J.
Herbosa, during the Oral Arguments held on April 17, 2001 in Baguio City, as
follows:
"Justice Panganiban:
"In regard to the theory of the Solicitor General that the funds used to
purchase [both] the original 28 million and the subsequent 80 million came
from the CCSF, Coconut Consumers Stabilization Fund, do you agree with
that?

"Yes, Your Honor.

xxx

The Resolution issued by the Court on February 16, 1993 in Republic v.

Sandiganbayan42 stated that coconut levy funds were "clearly affected with public
interest"; thus, herein private respondents even if they are the registered
shareholders cannot be accorded the right to vote them. We quote the said
Resolution in part, as follows:
"The coconut levy funds being 'clearly affected with public interest, it
follows that the corporations formed and organized from those funds, and
all assets acquired therefrom should also be regarded as 'clearly affected
with public interest.'"43

"Atty. Herbosa:

xxx

Having conclusively shown that the sequestered UCPB shares were purchased
with coconut levies, we hold that these funds and shares are, at the very least,
"affected with public interest."

xxx

"Justice Panganiban:
"So it seems that the parties [have] agreed up to that point that the funds
used to purchase 72% of the former First United Bank came from the
Coconut Consumer Stabilization Fund?
"Atty. Herbosa:
"Yes, Your Honor."40
Indeed in Cocofed v. PCGG,41 this Court categorically declared that the
UCPB was acquired "with the use of the Coconut Consumers Stabilization
Fund in virtue of Presidential Decree No. 755, promulgated on July 29,
1975."
Coconut Levy Funds Are Affected With Public Interest

xxx

xxx

xxx

"Assuming, however, for purposes of argument merely, the lifting of

sequestration to be correct, may it also be assumed that the lifting of
sequestration removed the character of the coconut levy companies of
being affected with public interest, so that they and their stock and assets
may now be considered to be of private ownership? May it be assumed
that the lifting of sequestration operated to relieve the holders of stock in
the coconut levy companies affected with public interest of the
obligation of proving how that stock had been legitimately transferred to
private ownership, or that those stockholders who had had some part in
the collection, administration, or disposition of the coconut levy funds are
now deemed qualified to acquire said stock, and freed from any doubt or
suspicion that they had taken advantage of their special or fiduciary
relation with the agencies in charge of the coconut levies and the funds
thereby accumulated? The obvious answer to each of the questions is a
negative one. It seems plain that the lifting of sequestration has no
relevance to the nature of the coconut levy companies or their stock or
property, or to the legality of the acquisition by private persons of their

interest therein, or to the latter's capacity or disqualification to acquire

stock in the companies or any property acquired from coconut levy funds.
"This being so, the right of the [petitioners] to vote stock in their names at
the meetings of the UCPB cannot be conceded at this time. That right still
has to be established by them before the Sandiganbayan. Until that is
done, they cannot be deemed legitimate owners of UCPB stock and cannot
be accorded the right to vote them."44 (Italics supplied)
It is however contended by respondents that this Resolution was in the nature of a
temporary restraining order. As such, it was supposedly interlocutory in character
and became functus oficio when this Court decided GR No. 96073 on January 23,
1995.
This argument is aptly answered by petitioner in its Memorandum, which we
quote:
"The ruling made in the Resolution dated 16 February 1993 confirming the
public nature of the coconut levy funds and denying claimants their
purported right to vote is an affirmation of doctrines laid down in the cases
of COCOFED v. PCGG supra, Baseco v. PCGG, supra, and Cojuangco v.
Roxas, supra. Therefore it is of no moment that the Resolution dated 16
February 1993 has not been ratified. Its jurisprudential based
remain."45 (Italics supplied)
To repeat, the foregoing juridical situation has not changed. It is still the truth
today: "the coconut levy funds are clearly affected with public interest." Private
respondents have not "demonstrated satisfactorily that they have legitimately
become private funds."
If private respondents really and sincerely believed that the final Decision of the
Court in Republic v. Sandiganbayan (GR No. 96073, promulgated on January 23,
1995) granted them the right to vote, why did they wait for the lapse of six long
years before definitively asserting it (1) through their letter dated February 13,

2001, addressed to the UCPB Board of Directors, demanding the holding of a

shareholders' meeting on March 6, 2001; and (2) through their Omnibus Motion
dated February 23, 2001 filed in the court a quo, seeking to enjoin PCGG from
voting the subject sequestered shares during the said stockholders' meeting?
Certainly, if they even half believed their submission now that they already had
such right in 1995 why are they suddenly and imperiously claiming it only now?
It should be stressed at this point that the assailed Sandiganbayan Order dated
February 28, 2001 allowing private respondents to vote the sequestered shares
is not based on any finding that the coconut levies and the shares have
"legitimately become private funds." Neither is it based on the alleged lifting of
the TRO issued by this Court on February 16, 1993. Rather, it is anchored on the
grossly mistaken application of the two-tiered test mentioned earlier in this
Decision.
To stress, the two-tiered test is applied only when the sequestered asset in the
hands of a private person is alleged to have been acquired with ill-gotten wealth.
Hence, in PCGG v. Cojuangco,47 we allowed Eduardo Cojuangco Jr. to vote the
sequestered shares of the San Miguel Corporation (SMC) registered in his name
but alleged to have been acquired with ill-gotten wealth. We did so on his
representation that he had acquired them with borrowed funds and upon failure of
the PCGG to satisfy the "two-tiered" test. This test was, however, not applied to
sequestered SMC shares that were purchased with coco levy funds.
In the present case, the sequestered UCPB shares are confirmed to have been
acquired with coco levies, not with alleged ill-gotten wealth. Hence, by parity of
reasoning, the right to vote them is not subject to the "two-tiered test" but to the
public character of their acquisition, which per Antiporda v. Sandiganbayan cited
earlier, must first be determined.
Coconut Levy Funds Are Prima Facie Public Funds
To avoid misunderstanding and confusion, this Court will even be more categorical
and positive than its earlier pronouncements: the coconut levy funds are not

only affected with public interest; they are, in fact,prima facie public
funds.

State by virtue of its sovereignty for the support of government and for all public
needs.49

Public funds are those moneys belonging to the State or to any political
subdivision of the State; more specifically, taxes, customs duties and moneys
raised by operation of law for the support of the government or for the discharge
of its obligations.48 Undeniably, coconut levy funds satisfy this general
definition of public funds, because of the following reasons:

Based on this definition, a tax has three elements, namely: a) it is an enforced

proportional contribution from persons and properties; b) it is imposed by the
State by virtue of its sovereignty; and c) it is levied for the support of the
government. The coconut levy funds fall squarely into these elements for the
following reasons:

1. Coconut levy funds are raised with the use of the police and taxing
powers of the State.

(a) They were generated by virtue of statutory enactments imposed on the

coconut farmers requiring the payment of prescribed amounts. Thus, PD
No. 276, which created the Coconut Consumer Stabilization Fund (CCSF),
mandated the following:

2. They are levies imposed by the State for the benefit of the coconut
industry and its farmers.
3. Respondents have judicially admitted that the sequestered shares were
purchased with public funds.

"a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its
equivalent in other coconut products, shall be imposed on every first sale,
in accordance with the mechanics established under RA 6260, effective at
the start of business hours on August 10, 1973.

4. The Commission on Audit (COA) reviews the use of coconut levy funds.
5. The Bureau of Internal Revenue (BIR), with the acquiescence of private
respondents, has treated them as public funds.

"The proceeds from the levy shall be deposited with the Philippine National
Bank or any other government bank to the account of the Coconut
Consumers Stabilization Fund, as a separate trust fund which shall not
form part of the general fund of the government."50

6. The very laws governing coconut levies recognize their public character.
We shall now discuss each of the foregoing reasons, any one of which is enough
to show their public character.
1. Coconut Levy Funds Are Raised Through the State's Police and Taxing
Powers.
Indeed, coconut levy funds partake of the nature of taxes which, in general, are
enforced proportional contributions from persons and properties, exacted by the

The coco levies were further clarified in amendatory laws, specifically PD

No. 96151 and PD No. 146852 in this wise:
"The Authority (Philippine Coconut Authority) is hereby empowered to
impose and collect a levy, to be known as the Coconut Consumers
Stabilization Fund Levy, on every one hundred kilos of copra resecada, or
its equivalent in other coconut products delivered to, and/or purchased by,
copra exporters, oil millers, desiccators and other end-users of copra or its
equivalent in other coconut products. The levy shall be paid by such copra
exporters, oil millers, desiccators and other end-users of copra or its

equivalent in other coconut products under such rules and regulations as

the Authority may prescribe. Until otherwise prescribed by the Authority,
the current levy being collected shall be continued."53
Like other tax measures, they were not voluntary payments or donations
by the people. They were enforced contributions exacted on pain of penal
sanctions, as provided under PD No. 276:
"3. Any person or firm who violates any provision of this Decree or the
rules and regulations promulgated thereunder, shall, in addition to
penalties already prescribed under existing administrative and special law,
pay a fine of not less than P2,500 or more than P10,000, or suffer
cancellation of licenses to operate, or both, at the discretion of the
Court."54

(c) They were clearly imposed for a public purpose. There is absolutely no
question that they were collected to advance the government's avowed
policy of protecting the coconut industry. This Court takes judicial notice of
the fact that the coconut industry is one of the great economic pillars of
our nation, and coconuts and their byproducts occupy a leading position
among the country's export products; that it gives employment to
thousands of Filipinos; that it is a great source of the state's wealth; and
that it is one of the important sources of foreign exchange needed by our
country and, thus, pivotal in the plans of a government committed to a
policy of currency stability.
Taxation is done not merely to raise revenues to support the government, but also
to provide means for the rehabilitation and the stabilization of a threatened
industry, which is so affected with public interest as to be within the police power
of the State, as held in Caltex Philippines v. COA57 and Osmea v. Orbos.58

Such penalties were later amended thus:

"Whenever any person or entity willfully and deliberately violates any of
the provisions of this Act, or any rule or regulation legally promulgated
hereunder by the Authority, the person or persons responsible for such
violation shall be punished by a fine of not more than P20,000.00 and by
imprisonment of not more than five years. If the offender be a corporation,
partnership or a juridical person, the penalty shall be imposed on the
officer or officers authorizing, permitting or tolerating the violation. Aliens
found guilty of any offenses shall, after having served his sentence, be
immediately deported and, in the case of a naturalized citizen, his
certificate of naturalization shall be cancelled."55
(b) The coconut levies were imposed pursuant to the laws enacted by the
proper legislative authorities of the State. Indeed, the CCSF was collected
under PD No. 276, issued by former President Ferdinand E. Marcos who
was then exercising legislative powers.56

Even if the money is allocated for a special purpose and raised by special means,
it is still public in character. In the case before us, the funds were even used to
organize and finance State offices. In Cocofed v. PCGG,59 the Court observed that
certain agencies or enterprises "were organized and financed with revenues
derived from coconut levies imposed under a succession of laws of the late
dictatorship x x x with deposed Ferdinand Marcos and his cronies as the
suspected authors and chief beneficiaries of the resulting coconut industry
monopoly."60The Court continued: "x x x. It cannot be denied that the coconut
industry is one of the major industries supporting the national economy. It is,
therefore, the State's concern to make it a strong and secure source not only of
the livelihood of a significant segment of the population, but also of export
earnings the sustained growth of which is one of the imperatives of economic
stability. x x x."61
2. Coconut Funds Are Levied for the Benefit of the Coconut Industry and
Its Farmers.

Just like the sugar levy funds, the coconut levy funds constitute state funds even
though they may be held for a special public purpose.
In fact, Executive Order No. 481 dated May 1, 1998 specifically likens the coconut
levy funds to the sugar levy funds, both being special public funds acquired
through the taxing and police powers of the State. The sugar levy funds,
which are strikingly similar to the coconut levies in their imposition and purpose,
were declared public funds by this Court in Gaston v. Republic Planters
Bank,62 from which we quote:
"The stabilization fees collected are in the nature of a tax which is within
the power of the state to impose for the promotion of the sugar industry
(Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D.
No. 388). The collections made accrue to a 'Special Fund,' a 'Development
and Stabilization Fund,' almost identical to the 'Sugar Adjustment and
Stabilization Fund' created under Section 6 of Commonwealth Act 567. The
tax collected is not in a pure exercise of the taxing power. It is levied with
a regulatory purpose, to provide means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the
State. (Lutz vs. Araneta, supra.)."63
The Court further explained:64
"The stabilization fees in question are levied by the State upon sugar
millers, planters and producers for a special purpose that of 'financing
the growth and development of the sugar industry and all its components,
stabilization of the domestic market including the foreign market.' The fact
that the State has taken possession of moneys pursuant to law is sufficient
to constitute them as state funds, even though they are held for a special
purpose (Lawrence v. American Surety Co., 263 Mich 586. 294 ALR 535,
cited in 42 Am. Jur., Sec. 2., p. 718). Having been levied for a special
purpose, the revenues collected are to be treated as a special fund, to be,
in the language of the statute, 'administered in trust' for the purpose
intended. Once the purpose has been fulfilled or abandoned, the balance,

if any, is to be transferred to the general funds of the Government. That is

the essence of the trust intended (see 1987 Constitution, Art. VI, Sec.
29[3], lifted from the 1935 Constitution, Article VI, Sec. 23[1]. (Italics
supplied)
"The character of the Stabilization Fund as a special fund is emphasized by
the fact that the funds are deposited in the Philippine National Bank and
not in the Philippine Treasury, moneys from which may be paid out only in
pursuance of an appropriation made by law (1987 Constitution, Article VI,
Sec. 29[1], 1973 Constitution, Article VIII, Sec. 18[1]).
"That the fees were collected from sugar producers, planters and millers,
and that the funds were channeled to the purchase of shares of stock in
respondent Bank do not convert the funds into a trust fund for their benefit
nor make them the beneficial owners of the shares so purchased. It is but
rational that the fees be collected from them since it is also they who are
to be benefited from the expenditure of the funds derived from it. The
investment in shares of respondent Bank is not alien to the purpose
intended because of the Bank's character as a commodity bank for sugar
conceived for the industry's growth and development. Furthermore, of
note is the fact that one-half (1/2) or P0.50 per picul, of the amount levied
under P.D. No. 388 is to be utilized for the 'payment of salaries and wages
of personnel, fringe benefits and allowances of officers and employees of
PHILSUCOM' thereby immediately negating the claim that the entire
amount levied is in trust for sugar, producers, planters and millers.
"To rule in petitioners' favor would contravene the general principle that
revenues derived from taxes cannot be used for purely private purposes or
for the exclusive benefit of private persons. The Stabilization Fund is to be
utilized for the benefit of the entire sugar industry, 'and all its components,
stabilization of the domestic market including the foreign market,' the
industry being of vital importance to the country's economy and to
national interest."

In the same manner, this Court has also ruled that the oil stabilization funds were
public in character and subject to audit by COA. It ruled in this wise:

lesser will be the pressure upon the traditional sources of public

revenues, i.e., the pocket books of individual taxpayers and importers."67

"Hence, it seems clear that while the funds collected may be referred to as
taxes, they are exacted in the exercise of the police power of the State.
Moreover, that the OPSF is a special fund is plain from the special
treatment given it by E.O. 137. It is segregated from the general fund; and
while it is placed in what the law refers to as a 'trust liability account,' the
fund nonetheless remains subject to the scrutiny and review of the COA.
The Court is satisfied that these measures comply with the constitutional
description of a 'special fund.' Indeed, the practice is not without
precedent."65

Thus, the coconut levy funds like the sugar levy and the oil stabilization funds,
as well as the monies generated by the On-line Lottery System are funds
exacted by the State. Being enforced contributions, the are prima faciepublic
funds.

In his Concurring Opinion in Kilosbayan v. Guingona,66 Justice Florentino P.

Feliciano explained that the funds raised by the On-line Lottery System were also
public in nature. In his words:
"x x x. In the case presently before the Court, the funds involved are
clearly public in nature. The funds to be generated by the proposed lottery
are to be raised from the population at large. Should the proposed
operation be as successful as its proponents project, those funds will come
from well-nigh every town and barrio of Luzon. The funds here involved are
public in another very real sense: they will belong to the PCSO, a
government owned or controlled corporation and an instrumentality of the
government and are destined for utilization in social development projects
which, at least in principle, are designed to benefit the general public. x x
x. The interest of a private citizen in seeing to it that public funds, from
whatever source they may have been derived, go only to the uses directed
and permitted by law is as real and personal and substantial as the
interest of a private taxpayer in seeing to it that tax monies are not
intercepted on their way to the public treasury or otherwise diverted from
uses prescribed or allowed by law. It is also pertinent to note that the more
successful the government is in raising revenues by non-traditional
methods such as PAGCOR operations and privatization measures, the

3. Respondents Judicially Admit That the Levies Are Government Funds.

Equally important as the fact that the coconut levy funds were raised through the
taxing and police powers of the State is respondents' effective judicial admission
that these levies are government funds. As shown by the attachments to their
pleadings,68 respondents concede that the Coconut Consumers Stabilization Fund
(CCSF) and the Coconut Investment Development Fund "constitute government
funds x x x for the benefit of coconut farmers."
"Collections on both levies constitute government funds. However, unlike
other taxes that the Government levies and collects such as income tax,
tariff and customs duties, etc., the collections on the CCSF and CIDF are,
by express provision of the laws imposing them, for a definite purpose, not
just for any governmental purpose. As stated above part of the collections
on the CCSF levy should be spent for the benefit of the coconut farmers.
And in respect of the collections on the CIDF levy, P.D. 582 mandatorily
requires that the same should be spent exclusively for the establishment,
operation and maintenance of a hybrid coconut seed garden and the
distribution, for free, to the coconut farmers of the hybrid coconut
seednuts produced from that seed garden.
"On the other hand, the laws which impose special levies on specific
industries, for example on the mining industry, sugar industry, timber
industry, etc., do not, by their terms, expressly require that the collections
on those levies be spent exclusively for the benefit of the industry
concerned. And if the enabling law thus so provide, the fact remains that

the governmental agency entrusted with the duty of implementing the

purpose for which the levy is imposed is vested with the discretionary
power to determine when and how the collections should be
appropriated."69
4. The COA Audit Shows the Public Nature of the Funds.
Under COA Office Order No. 86-9470 dated April 15, 1986, 70 the COA reviewed the
expenditure and use of the coconut levies allocated for the acquisition of the
UCPB. The audit was aimed at ascertaining whether these were utilized for the
purpose for which they had been intended. 71 Under the 1987 Constitution, the
powers of the COA are as follows:
"The Commission on Audit shall have the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property, owned or held
in trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities x x x."72
Because these funds have been subjected to COA audit, there can be no other
conclusion than that are prima facie public in character.
5. The BIR Has Pronounced That the Coconut Levy Funds Are Taxes.
In response to a query posed by the administrator of the Philippine Coconut
Authority regarding the character of the coconut levy funds, the Bureau of
Internal Revenue has affirmed that these funds are public in character. It held as
follows: "[T]he coconut levy is not a public trust fund for the benefit of the
coconut farmers, but is in the nature of a tax and, therefore, x x x public funds
that are subject to government administration and disposition."73
Furthermore, the executive branch treats the coconut levies as public funds. Thus,
Executive Order No. 277, issued on September 24, 1995, directed the mode of

treatment, utilization, administration and management of the coconut levy funds.

It provided as follows:
'(a) The coconut levy funds, which include all income, interests, proceeds
or profits derived therefrom, as well as all assets, properties and shares of
stocks procured or obtained with the use of such funds, shall be treated,
utilized, administered and managed as public funds consistent with the
uses and purposes under the laws which constituted them and the
development priorities of the government, including the government's
coconut productivity, rehabilitation, research extension, farmers
organizations, and market promotions programs, which are designed to
advance the development of the coconut industry and the welfare of the
coconut farmers."74 (Italics supplied)
Doctrinally, acts of the executive branch are prima facie valid and binding, unless
declared unconstitutional or contrary to law.
6. Laws Governing Coconut Levies Recognize Their Public Nature.
Finally and tellingly, the very laws governing the coconut levies recognize their
public character. Thus, the thirdWhereas clause of PD No. 276 treats them as
special funds for a specific public purpose. Furthermore, PD No. 711 transferred to
the general funds of the State all existing special and fiduciary funds including the
CCSF. On the other hand, PD No. 1234 specifically declared the CCSF as a special
fund for a special purpose, which should be treated as a special account in the
National Treasury.
Moreover, even President Marcos himself, as the sole legislative/executive
authority during the martial law years, struck off the phrase which is a private
fund of the coconut farmers from the original copy of Executive Order No. 504
dated May 31, 1978, and we quote:
"WHEREAS, by means of the Coconut Consumers Stabilization Fund
('CCSF'), which is the private fund of the coconut farmers (deleted),

essential coconut-based products are made available to household

consumers at socialized prices." (Emphasis supplied)
The phrase in bold face -- which is the private fund of the coconut farmers
was crossed out and duly initialed by its author, former, President Marcos. This
deletion, clearly visible in "Attachment C" of petitioner's Memorandum, 75 was a
categorical legislative intent to regard the CCSF as public, not private, funds.
Having Been Acquired With Public Funds, UCPB Shares Belong, Prima
Facie, to the Government
Having shown that the coconut levy funds are not only affected with public
interest, but are in fact prima faciepublic funds, this Court believes that the
government should be allowed to vote the questioned shares, because they
belong to it as the prima facie beneficial and true owner.
As stated at the beginning, voting is an act of dominion that should be exercised
by the share owner. One of the recognized rights of an owner is the right to vote
at meetings of the corporation. The right to vote is classified as the right to
control.76 Voting rights may be for the purpose of, among others, electing or
removing directors, amending a charter, or making or amending by
laws.77 Because the subject UCPB shares were acquired with government funds,
the government becomes their prima facie beneficial and true owner.

demonstrate, in the main cases pending before the Sandiganbayan, that "they
[the sequestered UCPB shares] have legitimately become private."
Procedural and Incidental Issues:
Grave Abuse of Discretion, Improper Arguments and Intervenors' Relief
Procedurally, respondents argue that petitioner has failed to demonstrate that the
Sandiganbayan committed grave abuse of discretion, a demonstration required in
every petition under Rule 65.80
We disagree. We hold that the Sandiganbayan gravely abused its discretion when
it contravened the rulings of this Court in Baseco and Cojuangco-Roxas thereby
unlawfully, capriciously and arbitrarily depriving the government of its right to
vote sequestered shares purchased with coconut levy funds which are prima
facie public funds.
Indeed, grave abuse of discretion may arise when a lower court or tribunal
violates or contravenes the Constitution, the law or existing jurisprudence. In one
case,81 this Court ruled that the lower court's resolution was "tantamount to
overruling a judicial pronouncement of the highest Court x x x and unmistakably a
very grave abuse of discretion."82
The Public Character of Shares Is a Valid Issue

Ownership includes the right to enjoy, dispose of, exclude and recover a thing
without limitations other than those established by law or by the
owner.78 Ownership has been aptly described as the most comprehensive of all
real rights.79 And the right to vote shares is a mere incident of ownership. In the
present case, the government has been shown to be the prima facie owner of the
funds used to purchase the shares. Hence, it should be allowed the rights and
privileges flowing from such fact.
And paraphrasing Cocofed v. PCGG, already cited earlier, the Republic should
continue to vote those shares until and unless private respondents are able to

Private respondents also contend that the public nature of the coconut levy funds
was not raised as an issue before the Sandiganbayan. Hence, it could not be
taken up before this Court.
Again we disagree. By ruling that the two-tiered test should be applied in
evaluating private respondents' claim of exercising voting rights over the
sequestered shares, the Sandiganbayan effectively held that the subject assets
were private in character. Thus, to meet this issue, the Office of the Solicitor
General countered that the shares were not private in character, and that quite

the contrary, they were and are public in nature because they were acquired with
coco levy funds which are public in character. In short, the main issue of who may
vote the shares cannot be determined without passing upon the question of the
public/private character of the shares and the funds used to acquire them. The
latter issue, although not specifically raised in the Court a quo, should still be
resolved in order to fully adjudicate the main issue.
Indeed, this Court has "the authority to waive the lack of proper assignment of
errors if the unassigned errors closely relate to errors properly pinpointed out or if
the unassigned errors refer to matters upon which the determination of the
questions raised by the errors properly assigned depend."83
Therefore, "where the issues already raised also rest on other issues not
specifically presented as long as the latter issues bear relevance and close
relation to the former and as long as they arise from matters on record, the Court
has the authority to include them in its discussion of the controversy as well as to
pass upon them."84
No Positive Relief For Intervenors
Intervenors anchor their interest in this case on an alleged right that they are
trying to enforce in another Sandiganbayan case docketed as SB Case No.
0187.85 In that case, they seek the recovery of the subject UCPB shares from
herein private respondents and the corporations controlled by them. Therefore,
the rights sought to be protected and the reliefs prayed for by intervenors are still
being litigated in the said case. The purported rights they are invoking are mere
expectancies wholly dependent on the outcome of that case in the
Sandiganbayan.
Clearly, we cannot rule on intervenors' alleged right to vote at this time and in
this case. That right is dependent upon the Sandiganbayan's resolution of their
action for the recovery of said sequestered shares. Given the patent fact that
intervenors are not registered stockholders of UCPB as of the moment, their
asserted rights cannot be ruled upon in the present proceedings. Hence, no

positive relief can be given them now, except insofar as they join petitioner in
barring private respondents from voting the subject shares.
Epilogue
In sum, we hold that the Sandiganbayan committed grave abuse of discretion in
grossly contradicting and effectively reversing existing jurisprudence, and in
depriving the government of its right to vote the sequestered UCPB shares which
are prima facie public in character.
In making this ruling, we are in no way preempting the proceedings the
Sandiganbayan may conduct or the final judgment it may promulgate in Civil
Case Nos. 0033-A, 0033-B and 0033-F. Our determination here is merelyprima
facie, and should not bar the anti-graft court from making a final ruling, after
proper trial and hearing, on the issues and prayers in the said civil cases,
particularly in reference to the ownership of the subject shares.
We also lay down the caveat that, in declaring the coco levy funds to be prima
facie public in character, we are not ruling in any final manner on their
classification whether they are general or trust or special funds since such
classification is not at issue here. Suffice it to say that the public nature of the
coco levy funds is decreed by the Court only for the purpose of determining the
right to vote the shares, pending the final outcome of the said civil cases.
Neither are we resolving in the present case the question of whether the shares
held by Respondent Cojuangco are, as he claims, the result of private enterprise.
This factual matter should also be taken up in the final decision in the cited cases
that are pending in the court a quo. Again suffice it to say that the only issue
settled here is the right of PCGG to vote the sequestered shares, pending the final
outcome of said cases.
This matter involving the coconut levy funds and the sequestered UCPB shares
has been straddling the courts for about 15 years. What we are discussing in the
present Petition, we stress, is just an incident of the main cases which are

pending in the anti-graft court the cases for the reconveyance, reversion and
restitution to the State of these UCPB shares.
The resolution of the main cases has indeed been long overdue. Every effort, both
by the parties and the Sandiganbayan, should be exerted to finally settle this
controversy.
WHEREFORE, the Petition is hereby GRANTED and the assailed Order SET
ASIDE. The PCGG shall continue voting the sequestered shares until
Sandiganbayan Civil Case Nos. 0033-A, 0033-B and 0033-F are finally and
completely resolved. Furthermore, the Sandiganbayan is ORDERED to decide
with finality the aforesaid civil cases within a period of six (6) months from notice.
It shall report to this Court on the progress of the said cases every three (3)
months,
on
pain
of
contempt.
The
Petition
in
Intervention
is DISMISSED inasmuch as the reliefs prayed for are not covered by the main
issues in this case. No costs.
SO ORDERED.

Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION

G.R. No. 106611 July 21, 1994

COMMISSIONER
vs.

OF

INTERNAL

REVENUE, petitioner,

COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF

TAX APPEALS, respondents.

overpayments for the years 1983, 1984 and 1985 in the total amount of
P19,971,745.00. 4

The Solicitor General for petitioner.

In the answer filed by the Office of the Solicitor General, for and in behalf of
therein respondent commissioner, it was asserted that the mere averment that
Citytrust incurred a net loss in 1985 does not ipso facto merit a refund; that the
amounts of P6,611,223.00, P1,959,514.00 and P28,238.00 claimed by Citytrust as
1983 income tax overpayment, taxes withheld on proceeds of government
securities investments, as well as on rental income, respectively, are not properly
documented; that assuming arguendo that petitioner is entitled to refund, the
right
to
claim
the
same
has
prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to
Sections 292 and 295 of the National Internal Revenue Code of 1977, as
amended, since the petition was filed only on August 28, 1986. 5

Palaez, Adriano & Gregorio for private respondent.

REGALADO, J.:
The judicial proceedings over the present controversy commenced with CTA Case
No. 4099, wherein the Court of Tax Appeals ordered herein petitioner
Commissioner of Internal Revenue to grant a refund to herein private respondent
Citytrust Banking Corporation (Citytrust) in the amount of P13,314,506.14,
representing its overpaid income taxes for 1984 and 1985, but denied its claim for
the alleged refundable amount reflected in its 1983 income tax return on the
ground of prescription. 1 That judgment of the tax court was affirmed by
respondent
Court
of
Appeals
in
its
judgment
in
CA-G.R.
SP
No. 26839. 2 The case was then elevated to us in the present petition for review
on certiorari wherein the latter judgment is impugned and sought to be nullified
and/or set aside.
It appears that in a letter dated August 26, 1986, herein private respondent
corporation filed a claim for refund with the Bureau of Internal Revenue (BIR) in
the amount of P19,971,745.00 representing the alleged aggregate of the excess
of its carried-over total quarterly payments over the actual income tax due, plus
carried-over withholding tax payments on government securities and rental
income, as computed in its final income tax return for the calendar year ending
December 31, 1985. 3
Two days later, or on August 28, 1986, in order to interrupt the running of the
prescriptive period, Citytrust filed a petition with the Court of Tax Appeals,
docketed therein as CTA Case No. 4099, claiming the refund of its income tax

On February 20, 1991, the case was submitted for decision based solely on the
pleadings and evidence submitted by herein private respondent Citytrust. Herein
petitioner could not present any evidence by reason of the repeated failure of the
Tax Credit/Refund Division of the BIR to transmit the records of the case, as well
as the investigation report thereon, to the Solicitor General. 6
However, on June 24, 1991, herein petitioner filed with the tax court a
manifestation and motion praying for the suspension of the proceedings in the
said case on the ground that the claim of Citytrust for tax refund in the amount of
P19,971,745.00 was already being processed by the Tax Credit/Refund Division of
the BIR, and that said bureau was only awaiting the submission by Citytrust of the
required confirmation receipts which would show whether or not the aforestated
amount was actually paid and remitted to the BIR. 7
Citytrust filed an opposition thereto, contending that since the Court of Tax
Appeals already acquired jurisdiction over the case, it could no longer be divested
of the same; and, further, that the proceedings therein could not be suspended by
the mere fact that the claim for refund was being administratively processed,
especially where the case had already been submitted for decision.

It also argued that the BIR had already conducted an audit, citing therefor
Exhibits Y, Y-1, Y-2 and Y-3 adduced in the case, which clearly showed that there
was an overpayment of income taxes and for which a tax credit or refund was due
to Citytrust. The Foregoing exhibits are allegedly conclusive proof of and an
admission by herein petitioner that there had been an overpayment of income
taxes. 8

Tax
Overpayment
Less:
FCDU
payable

Amount Refundable for 1985 P (17,842.47)

(36,716.47)*
18,874.00

* Note:
The tax court denied the motion to suspend proceedings on the ground that the
case had already been submitted for decision since February 20, 1991. 9
Thereafter, said court rendered its decision in the case, the decretal portion of
which declares:

These credits are smaller than the claimed amount

because only the above figures are well supported by
the various exhibits presented during the hearing.
No pronouncement as to costs.

WHEREFORE, in view of the foregoing, petitioner is entitled to a

refund but only for the overpaid taxes incurred in 1984 and 1985.
The refundable amount as shown in its 1983 income tax return is
hereby denied on the ground of prescription. Respondent is hereby
ordered to grant a refund to petitioner Citytrust Banking Corp. in
the amount of P13,314,506.14 representing the overpaid income
taxes for 1984 and 1985, recomputed as follows:
1984
Income
tax
due
P
Less:
1984
Quarterly
payments
P
1984
Tax
Credits
W/T
on
int.
on
gov't.
sec.
W/T
on
rental
inc.
26,604.30*

Tax
Overpayment
Less:
FCDU
payable

Amount
refundable
for
1984
P
1985
Less:

Income
W/T

tax

due
on

(loss)
P
rentals

4,715,533.00
16,214,599.00*

1,921,245.37*
18,162,448.67

(13,446,915.67)
150,252.00
(13,296,663.67)

36,716.47*

SO ORDERED. 10
The order for refund was based on the following findings of the Court of Tax
Appeals: (1) the fact of withholding has been established by the statements and
certificates of withholding taxes accomplished by herein private respondent's
withholding agents, the authenticity of which were neither disputed nor
controverted by herein petitioner; (2) no evidence was presented which could
effectively dispute the correctness of the income tax return filed by herein
respondent corporation and other material facts stated therein; (3) no deficiency
assessment was issued by herein petitioner; and (4) there was an audit report
submitted by the BIR Assessment Branch, recommending the refund of overpaid
taxes for the years concerned (Exhibits Y to Y-3), which enjoys the presumption of
regularity in the performance of official duty. 11
A motion for the reconsideration of said decision was initially filed by the Solicitor
General on the sole ground that the statements and certificates of taxes allegedly
withheld are not conclusive evidence of actual payment and remittance of the
taxes withheld to the BIR. 12 A supplemental motion for reconsideration was
thereafter filed, wherein it was contended for the first time that herein private
respondent had outstanding unpaid deficiency income taxes. Petitioner alleged

that through an inter-office memorandum of the Tax Credit/Refund Division, dated

August 8, 1991, he came to know only lately that Citytrust had outstanding tax
liabilities for 1984 in the amount of P56,588,740.91 representing deficiency
income and business taxes covered by Demand/Assessment Notice No. FAS-1-84003291-003296. 13
Oppositions to both the basic and supplemental motions for reconsideration were
filed by private respondent Citytrust. 14 Thereafter, the Court of Tax Appeals
issued a resolution denying both motions for the reason that Section 52 (b) of the
Tax
Code,
as
implemented
by
Revenue
Regulation
6-85, only requires that the claim for tax credit or refund must show that the
income received was declared as part of the gross income, and that the fact of
withholding was duly established. Moreover, with regard to the argument raised in
the supplemental motion for reconsideration anent the deficiency tax assessment
against herein petitioner, the tax court ruled that since that matter was not raised
in the pleadings, the same cannot be considered, invoking therefor the salutary
purpose of the omnibus motion rule which is to obviate multiplicity of motions and
to discourage dilatory pleadings. 15
As indicated at the outset, a petition for review was filed by herein petitioner with
respondent Court of Appeals which in due course promulgated its decision
affirming the judgment of the Court of Tax Appeals. Petitioner eventually elevated
the case to this Court, maintaining that said respondent court erred in affirming
the grant of the claim for refund of Citytrust, considering that, firstly, said private
respondent failed to prove and substantiate its claim for such refund; and,
secondly, the bureau's findings of deficiency income and business tax liabilities
against private respondent for the year 1984 bars such payment. 16
After a careful review of the records, we find that under the peculiar
circumstances of this case, the ends of substantial justice and public interest
would be better subserved by the remand of this case to the Court of Tax Appeals
for further proceedings.

It is the sense of this Court that the BIR, represented herein by petitioner
Commissioner of Internal Revenue, was denied its day in court by reason of the
mistakes and/or negligence of its officials and employees. It can readily be
gleaned from the records that when it was herein petitioner's turn to present
evidence, several postponements were sought by its counsel, the Solicitor
General, due to the unavailability of the necessary records which were not
transmitted by the Refund Audit Division of the BIR to said counsel, as well as the
investigation report made by the Banks/Financing and Insurance Division of the
said bureau/ despite repeated requests. 17 It was under such a predicament and in
deference to the tax court that ultimately, said records being still unavailable,
herein petitioner's counsel was constrained to submit the case for decision on
February 20, 1991 without presenting any evidence.
For that matter, the BIR officials and/or employees concerned also failed to heed
the order of the Court of Tax Appeals to remand the records to it pursuant to
Section 2, Rule 7 of the Rules of the Court of Tax Appeals which provides that the
Commissioner of Internal Revenue and the Commissioner of Customs shall certify
and forward to the Court of Tax Appeals, within ten days after filing his answer, all
the records of the case in his possession, with the pages duly numbered, and if
the records are in separate folders, then the folders shall also be numbered.
The aforestated impass came about due to the fact that, despite the filing of the
aforementioned initiatory petition in CTA Case No. 4099 with the Court of Tax
Appeals, the Tax Refund Division of the BIR still continued to act administratively
on the claim for refund previously filed therein, instead of forwarding the records
of the case to the Court of Tax Appeals as ordered. 18
It is a long and firmly settled rule of law that the Government is not bound by the
errors committed by its agents. 19In the performance of its governmental
functions, the State cannot be estopped by the neglect of its agent and officers.
Although the Government may generally be estopped through the affirmative acts
of public officers acting within their authority, their neglect or omission of public
duties as exemplified in this case will not and should not produce that effect.

Nowhere is the aforestated rule more true than in the field of taxation. 20 It is
axiomatic that the Government cannot and must not be estopped particularly in
matters involving taxes. Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the State effects its
functions for the welfare of its constituents. 21The errors of certain administrative
officers should never be allowed to jeopardize the Government's financial
position, 22especially in the case at bar where the amount involves millions of
pesos the collection whereof, if justified, stands to be prejudiced just because of
bureaucratic lethargy.
Further, it is also worth nothing that the Court of Tax Appeals erred in denying
petitioner's supplemental motion for reconsideration alleging bringing to said
court's attention the existence of the deficiency income and business tax
assessment against Citytrust. The fact of such deficiency assessment is intimately
related to and inextricably intertwined with the right of respondent bank to claim
for a tax refund for the same year. To award such refund despite the existence of
that deficiency assessment is an absurdity and a polarity in conceptual effects.
Herein private respondent cannot be entitled to refund and at the same time be
liable for a tax deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the tax return is valid,
that is, the facts stated therein are true and correct. The deficiency assessment,
although not yet final, created a doubt as to and constitutes a challenge against
the truth and accuracy of the facts stated in said return which, by itself and
without unquestionable evidence, cannot be the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was
the applicable law when the claim of Citytrust was filed, provides that "(w)hen an
assessment is made in case of any list, statement, or return, which in the opinion
of the Commissioner of Internal Revenue was false or fraudulent or contained any
understatement or undervaluation, no tax collected under such assessment shall
be recovered by any suits unless it is proved that the said list, statement, or
return was not false nor fraudulent and did not contain any understatement or
undervaluation; but this provision shall not apply to statements or returns made

or to be made in good faith regarding annual depreciation of oil or gas wells and
mines."
Moreover, to grant the refund without determination of the proper assessment
and the tax due would inevitably result in multiplicity of proceedings or suits. If
the deficiency assessment should subsequently be upheld, the Government will
be forced to institute anew a proceeding for the recovery of erroneously refunded
taxes which recourse must be filed within the prescriptive period of ten years
after discovery of the falsity, fraud or omission in the false or fraudulent return
involved. 23 This would necessarily require and entail additional efforts and
expenses on the part of the Government, impose a burden on and a drain of
government funds, and impede or delay the collection of much-needed revenue
for governmental operations.
Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is
both logically necessary and legally appropriate that the issue of the deficiency
tax assessment against Citytrust be resolved jointly with its claim for tax refund,
to determine once and for all in a single proceeding the true and correct amount
of tax due or refundable.
In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be
only just and fair that the taxpayer and the Government alike be given equal
opportunities to avail of remedies under the law to defeat each other's claim and
to determine all matters of dispute between them in one single case. It is
important to note that in determining whether or not petitioner is entitled to the
refund of the amount paid, it would necessary to determine how much the
Government is entitled to collect as taxes. This would necessarily include the
determination of the correct liability of the taxpayer and, certainly, a
determination of this case would constitute res judicata on both parties as to all
the matters subject thereof or necessarily involved therein.
The Court cannot end this adjudication without observing that what caused the
Government to lose its case in the tax court may hopefully be ascribed merely to
the ennui or ineptitude of officialdom, and not to syndicated intent or corruption.

The evidential cul-de-sac in which the Solicitor General found himself once again
gives substance to the public perception and suspicion that it is another
proverbial tip in the iceberg of venality in a government bureau which is
pejoratively rated over the years. What is so distressing, aside from the financial
losses to the Government, is the erosion of trust in a vital institution wherein the
reputations of so many honest and dedicated workers are besmirched by the acts
or omissions of a few. Hence, the liberal view we have here taken pro hac
vice, which may give some degree of assurance that this Court will unhesitatingly
react to any bane in the government service, with a replication of such response
being likewise expected by the people from the executive authorities.
WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No.
26839 is hereby SET ASIDE and the case at bar is REMANDED to the Court of Tax
Appeals for further proceedings and appropriate action, more particularly, the
reception of evidence for petitioner and the corresponding disposition of CTA Case
No. 4099 not otherwise inconsistent with our adjudgment herein.
SO ORDERED.
Narvasa, C.J., Padilla, Puno and Mendoza, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. L-30232 July 29, 1988
LUZON
STEVEDORING
CORPORATION, petitioner-appellant,
vs.
COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF
INTERNAL REVENUE, respondents-appellees.
H. San Luis & V.L. Simbulan for petitioner-appellant.

PARAS, J.:

This is a petition for review of the October 21, 1968 Decision * of the Court of Tax
Appeals in CTA Case No. 1484, "Luzon Stevedoring Corporation v. Hon. Ramon
Oben, Commissioner, Bureau of Internal Revenue", denying the various claims for
tax refund; and the February 20, 1969 Resolution of the same court denying the
motion for reconsideration.

II

Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of
its tugboats, imported various engine parts and other equipment for which it paid,
under protest, the assessed compensating tax. Unable to secure a tax refund
from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition
for Review (Rollo, pp. 14-18) with the Court of Tax Appeals, docketed therein as
CTA Case No. 1484, praying among others, that it be granted the refund of the
amount of P33,442.13. The Court of Tax Appeals, however, in a Decision dated
October 21, 1969 (Ibid., pp. 22-27), denied the various claims for tax refund. The
decretal portion of the said decision reads:

III

WHEREFORE, finding petitioner's various claims for refund

amounting to P33,442.13 without sufficient legal justification, the
said claims have to be, as they are hereby, denied. With costs
against petitioner.
On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration (Ibid.,
pp. 28-34), but the same was denied in a Resolution dated February 20, 1969
(Ibid., p. 35). Hence, the instant petition.
This Court, in a Resolution dated March 13, 1969, gave due course to the petition
(Ibid., p. 40). Petitioner-appellant raised three (3) assignments of error, to wit:
I
The lower court erred in holding that the petitioner-appellant is
engaged in business as stevedore, the work of unloading and
loading of a vessel in port, contrary to the evidence on record.

The lower court erred in not holding that the business in which
petitioner-appellant is engaged, is part and parcel of the shipping
industry.

The lower court erred in not allowing the refund sought by

petitioner-appellant.
The instant petition is without merit.
The pivotal issue in this case is whether or not petitioner's tugboats" can be
interpreted to be included in the term "cargo vessels" for purposes of the tax
exemption provided for in Section 190 of the National Internal Revenue Code, as
amended by Republic Act No. 3176.
Said law provides:
Sec. 190. Compensating tax. ... And Provided further, That the
tax imposed in this section shall not apply to articles to be used by
the importer himself in the manufacture or preparation of articles
subject to specific tax or those for consignment abroad and are to
form part thereof or to articles to be used by the importer himself
as passenger and/or cargo vessel, whether coastwise or
oceangoing, including engines and spare parts of said vessel. ....
Petitioner contends that tugboats are embraced and included in the term cargo
vessel under the tax exemption provisions of Section 190 of the Revenue Code, as
amended by Republic Act. No. 3176. He argues that in legal contemplation, the
tugboat and a barge loaded with cargoes with the former towing the latter for
loading and unloading of a vessel in part, constitute a single vessel. Accordingly,
it concludes that the engines, spare parts and equipment imported by it and used

in the repair and maintenance of its tugboats are exempt from compensating tax
(Rollo, p. 23).

As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as

follows:

On the other hand, respondents-appellees counter that petitioner-appellant's

"tugboats" are not "Cargo vessel" because they are neither designed nor used for
carrying and/or transporting persons or goods by themselves but are mainly
employed for towing and pulling purposes. As such, it cannot be claimed that the
tugboats in question are used in carrying and transporting passengers or cargoes
as a common carrier by water, either coastwise or oceangoing and, therefore, not
within the purview of Section 190 of the Tax Code, as amended by Republic Act
No. 3176 (Brief for Respondents-Appellees, pp. 45).

A tugboat is a strongly built, powerful steam or power vessel, used

for towing and, now, also used for attendance on vessel. (Webster
New International Dictionary, 2nd Ed.)

This Court has laid down the rule that "as the power of taxation is a high
prerogative of sovereignty, the relinquishment is never presumed and any
reduction or dimunition thereof with respect to its mode or its rate, must be
strictly construed, and the same must be coached in clear and unmistakable
terms in order that it may be applied." (84 C.J.S. pp. 659-800), More specifically
stated, the general rule is that any claim for exemption from the tax statute
should be strictly construed against the taxpayer (Acting Commissioner of
Customs v. Manila Electric Co. et al., 69 SCRA 469 [1977] and Commissioner of
Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA 142 [1975]).

A tug is a steam vessel built for towing, synonymous with tugboat.

(Bouvier's Law Dictionary.) (Rollo, p. 24).

As correctly analyzed by the Court of Tax Appeals, in order that the importations
in question may be declared exempt from the compensating tax, it is
indispensable that the requirements of the amendatory law be complied with,
namely: (1) the engines and spare parts must be used by the importer himself as
a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel
must be used in coastwise or oceangoing navigation (Decision, CTA Case No.
1484; Rollo, p. 24).
As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic
Act No. 3176 limit tax exemption from the compensating tax to imported items to
be used by the importer himself as operator of passenger and/or cargo vessel
(Ibid., p. 25).

A tugboat is a diesel or steam power vessel designed primarily for

moving large ships to and from piers for towing barges and lighters
in harbors, rivers and canals. (Encyclopedia International Grolier,
Vol. 18, p. 256).

Under the foregoing definitions, petitioner's tugboats clearly do not fall under the
categories of passenger and/or cargo vessels. Thus, it is a cardinal principle of
statutory construction that where a provision of law speaks categorically, the
need for interpretation is obviated, no plausible pretense being entertained to
justify non-compliance. All that has to be done is to apply it in every case that
falls within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L27641, 40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]).
And, even if construction and interpretation of the law is insisted upon, following
another fundamental rule that statutes are to be construed in the light of
purposes to be achieved and the evils sought to be remedied (People v. Purisima
etc., et al., L-42050-66, 86 SCRA 544 [1978], it will be noted that the legislature in
amending Section 190 of the Tax Code by Republic Act 3176, as appearing in the
records, intended to provide incentives and inducements to bolster the shipping
industry and not the business of stevedoring, as manifested in the sponsorship
speech of Senator Gil Puyat (Rollo, p. 26).
On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found
that no evidence was adduced by petitioner-appellant that tugboats are

passenger and/or cargo vessels used in the shipping industry as an independent

business. On the contrary, petitioner-appellant's own evidence supports the view
that it is engaged as a stevedore, that is, the work of unloading and loading of a
vessel in port; and towing of barges containing cargoes is a part of petitioner's
undertaking as a stevedore. In fact, even its trade name is indicative that its sole
and principal business is stevedoring and lighterage, taxed under Section 191 of
the National Internal Revenue Code as a contractor, and not an entity which
transports passengers or freight for hire which is taxed under Section 192 of the
same Code as a common carrier by water (Decision, CTA Case No. 1484; Rollo, p.
25).
Under the circumstances, there appears to be no plausible reason to disturb the
findings and conclusion of the Court of Tax Appeals.
As a matter of principle, this Court will not set aside the conclusion reached by an
agency such as the Court of Tax Appeals, which is, by the very nature of its
function, dedicated exclusively to the study and consideration of tax problems
and has necessarily developed an expertise on the subject unless there has been
an abuse or improvident exercise of authority (Reyes v. Commissioner of Internal
Revenue, 24 SCRA 199 [1981]), which is not present in the instant case.
PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the
Court of Tax Appeals is AFFIRMED.
SO ORDERED.
Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

Commonwealth Act No. 567 bear no relation to the objective pursued or are
oppressive in character. If objective an 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. Taxation may
be made the implement of the states police power (Great Atl. & Pac. Tea Co. v.
Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. v. Butler, 297 U.S. 1, 80 L. Ed. 477;
MCulloch
v.
Maryland,
4
Wheat,
316,
4
L.
Ed.
579).
2. ID.; ID.; POWER OF STATE TO SELECT SUBJECT OF TAXATION. 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
(Carmicheal v. Southern Coal & Coke Co., 301 U.S. 495, 81 L. Ed. 1245, citing
numerous authorities, at 1251).
DECISION
[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, v. J. ANTONIO
ARANETA, as the Collector of Internal Revenue, Defendant-Appellee.
Ernesto

J.

Gonzaga

for Appellant.

Solicitor General Ambrosio Padilla, First Assistant Solicitor General

Guillermo E. Torres and Solicitor Felicisimo R. Rosete for Appellee.
SYLLABUS
1. CONSTITUTIONAL LAW; TAXATION; POWER OF STATE TO LEVY TAX IN AND
SUPPORT OF SUGAR INDUSTRY. As the protection and promotion of the sugar
industry is a matter of public concern the Legislature may determine within
reasonable bounds what is necessary for its protection and expedient for its
promotion. Here, the legislative must be allowed full play, subject only to the test
of reasonableness; and it is not contended that the means provided in section 6 of

REYES, J. B. L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test
the legality of the taxes imposed by Commonwealth Act No. 567, otherwise
known
as
the
Sugar
Adjustment
Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of
emergency, due to the threat to our industry by the imminent imposition of
export taxes upon sugar as provided in the Tydings-McDuffie 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."cralaw
virtua1aw
library
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
manufactures; while section 3 levies on owners or persons in control of lands

devoted to the cultivation of sugar cane and ceded to others for a consideration,
on
lease
or
otherwise

"a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the
assessed
value
of
such
land."cralaw
virtua1aw
library
According

to

section

of

the

law

SEC. 6. All collections made under this Act shall accrue to a special fund in the
Philippine Treasury, to be known as the Sugar Adjustment and Stabilization Fund,
and shall be paid out only for any or all of the following purposes or to attain any
or all of the following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself despite the
gradual loss of the preferential position of the Philippine sugar in the United
States market, and ultimately to insure its continued existence notwithstanding
the loss of that market and the consequent necessity of meeting competition in
the
free
markets
of
the
world;
Second, to readjust the benefits derived from the sugar industry by all of the
component elements thereof the mill, the landowner, the planter of the sugar
cane, and the laborers in the factory and in the field so that all might continue
profitably
to
engage
therein;
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 adjournment 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
distinct 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 rehabilitated 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 of amounts needed for salaries, wages, travelling expenses,
equipment, and other sundry expenses or said agency or agencies."cralaw
virtua1aw
library
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 plaintiffs opinion is not a public purpose for which a
tax may be constitutionally levied. The action having been dismissed by the Court
of First Instance, the plaintiffs appealed the case directly to this Court (Judiciary
Act,
section
17).
The basic defect in the plaintiffs 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 in 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 states 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 law-making 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 v. Kirkwood,
237 U. S. 52, 59 L. Ed. 835; Johnson v. State ex rel. Marey, 99 Fla. 1311, 128 So

853;

Maxcy

Inc.

v.

Mayo,

103

Fla.

552,

139

So.

121).

As stated in Johnson v. 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
states 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 So. 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 full
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 be levy taxes
to raise funds for their prosecution and attainment. Taxation may be made the
implement of the states police power (Great Atl. & Pac. Tea Co. v. Grosjean, 301
U. S. 412, 81 L. Ed. 1193; U. S. v. Butler, 297 U. S. 1, 80 L. Ed. 477; MCulloch v.
Maryland,
4
Wheat.
318,
4
L.
Ed.
579).
That the tax to be levied should burden the sugar producers themselves can
hardly be a ground of complaint; indeed, it appears rational that the tax be
obtained precisely from those who are to be benefited from the expenditure of the
funds derived from it. At any rate, it is inherent in the power to tax that a state be
free to select the subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class for taxation,
or exemption infringe no constitutional limitation" (Carmichael v. Southern Coal &
Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds
raised under the Sugar Stabilization Act, now in question, should be exclusively
spent in aid of the sugar industry, since it is that very enterprise that is being
protected. It may be that other industries are also in need of similar protection;
but the legislature is not required by the Constitution to adhere to a policy of "all
or none." As ruled in Minnesota ex rel. Pearson v. Probate Court, 309 U. S. 270, 84
L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be
overthrown because there are other instances to which it might have been

applied;" and that the legislative authority, exerted within its proper field, need
not embrace all the evils within its reach" (N. L. R. B. v. Jones & Laughlin Steel
Corp.
301
U.
S.
1,
81
L.
Ed.
893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said
that the devotion of tax money to experimental stations to seek increase of
efficiency in sugar production, utilization of by- products and solution of allied
problems, as well as to the improvement of living and working conditions in sugar
mills or plantations, without any part of such money being channeled directly to
private persons, constitutes expenditure of tax money for private purposes,
(compare Everson v. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So ordered.

EN BANC
G.R. No. L-23645

October 29, 1968

BENJAMIN
P.
GOMEZ, petitioner-appellee,
vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO
R. VALENCIA, in his capacity as Secretary of Public Works and
Communications, and DOMINGO GOPEZ, in his capacity as Acting
Postmaster of San Fernando, Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C.
Zaballero and Solicitor Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635, 1 as amended
by Republic Act 2631,2 which provides as follows:

Republic
SUPREME
Manila

of

the

Philippines
COURT

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.

Mails posted during the said period starting in 1958, which are found in
street or post-office mail boxes without the required semi-postal stamp,
shall be returned to the sender, if known, with a notation calling for the
affixing of such stamp. If the sender is unknown, the mail matter shall be
treated as nonmailable and forwarded to the Dead Letter Office for proper
disposition.

The pertinent portions of Adm. Order 3 read as follows:

Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
Such semi-postal stamps could not be made available during the period
from August 19 to September 30, 1957, for lack of time. However, two
denominations of such stamps, one at "5 + 5" centavos and another at "10
+ 5" centavos, will soon be released for use by the public on their mails to
be posted during the same period starting with the year 1958.
xxx

xxx

xxx

During the period from August 19 to September 30 each year starting in

1958, no mail matter of whatever class, and whether domestic or foreign,
posted at any Philippine Post Office and addressed for delivery in this
country or abroad, shall be accepted for mailing unless it bears at least
one such semi-postal stamp showing the additional value of five centavos
intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail
permits or impressions of postage meters, each piece of such mail shall
bear at least one such semi-postal stamp if posted during the period above
stated starting with the year 1958, in addition to being charged the usual
postage prescribed by existing regulations. In the case of business reply
envelopes and cards mailed during said period, such stamp should be
collected from the addressees at the time of delivery. Mails entitled to
franking privilege 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.

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 separately-addressed piece of second-class mail
matter, and the total sum thus collected shall be entered in the same
official receipt to be issued for the postage at the second-class rate. In
making such entry, the total number of pieces of second-class mail posted
shall be stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00."
The extra charge shall be entered separate from the postage in both of the
official receipt and the Record of Collections.
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.

The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a
letter at the post office in San Fernando, Pampanga. Because this letter,
addressed to a certain Agustin Aquino of 1014 Dagohoy Street, Singalong, Manila
did not bear the special anti-TB stamp required by the statute, it was returned to
the petitioner.

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.

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.

5. Mails entitled to franking privilege. Government agencies, officials,

and other persons entitled to the franking privilege under existing laws
may pay in cash such extra charge intended for said society, instead of
affixing the semi-postal stamps to their mails, provided that such mails are
presented at the post-office window, where the five-centavo extra charge
for said society shall be collected on each piece of such mail matter. In
such case, an official receipt shall be issued for the total sum thus
collected, in the manner stated in subparagraph 1.

For the reasons set out in this opinion, the judgment appealed from must be
reversed.

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."

I.
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 semipostal 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
anti-TB stamp the mere attempt to use the mails without the stamp constitutes a
violation of the statute. It is not required that the mail be accepted by postal
authorities. That requirement is relevant only for the purpose of fixing the liability
of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct
because this suit was filed not only with respect to the letter which he mailed on
September 15, 1963, but also with regard to any other mail that he might send in
the future. Thus, in his complaint, the petitioner prayed that due course be given
to "other mails without the semi-postal stamps which he may deliver for
mailing ... if any, during the period covered by Republic Act 1635, as amended, as
well as other mails hereafter to be sent by or to other mailers which bear the
required postage, without collection of additional charge of five centavos
prescribed by the same Republic Act." As one whose mail was returned, the
petitioner is certainly interested in a ruling on the validity of the statute requiring
the use of additional stamps.
II.
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

substituting count for weight ...17

and

practice

of

sometimes

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,
Capistrano,
Zaldivar, J., is on leave.

J.B.L.,

Dizon,

Makalintal,

Sanchez,

Angeles and
JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. L-29059 December 15, 1987
COMMISSIONER
OF
vs.
CEBU
PORTLAND
CEMENT
APPEALS, respondents.

INTERNAL
COMPANY

REVENUE, petitioner,
and

COURT

OF

TAX

CRUZ, J.:
By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as
modified on appeal by the Supreme Court on February 27, 1965, the
Commissioner of Internal Revenue was ordered to refund to the Cebu Portland
Cement Company the amount of P 359,408.98, representing overpayments of ad
valorem taxes on cement produced and sold by it after October 1957. 1

On March 28, 1968, following denial of motions for reconsideration filed by both
the petitioner and the private respondent, the latter moved for a writ of execution
to enforce the said judgment . 2
The motion was opposed by the petitioner on the ground that the private
respondent had an outstanding sales tax liability to which the judgment debt had
already been credited. In fact, it was stressed, there was still a balance owing on
the sales taxes in the amount of P 4,789,279.85 plus 28% surcharge. 3
On April 22, 1968, the Court of Tax Appeals * granted the motion, holding that the
alleged sales tax liability of the private respondent was still being questioned and
therefore could not be set-off against the refund. 4
In his petition to review the said resolution, the Commissioner of Internal Revenue
claims that the refund should be charged against the tax deficiency of the private
respondent on the sales of cement under Section 186 of the Tax Code. His
position is that cement is a manufactured and not a mineral product and therefore
not exempt from sales taxes. He adds that enforcement of the said tax deficiency
was properly effected through his power of distraint of personal property under
Sections 316 and 318 5 of the said Code and, moreover, the collection of any
national internal revenue tax may not be enjoined under Section 305, 6 subject
only to the exception prescribed in Rep. Act No. 1125. 7 This is not applicable to
the instant case. The petitioner also denies that the sales tax assessments have
already prescribed because the prescriptive period should be counted from the
filing of the sales tax returns, which had not yet been done by the private
respondent.
For its part, the private respondent disclaims liability for the sales taxes, on the
ground that cement is not a manufactured product but a mineral product. 8 As
such, it was exempted from sales taxes under Section 188 of the Tax Code after
the effectivity of Rep. Act No. 1299 on June 16, 1955, in accordance with Cebu
Portland Cement Co. v. Collector of Internal Revenue, 9 decided in 1968. Here
Justice Eugenio Angeles declared that "before the effectivity of Rep. Act No. 1299,
amending Section 246 of the National Internal Revenue Code, cement was

taxable as a manufactured product under Section 186, in connection with Section

194(4) of the said Code," thereby implying that it was not considered a
manufactured product afterwards. Also, the alleged sales tax deficiency could not
as yet be enforced against it because the tax assessment was not yet final, the
same being still under protest and still to be definitely resolved on the merits.
Besides, the assessment had already prescribed, not having been made within
the reglementary five-year period from the filing of the tax returns. 10
Our ruling is that the sales tax was properly imposed upon the private respondent
for the reason that cement has always been considered a manufactured product
and not a mineral product. This matter was extensively discussed and
categorically resolved in Commissioner of Internal Revenue v. Republic Cement
Corporation, 11 decided on August 10, 1983, where Justice Efren L. Plana, after an
exhaustive review of the pertinent cases, declared for a unanimous Court:
From all the foregoing cases, it is clear that cement qua cement
was never considered as a mineral product within the meaning of
Section 246 of the Tax Code, notwithstanding that at least 80% of
its components are minerals, for the simple reason that cement is
the product of a manufacturingprocess and is no longer the mineral
product contemplated in the Tax Code (i.e.; minerals subjected to
simple treatments) for the purpose of imposing the ad valorem tax.
What has apparently encouraged the herein respondents to
maintain their present posture is the case of Cebu Portland Cement
Co. v. Collector of Internal Revenue, L-20563, Oct. 29, 1968 (28
SCRA 789) penned by Justice Eugenio Angeles. For some portions of
that decision give the impression that Republic Act No. 1299, which
amended Section 246, reclassified cement as a mineral product
that was not subject to sales tax. ...
xxx xxx xxx

After a careful study of the foregoing, we conclude that reliance on

the decision penned by Justice Angeles is misplaced. The said
decision is no authority for the proposition that after the enactment
of Republic Act No. 1299 in 1955 (defining mineral product as
things with at least 80% mineral content), cement became a
'mineral product," as distinguished from a "manufactured product,"
and therefore ceased to be subject to sales tax. It was not
necessary for the Court to so rule. It was enough for the Court to
say in effect that even assuming Republic Act No. 1299 had
reclassified cement was a mineral product, the reclassification
could not be given retrospective application (so as to justify the
refund of sales taxes paid before Republic Act 1299 was adopted)
because laws operate prospectively only, unless the legislative
intent to the contrary is manifest, which was not so in the case of
Republic Act 1266. [The situation would have been different if the
Court instead had ruled in favor of refund, in which case it would
have been absolutely necessary (1) to make an unconditional ruling
that Republic Act 1299 re-classified cement as a mineral product
(not subject to sales tax), and (2) to declare the law retroactive, as
a basis for granting refund of sales tax paid before Republic Act
1299.]
In any event, we overrule the CEPOC decision of October 29, 1968
(G.R. No. L-20563) insofar as its pronouncements or any implication
therefrom conflict with the instant decision.
The above views were reiterated in the resolution 12 denying reconsideration of
the said decision, thus:
The nature of cement as a "manufactured product" (rather than a
"mineral product") is well-settled. The issue has repeatedly
presented itself as a threshold question for determining the basis
for computing the ad valorem mining tax to be paid by cement
Companies. No pronouncement was made in these cases that as a

"manufactured product" cement is subject to sales tax because this

was not at issue.
The decision sought to be reconsidered here referred to the
legislative history of Republic Act No. 1299 which introduced a
definition of the terms "mineral" and "mineral products" in Sec. 246
of the Tax Code. Given the legislative intent, the holding in the
CEPOC case (G.R. No. L-20563) that cement was subject to sales
tax prior to the effectivity f Republic Act No. 1299 cannot be
construed to mean that, after the law took effect, cement ceased to
be so subject to the tax. To erase any and all misconceptions that
may have been spawned by reliance on the case of Cebu Portland
Cement Co. v. Collector of Internal Revenue, L-20563, October 29,
1968 (28 SCRA 789) penned by Justice Eugenio Angeles, the Court
has expressly overruled it insofar as it may conflict with the
decision of August 10, 1983, now subject of these motions for
reconsideration.
On the question of prescription, the private respondent claims that the five-year
reglementary period for the assessment of its tax liability started from the time it
filed its gross sales returns on June 30, 1962. Hence, the assessment for sales
taxes made on January 16, 1968 and March 4, 1968, were already out of time. We
disagree. This contention must fail for what CEPOC filed was not the sales returns
required in Section 183(n) but the ad valorem tax returns required under Section
245 of the Tax Code. As Justice Irene R. Cortes emphasized in the aforestated
resolution:
In order to avail itself of the benefits of the five-year prescription
period under Section 331 of the Tax Code, the taxpayer should
have filed the required return for the tax involved, that is, a sales
tax return. (Butuan Sawmill, Inc. v. CTA, et al., G.R. No. L-21516,
April 29, 1966, 16 SCRA 277). Thus CEPOC should have filed sales
tax returns of its gross sales for the subject periods. Both parties
admit that returns were made for the ad valorem mining tax.
CEPOC argues that said returns contain the information necessary

for the assessment of the sales tax. The Commissioner does not
consider such returns as compliance with the requirement for the
filing of tax returns so as to start the running of the five-year
prescriptive period.
We agree with the Commissioner. It has been held in Butuan
Sawmill Inc. v. CTA, supra, that the filing of an income tax return
cannot be considered as substantial compliance with the
requirement of filing sales tax returns, in the same way that an
income tax return cannot be considered as a return for
compensating tax for the purpose of computing the period of
prescription under Sec. 331. (Citing Bisaya Land Transportation Co.,
Inc. v. Collector of Internal Revenue, G.R. Nos. L-12100 and L11812, 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.

G.R. No. 124043 October 14, 1998

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

PANGANIBAN, J.:
Is the income derived from rentals of real property owned by the Young Men's
Christian Association of the Philippines, Inc. (YMCA) established as "a welfare,
educational and charitable non-profit corporation" subject to income tax under
the National Internal Revenue Code (NIRC) and the Constitution?
The Case
This is the main question raised before us in this petition for review
on certiorari challenging two Resolutions issued by the Court of Appeals 1 on
September 28, 1995 2 and February 29, 1996 3 in CA-GR SP No. 32007. Both
Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing the
YMCA to claim tax exemption on the latter's income from the lease of its real
property.
The Facts
Republic
SUPREME
Manila
FIRST DIVISION

of

the

Philippines
COURT

The facts are undisputed. 4 Private Respondent YMCA is a non-stock, non-profit

institution, which conducts various programs and activities that are beneficial to
the public, especially the young people, pursuant to its religious, educational and
charitable objectives.

In 1980, private respondent earned, among others, an income of P676,829.80

from leasing out a portion of its premises to small shop owners, like restaurants
and canteen operators, and P44,259.00 from parking fees collected from nonmembers. On July 2, 1984, the commissioner of internal revenue (CIR) issued an
assessment to private respondent, in the total amount of P415,615.01 including
surcharge and interest, for deficiency income tax, deficiency expanded
withholding taxes on rentals and professional fees and deficiency withholding tax
on wages. Private respondent formally protested the assessment and, as a
supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the
CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition for review at the
Court of Tax Appeals (CTA) on March 14, 1989. In due course, the CTA issued this
ruling in favor of the YMCA:
. . . [T]he leasing of [private respondent's] facilities to small shop
owners, to restaurant and canteen operators and the operation of
the parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the [private
respondents]. It appears from the testimonies of the witnesses for
the [private respondent] particularly Mr. James C. Delote, former
accountant of YMCA, that these facilities were leased to members
and that they have to service the needs of its members and their
guests. The rentals were minimal as for example, the barbershop
was only charged P300 per month. He also testified that there was
actually no lot devoted for parking space but the parking was done
at the sides of the building. The parking was primarily for members
with stickers on the windshields of their cars and they charged P.50
for non-members. The rentals and parking fees were just enough to
cover the costs of operation and maintenance only. The earning[s]
from these rentals and parking charges including those from
lodging and other charges for the use of the recreational facilities
constitute [the] bulk of its income which [is] channeled to support
its many activities and attainment of its objectives. As pointed out
earlier, the membership dues are very insufficient to support its

program. We find it reasonably necessary therefore for [private

respondent] to make [the] most out [of] its existing facilities to earn
some income. It would have been different if under the
circumstances, [private respondent] will purchase a lot and convert
it to a parking lot to cater to the needs of the general public for a
fee, or construct a building and lease it out to the highest bidder or
at the market rate for commercial purposes, or should it invest its
funds in the buy and sell of properties, real or personal. Under
these circumstances, we could conclude that the activities are
already profit oriented, not incidental and reasonably necessary to
the pursuit of the objectives of the association and therefore, will
fall under the last paragraph of Section 27 of the Tax Code and any
income derived therefrom shall be taxable.
Considering our findings that [private respondent] was not engaged
in the business of operating or contracting [a] parking lot, we find
no legal basis also for the imposition of [a] deficiency fixed tax and
[a] contractor's tax in the amount[s] of P353.15 and P3,129.73,
respectively.
xxx xxx xxx
WHEREFORE, in view of all the foregoing, the following assessments
are hereby dismissed for lack of merit:
1980 Deficiency Fixed Tax P353,15;
1980 Deficiency Contractor's Tax P3,129.23;
1980 Deficiency Income Tax P372,578.20.
While the following assessments are hereby sustained:
1980 Deficiency Expanded Withholding Tax P1,798.93;

1980 Deficiency Withholding Tax on Wages P33,058.82

plus 10% surcharge and 20% interest per annum from July 2, 1984
until fully paid but not to exceed three (3) years pursuant to Section
51(e)(2) & (3) of the National Internal Revenue Code effective as of
1984. 5
Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals
(CA). In its Decision of February 16, 1994, the CA 6 initially decided in favor of the
CIR and disposed of the appeal in the following manner:
Following the ruling in the afore-cited cases of Province of Abra vs.
Hernando and Abra Valley College Inc. vs. Aquino, the ruling of the
respondent Court of Tax Appeals that "the leasing of petitioner's
(herein respondent's) facilities to small shop owners, to restaurant
and canteen operators and the operation of the parking lot are
reasonably incidental to and reasonably necessary for the
accomplishment of the objectives of the petitioners, and the
income derived therefrom are tax exempt, must be reversed.
WHEREFORE, the appealed decision is hereby REVERSED in so far
as it dismissed the assessment for:
1980 Deficiency Income Tax P 353.15

The findings of facts of the Public Respondent Court of Tax Appeals

being supported by substantial evidence [are] final and conclusive.
II
The conclusions of law of [p]ublic [r]espondent exempting [p]rivate
[r]espondent from the income on rentals of small shops and parking
fees [are] in accord with the applicable law and jurisprudence. 8
Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed
itself and promulgated on September 28, 1995 its first assailed Resolution which,
in part, reads:
The Court cannot depart from the CTA's findings of fact, as they are
supported by evidence beyond what is considered as substantial.
xxx xxx xxx
The second ground raised is that the respondent CTA did not err in
saying that the rental from small shops and parking fees do not
result in the loss of the exemption. Not even the petitioner would
hazard the suggestion that YMCA is designed for profit.
Consequently, the little income from small shops and parking fees
help[s] to keep its head above the water, so to speak, and allow it
to continue with its laudable work.

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

1980 Deficiency Income Tax P 372,578.20
but the same is AFFIRMED in all other respect.

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

The Court, therefore, finds the second ground of the motion to be

meritorious and in accord with law and jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the
respondent CTA's decision is AFFIRMED in toto. 9

The internal revenue commissioner's own Motion for Reconsideration was denied
by Respondent Court in its second assailed Resolution of February 29, 1996.
Hence, this petition for review under Rule 45 of the Rules of Court. 10
The Issues
Before us, petitioner imputes to the Court of Appeals the following errors:
I
In holding that it had departed from the findings of fact of
Respondent Court of Tax Appeals when it rendered its Decision
dated February 16, 1994; and
II
In affirming the conclusion of Respondent Court of Tax Appeals that
the income of private respondent from rentals of small shops and
parking fees [is] exempt from taxation. 11
This Court's Ruling
The petition is meritorious.
First
Factual Findings of the CTA

Issue:

Private respondent contends that the February 16, 1994 CA Decision reversed the
factual findings of the CTA. On the other hand, petitioner argues that the CA
merely reversed the "ruling of the CTA that the leasing of private respondent's
facilities to small shop owners, to restaurant and canteen operators and the
operation of parking lots are reasonably incidental to and reasonably necessary
for the accomplishment of the objectives of the private respondent and that the
income derived therefrom are tax exempt." 12 Petitioner insists that what the

appellate court reversed was the legal conclusion, not the factual finding, of the
CTA. 13 The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings of the CTA, when
supported by substantial evidence, will be disturbed on appeal unless it is shown
that the said court committed gross error in the appreciation of facts. 14 In the
present case, this Court finds that the February 16, 1994 Decision of the CA did
not deviate from this rule. The latter merely applied the law to the facts as found
by the CTA and ruled on the issue raised by the CIR: "Whether or not the
collection or earnings of rental income from the lease of certain premises and
income earned from parking fees shall fall under the last paragraph of Section 27
of the National Internal Revenue Code of 1977, as amended." 15
Clearly, the CA did not alter any fact or evidence. It merely resolved the
aforementioned issue, as indeed it was expected to. That it did so in a manner
different from that of the CTA did not necessarily imply a reversal of factual
findings.
The distinction between a question of law and a question of fact is clear-cut. It has
been held that "[t]here is a question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of facts; there is a
question of fact when the doubt or difference arises as to the truth or falsehood of
alleged facts." 16 In the present case, the CA did not doubt, much less change, the
facts narrated by the CTA. It merely applied the law to the facts. That its
interpretation or conclusion is different from that of the CTA is not irregular or
abnormal.
Second
Is the Rental Income of the YMCA Taxable?

Issue:

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

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

organizations shall not be taxed under this Title in respect to
income received by them as such
xxx xxx xxx
(g) Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare;

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

xxx xxx xxx

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

Notwithstanding the provisions in the preceding paragraphs, the

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

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

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

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

(h) Club organized and operated exclusively for pleasure,

recreation, and other non-profitable purposes, no part of the net
income of which inures to the benefit of any private stockholder or
member;

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

Verba legis non est recedendum. Hence, Respondent Court of Appeals committed
reversible error when it allowed, on reconsideration, the tax exemption claimed
by YMCA on income it derived from renting out its real property, on the solitary
but unconvincing ground that the said income is not collected for profit but is
merely incidental to its operation. The law does not make a distinction. The rental
income is taxable regardless of whence such income is derived and how it is used
or disposed of. Where the law does not distinguish, neither should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law, private respondent
submits that Article VI, Section 28 of par. 3 of the 1987 Constitution, 24 exempts
"charitable institutions" from the payment not only of property taxes but also of
income tax from any source. 25 In support of its novel theory, it compares the use
of the words "charitable institutions," "actually" and "directly" in the 1973 and the
1987 Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of the
1935 Constitution, on the other hand. 26
Private respondent enunciates three points. First, the present provision is divisible
into two categories: (1) "[c]haritable institutions, churches and parsonages or
convents appurtenant thereto, mosques and non-profit cemeteries," the incomes
of which are, from whatever source, all tax-exempt; 27 and (2) "[a]ll lands,
buildings and improvements actually and directly used for religious, charitable or
educational purposes," which are exempt only from property taxes. 28 Second,
Lladoc v. Commissioner of Internal Revenue, 29 which limited the exemption only
to the payment of property taxes, referred to the provision of the 1935
Constitution and not to its counterparts in the 1973 and the 1987
Constitutions. 30 Third, the phrase "actually, directly and exclusively used for
religious, charitable or educational purposes" refers not only to "all lands,
buildings and improvements," but also to the above-quoted first category which
includes charitable institutions like the private respondent. 31

The Court is not persuaded. The debates, interpellations and expressions of

opinion of the framers of the Constitution reveal their intent which, in turn, may
have guided the people in ratifying the Charter. 32 Such intent must be
effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner,
who is now a member of this Court, stressed during the Concom debates that ". . .
what is exempted is not the institution itself . . .; those exempted from real estate
taxes are lands, buildings and improvements actually, directly and exclusively
used
for
religious,
charitable
or
educational
purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution
and also a member of the Concom, adhered to the same view that the exemption
created by said provision pertained only to property taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax
exemption covers property taxes only." 35 Indeed, the income tax exemption
claimed by private respondent finds no basis in Article VI, Section 26, par. 3 of the
Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of the
Character, 36 claiming that the YMCA "is a non-stock, non-profit educational
institution whose revenues and assets are used actually, directly and exclusively
for educational purposes so it is exempt from taxes on its properties and
income." 37 We reiterate that private respondent is exempt from the payment of
property tax, but not income tax on the rentals from its property. The bare
allegation alone that it is a non-stock, non-profit educational institution is
insufficient to justify its exemption from the payment of income tax.
As previously discussed, laws allowing tax exemption are construed strictissimi
juris. Hence, for the YMCA to be granted the exemption it claims under the
aforecited provision, it must prove with substantial evidence that (1) it falls under
the classification non-stock, non-profit educational institution; and (2) the income
it seeks to be exempted from taxation is used actually, directly, and exclusively
for educational purposes. However, the Court notes that not a scintilla of

evidence was submitted by private respondent to prove that it met the said
requisites.
Is the YMCA an educational institution within the purview of Article XIV, Section 4,
par. 3 of the Constitution? We rule that it is not. The term "educational institution"
or "institution of learning" has acquired a well-known technical meaning, of which
the members of the Constitutional Commission are deemed cognizant. 38 Under
the Education Act of 1982, such term refers to schools. 39 The school system is
synonymous with formal education, 40 which "refers to the hierarchically
structured and chronologically graded learnings organized and provided by the
formal school system and for which certification is required in order for the learner
to progress through the grades or move to the higher levels." 41 The Court has
examined the "Amended Articles of Incorporation" and "By-Laws" 43 of the YMCA,
but found nothing in them that even hints that it is a school or an educational
institution. 44
Furthermore, under the Education Act of 1982, even non-formal education is
understood to be school-based and "private auspices such as foundations and
civic-spirited organizations" are ruled out. 45 It is settled that the term
"educational institution," when used in laws granting tax exemptions, refers to a
". . . school seminary, college or educational establishment . . . ." 46 Therefore, the
private respondent cannot be deemed one of the educational institutions covered
by the constitutional provision under consideration.
. . . Words used in the Constitution are to be taken in their ordinary
acceptation. While in its broadest and best sense education
embraces all forms and phases of instruction, improvement and
development of mind and body, and as well of religious and moral
sentiments, yet in the common understanding and application it
means a place where systematic instruction in any or all of the
useful branches of learning is given by methods common to schools
and institutions of learning. That we conceive to be the true intent
and scope of the term [educational institutions,] as used in the
Constitution. 47

Moreover, without conceding that Private Respondent YMCA is an educational

institution, the Court also notes that the former did not submit proof of the
proportionate amount of the subject income that was actually, directly and
exclusively used for educational purposes. Article XIII, Section 5 of the YMCA bylaws, which formed part of the evidence submitted, is patently insufficient, since
the same merely signified that "[t]he net income derived from the rentals of the
commercial buildings shall be apportioned to the Federation and Member
Associations as the National Board may decide." 48 In sum, we find no basis for
granting the YMCA exemption from income tax under the constitutional provision
invoked.
Cases Cited by Private
Respondent Inapplicable
The cases 49 relied on by private respondent do not support its cause. YMCA of
Manila v. Collector of Internal Revenue 50and Abra Valley College, Inc. v.
Aquino 51 are not applicable, because the controversy in both cases involved
exemption from the payment of property tax, not income tax. Hospital de San
Juan de Dios, Inc. v. Pasay City 52 is not in point either, because it involves a claim
for exemption from the payment of regulatory fees, specifically electrical
inspection fees, imposed by an ordinance of Pasay City an issue not at all
related to that involved in a claimed exemption from the payment of income
taxes imposed on property leases. In Jesus Sacred Heart College v. Com. of
Internal Revenue, 53 the party therein, which claimed an exemption from the
payment of income tax, was an educational institution which submitted
substantial evidence that the income subject of the controversy had been
devoted or used solely for educational purposes. On the other hand, the private
respondent in the present case has not given any proof that it is an educational
institution, or that part of its rent income is actually, directly and exclusively used
for educational purposes.
Epilogue

In deliberating on this petition, the Court expresses its sympathy with private
respondent. It appreciates the nobility of its cause. However, the Court's power
and function are limited merely to applying the law fairly and objectively. It cannot
change the law or bend it to suit its sympathies and appreciations. Otherwise, it
would be overspilling its role and invading the realm of legislation.
We concede that private respondent deserves the help and the encouragement of
the government. It needs laws that can facilitate, and not frustrate, its
humanitarian tasks. But the Court regrets that, given its limited constitutional
authority, it cannot rule on the wisdom or propriety of legislation. That
prerogative belongs to the political departments of government. Indeed, some of
the members of the Court may even believe in the wisdom and prudence of
granting more tax exemptions to private respondent. But such belief, however
well-meaning and sincere, cannot bestow upon the Court the power to change or
amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals
dated September 28, 1995 and February 29, 1996 are hereby REVERSED and SET
ASIDE. The Decision of the Court of Appeals dated February 16, 1995 is
REINSTATED, insofar as it ruled that the income derived by petitioner from rentals
of its real property is subject to income tax. No pronouncement as to costs.
SO ORDERED.

Republic
SUPREME
Manila

of

the

Philippines
COURT

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.

DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros Occidental, Branch
V in Special Proceedings No. 7794, entitled: "Intestate Estate of Luis D. Tongoy,"
the first dated July 29, 1969 dismissing the Motion for Allowance of Claim and for
an Order of Payment of Taxes by the Government of the Republic of the
Philippines against the Estate of the late Luis D. Tongoy, for deficiency income
taxes for the years 1963 and 1964 of the decedent in the total amount of
P3,254.80, inclusive 5% surcharge, 1% monthly interest and compromise
penalties, and the second, dated October 7, 1969, denying the Motion for
reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28, 1969
was filed on June 3, 1969 in the abovementioned special proceedings, (par. 3,

Annex A, Petition, pp. 1920, Rollo). The claim represents the indebtedness to the
Government of the late Luis D. Tongoy for deficiency income taxes in the total
sum of P3,254.80 as above stated, covered by Assessment Notices Nos. 11-50-291-11061-21-63 and 11-50-291-1 10875-64, to which motion was attached Proof of
Claim (Annex B, Petition, pp. 21-22, Rollo). The Administrator opposed the motion
solely on the ground that the claim was barred under Section 5, Rule 86 of the
Rules of Court (par. 4, Opposition to Motion for Allowance of Claim, pp. 23-24,
Rollo). Finding the opposition well-founded, the respondent Judge, Jose F.
Fernandez, dismissed the motion for allowance of claim filed by herein petitioner,
Regional Director of the Bureau of Internal Revenue, in an order dated July 29,
1969 (Annex D, Petition, p. 26, Rollo). On September 18, 1969, a motion for
reconsideration was filed, of the order of July 29, 1969, but was denied in an
Order dated October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the
government against the estate of Luis D. Tongoy was filed beyond
the period provided in Section 2, Rule 86 of the Rules of Court.
2. The lower court erred in holding that the claim for taxes of the
government was already barred under Section 5, Rule 86 of the
Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section 5,
Rule 86 of the New Rule of Court, bars claim of the government for unpaid taxes,
still within the period of limitation prescribed in Section 331 and 332 of the
National Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions
to the Motion for Allowance of Claim, etc. of the petitioners reads as follows:
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
ofexpressio 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, L18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L23272, 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.
G.R. No. 117359. July 23, 1998]
DAVAO GULF LUMBER CORPORATION, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE and COURT OF APPEALS, respondents.

Because taxes are the lifeblood of the nation, statutes that allow exemptions
are construed strictly against the grantee and liberally in favor of the
government. Otherwise stated, any exemption from the payment of a tax must be
clearly stated in the language of the law; it cannot be merely implied therefrom.
Statement of the Case
This principium is applied by the Court in resolving this petition for review
under Rule 45 of the Rules of Court, assailing the Decision [1] of Respondent Court
of Appeals[2] in CA-GR SP No. 34581 dated September 26, 1994, which affirmed
the June 21, 1994 Decision [3] of the Court of Tax Appeals [4] in CTA Case No.
3574. The dispositive portion of the CTA Decision affirmed by Respondent Court
reads:
WHEREFORE, judgment is hereby rendered ordering the respondent to refund to
the petitioner the amount of P2,923.15 representing the partial refund of specific
taxes paid on manufactured oils and fuels.[5]
The Antecedent Facts
The facts are undisputed.[6] Petitioner is a licensed forest concessionaire
possessing a Timber License Agreement granted by the Ministry of Natural
Resources (now Department of Environment and Natural Resources). From July 1,
1980 to January 31, 1982 petitioner purchased, from various oil companies,
refined and manufactured mineral oils as well as motor and diesel fuels, which it
used exclusively for the exploitation and operation of its forest concession. Said
oil companies paid the specific taxes imposed, under Sections 153 and 156 [7] of
the 1977 National Internal Revenue Code (NIRC), on the sale of said products.
Being included in the purchase price of the oil products, the specific taxes paid by
the oil companies were eventually passed on to the user, the petitioner in this
case.

DECISION
PANGANIBAN, J.:

On December 13, 1982, petitioner filed before Respondent Commissioner of

Internal
Revenue
(CIR)
a
claim
for
refund
in
the
amount

of P120,825.11, representing 25% of the specific taxes actually paid on the

above-mentioned fuels and oils that were used by petitioner in its operations as
forest concessionaire. The claim was based on Insular Lumber Co. vs. Court of Tax
Appeals[8] and Section 5 of RA 1435 which reads:

manufactured oils from January 1, 1980 to June 30, 1980 and from February 1,
1982 to June 30, 1982. In regard to the other purchases, the CTA granted the
claim, but it computed the refund based on rates deemed paid under RA 1435,
and not on the higher rates actually paid by petitioner under the NIRC.

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

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

It is an unquestioned fact that petitioner complied with the procedure for

refund, including the submission of proof of the actual use of the aforementioned
oils in its forest concession as required by the above-quoted law. Petitioner, in
support of its claim for refund, submitted to the CIR the affidavits of its general
manager, the president of the Philippine Wood Products Association, and three
disinterested persons, all attesting that the said manufactured diesel and fuel oils
were actually used in the exploitation and operation of its forest concession.
On January 20, 1983, petitioner filed at the CTA a petition for review docketed
as CTA Case No. 3574. On June 21, 1994, the CTA rendered its decision finding
petitioner entitled to a partial refund of specific taxes the latter had paid in the
reduced amount of P2,923.15. The CTA ruled that the claim on purchases of
lubricating oil (from July 1, 1980 to January 19, 1981), and on manufactured oils
other than lubricating oils (from July 1, 1980 to January 4, 1981) had
prescribed. Disallowed on the ground that they were not included in the original
claim filed before the CIR were the claims for refund on purchases of

Public Respondents Ruling

In its petition before the Court of Appeals, petitioner raised the following
arguments:
I. The respondent Court of Tax Appeals failed to apply the Supreme Courts
Decision in Insular Lumber Co. v. Court of Tax Appeals which granted the claim for
partial refund of specific taxes paid by the claimant, without qualification or
limitation.
II. The respondent Court of Tax Appeals ignored the increase in rates imposed by
succeeding amendatory laws, under which the petitioner paid the specific taxes
on manufactured and diesel fuels.
III. In its decision, the respondent Court of Tax Appeals ruled contrary to
established tenets of law when it lent itself to interpreting Section 5 of R.A. 1435,
when the construction of said law is not necessary.
IV. Sections 1 and 2 of R.A. 1435 are not the operative provisions to be applied
but rather, Sections 153 and 156 of the National Internal Revenue Code, as
amended.

V. To rule that the basis for computation of the refunded taxes should be Sections
1 and 2 of R.A. 1435 rather than Section 153 and 156 of the National Internal
Revenue Code is unfair, erroneous, arbitrary, inequitable and oppressive. [10]
The Court of Appeals held that the claim for refund should indeed be
computed on the basis of the amounts deemed paid under Sections 1 and 2 of RA
1435. In so ruling, it cited our pronouncement in Commissioner of Internal
Revenue v. Rio Tuba Nickel Mining Corporation [11] and our subsequent Resolution
dated June 15, 1992 clarifying the said Decision. Respondent Court further ruled
that the claims for refund which prescribed and those which were not filed at the
administrative level must be excluded.
The Issue
In its Memorandum, petitioner raises one critical issue:
Whether or not petitioner is entitled under Republic Act No. 1435 to the refund of
25% of the amount of specific taxes it actually paid on various refined and
manufactured mineral oils and other oil products taxed under Sec. 153 and Sec.
156 of the 1977 (Sec. 142 and Sec. 145 of the 1939) National Internal Revenue
Code.[12]

Under Sec. 5 of RA 1435

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

In the main, the question before us pertains only to the computation of the
tax refund. Petitioner argues that the refund should be based on the increased
rates of specific taxes which it actually paid, as prescribed in Sections 153 and
156 of the NIRC. Public respondent, on the other hand, contends that it should be
based on specific taxes deemed paid under Sections 1 and 2 of RA 1435.
The Courts Ruling
The petition is not meritorious.
Petitioner Entitled to Refund

Against the Grantee

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

x x x Section 5 [of RA 1435] makes reference to subparagraphs 1 and 2 of Section

1 only for the purpose of prescribing the procedure for refund. This express
reference cannot be expanded in scope to include the limitation of the period of
refund. If the limitation of the period of refund of specific taxes paid on oils used
in aviation and agriculture is intended to cover similar taxes paid on oil used by
miners and forest concessionaires, there would have been no need of dealing with
oil used by miners and forest concessions separately and Section 5 would very
well have been included in Section 1 of Republic Act No. 1435, notwithstanding
the different rate of exemption.
Petitioner then reasons that the express mention of Section 1 of RA 1435 in
Section 5 cannot be expanded to include a limitation on the tax rates to be
applied x x x [otherwise,] Section 5 should very well have been included in
Section 1 x x x.[18]
The Court is not persuaded. The relevant statutory provisions do not clearly
support petitioners claim for refund. RA 1435 provides:
SECTION 1. Section one hundred and forty-two of the National Internal Revenue
Code, as amended, is further amended to read as follows:
SEC. 142. Specific tax on manufactured oils and other fuels. -- On refined and
manufactured mineral oils and motor fuels, there shall be collected the following
taxes:
(a) Kerosene or petroleum, per liter of volume capacity, two and one-half
centavos;
(b) Lubricating oils, per liter of volume capacity, seven centavos;
(c) Naptha, gasoline, and all other similar products of distillation, per liter of
volume capacity, eight centavos; and

(d) On denatured alcohol to be used for motive power, per liter of volume
capacity, one centavo: Provided, That if the denatured alcohol is mixed with
gasoline, the specific tax on which has already been paid, only the alcohol
content shall be subject to the tax herein prescribed. For the purpose of this
subsection, the removal of denatured alcohol of not less than one hundred eighty
degrees proof (ninety per centum absolute alcohol) shall be deemed to have been
removed for motive power, unless shown to the contrary.
Whenever any of the oils mentioned above are, during the five years from June
eighteen, nineteen hundred and fifty two, used in agriculture and aviation,
fifty per centum of the specific tax paid thereon shall be refunded by the Collector
of Internal Revenue upon the submission of the following:
(1) A sworn affidavit of the producer and two disinterested persons proving that
the said oils were actually used in agriculture, or in lieu thereof
(2) Should the producer belong to any producers association or federation, duly
registered with the Securities and Exchange Commission, the affidavit of the
president of the association or federation, attesting to the fact that the oils were
actually used in agriculture.
(3) In the case of aviation oils, a sworn certificate satisfactory to the Collector
proving that the said oils were actually used in aviation: Provided, That no such
refunds shall be granted in respect to the oils used in aviation by citizens and
corporations of foreign countries which do not grant equivalent refunds or
exemptions in respect to similar oils used in aviation by citizens and corporations
of the Philippines.
SEC. 2. Section one hundred and forty-five of the National Internal Revenue Code,
as amended, is further amended to read as follows:
SEC. 145. Specific Tax on Diesel fuel oil. -- On fuel oil, commercially known as
diesel fuel oil, and on all similar fuel oils, having more or less the same generating
power, there shall be collected, per metric ton, one peso.

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

(c) Naphtha, gasoline and all other similar products of distillation, per liter of
volume capacity, ninety-one centavos: Provided, That, on premium and aviation
gasoline, the tax shall be one peso per liter of volume capacity;
(d) On denatured alcohol to be used for motive power, per liter of volume
capacity, one centavo: Provided, That, unless otherwise provided for by special
laws, if the denatured alcohol is mixed with gasoline, the specific tax on which has
already been paid, only the alcohol content shall be subject to the tax herein
prescribed. For the purposes of this subsection, the removal of denatured alcohol
of not less than one hundred eighty degrees proof (ninety per centum absolute
alcohol) shall be deemed to have been removed for motive power, unless shown
to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, fifty-seven centavos;

Subsequently, the 1977 NIRC, PD 1672 and EO 672 amended the first two
provisions, renumbering them and prescribing higher rates. Accordingly,
petitioner paid specific taxes on petroleum products purchased from July 1, 1980
to January 31, 1982 under the following statutory provisions.
From February 8, 1980 to March 20, 1981, Sections 153 and 156 provided as
follows:

(g) Liquefied petroleum gas, per kilogram, fourteen centavos: Provided,

That, liquefied petroleum gas used for motive power shall be taxed at the
equivalent rate as the specific tax on diesel fuel oil;
(h) Asphalts, per kilogram, eight centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;

SEC. 153. Specific tax on manufactured oils and other fuels. -- On refined and
manufactured mineral oils and motor fuels, there shall be collected the following
taxes which shall attach to the articles hereunder enumerated as soon as they are
in existence as such:
(a) Kerosene, per liter of volume capacity, seven centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;

(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five centavos. (As
amended by Sec. 1, P.D. No. 1672.)
xxxxxxxxx
SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil, commercially known as
diesel fuel oil, and on all similar fuel oils, having more or less the same generating
power, per liter of volume capacity, seventeen and one-half centavos, which tax
shall attach to this fuel oil as soon as it is in existence as such."

Then on March 21, 1981, these provisions were amended by EO 672 to read:
SEC. 153. Specific tax on manufactured oils and other fuels. -- On refined and
manufactured mineral oils and motor fuels, there shall be collected the following
taxes which shall attach to the articles hereunder enumerated as soon as they are
in existence as such:
(a) Kerosene, per liter of volume capacity, nine centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation, per liter of
volume capacity, one peso and six centavos: Provided, That on premium and
aviation gasoline, the tax shall be one peso and ten centavos and one peso,
respectively, per liter of volume capacity;
(d) On denatured alcohol to be used for motive power, per liter of volume
capacity, one centavo; Provided, That unless otherwise provided for by special
laws, if the denatured alcohol is mixed with gasoline, the specific tax on which has
already been paid, only the alcohol content shall be subject to the tax herein
prescribed. For the purpose of this subsection, the removal of denatured alcohol
of not less than one hundred eighty degrees proof (ninety per centum absolute
alcohol) shall be deemed to have been removed for motive power, unless shown
to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, sixty-one centavos;
(g) Liquefied
petroleum
gas,
per
kilogram,
twenty-one
centavos: Provided, That, liquified petroleum gas used for motive power shall be
taxed at the equivalent rate as the specific tax on diesel fuel oil;
(h) Asphalts, per kilogram, twelve centavos;

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

(j) Aviation turbo-jet fuel, per liter of volume capacity, sixty-four centavos.
xxxxxxxxx
SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil, commercially known as
diesel fuel oil, and all similar fuel oils, having more or less the same generating
power, per liter of volume capacity, twenty-five and one-half centavos, which tax
shall attach to this fuel oil as soon as it is in existence as such.
A tax cannot be imposed unless it is supported by the clear and express
language of a statute;[19] on the other hand, once the tax is unquestionably
imposed, [a] claim of exemption from tax payments must be clearly shown and
based on language in the law too plain to be mistaken. [20] Since the partial refund
authorized under Section 5, RA 1435, is in the nature of a tax exemption, [21] it
must be construed strictissimi juris against the grantee. Hence, petitioners claim
of refund on the basis of the specific taxes it actually paid must expressly be
granted in a statute stated in a language too clear to be mistaken.
We have carefully scrutinized RA 1435 and the subsequent pertinent statutes
and found no expression of a legislative will authorizing a refund based on the
higher rates claimed by petitioner.The mere fact that the privilege of refund was
included in Section 5, and not in Section 1, is insufficient to support petitioners
claim. When the law itself does not explicitly provide that a refund under RA 1435
may be based on higher rates which were nonexistent at the time of its
enactment, this Court cannot presume otherwise. A legislative lacuna cannot be
filled by judicial fiat.[22]
The issue is not really novel. In Commissioner of Internal Revenue vs. Court
of Appeals and Atlas Consolidated Mining and Development Corporation [23] (the
second Atlas case), the CIR contended that the refund should be based on
Sections 1 and 2 of RA 1435, not Sections 153 and 156 of the NIRC of 1977. In
categorically ruling that Private Respondent Atlas Consolidated Mining and

Development Corporation was entitled to a refund based on Sections 1 and 2 of

RA 1435, the Court, through Mr. Justice Hilario G. Davide, Jr., reiterated our
pronouncement inCommissioner of Internal Revenue vs. Rio Tuba Nickel and
Mining Corporation:
Our Resolution of 25 March 1992 modifying our 30 September 1991 Decision in
the Rio Tuba case sets forth the controlling doctrine. In that Resolution, we stated:

Sections 1 and 2 of R.A. No. 1435 and not on the increased rates under Sections
153 and 156 of the Tax Code of 1977, provided the claims are not yet barred by
prescription. (Underscoring supplied.)
Insular Lumber Co. and First Atlas Case
Not Inconsistent With Rio Tuba
and Second Atlas Case

Since the private respondents claim for refund covers specific taxes paid from
1980 to July 1983 then we find that the private respondent is entitled to a
refund. It should be made clear, however, that Rio Tuba is not entitled to the
whole amount it claims as refund.
The specific taxes on oils which Rio Tuba paid for the aforesaid period were no
longer based on the rates specified by Sections 1 and 2 of R.A. No. 1435 but on
the increased rates mandated under Sections 153 and 156 of the National
Internal Revenue Code of 1977. We note however, that the latter law does not
specifically provide for a refund to these mining and lumber companies of specific
taxes paid on manufactured and diesel fuel oils.
In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710 [1981]), the Court
held that the authorized partial refund under Section 5 of R.A. No. 1435 partakes
of the nature of a tax exemption and therefore cannot be allowed unless granted
in the most explicit and categorical language. Since the grant of refund privileges
must be strictly construed against the taxpayer, the basis for the refund shall be
the amounts deemed paid under Sections 1 and 2 of R.A. No. 1435.
ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby MODIFIED. The
private respondents CLAIM for REFUND is GRANTED, computed on the basis of the
amounts deemed paid under Sections 1 and 2 of R.A. NO. 1435, without interest.
[24]

We rule, therefore, that since Atlass claims for refund cover specific taxes paid
before 1985, it should be granted the refund based on the rates specified by

Petitioner argues that the applicable jurisprudence in this case should

be Commissioner of Internal Revenue vs. Atlas Consolidated and Mining Corp.
(the first Atlas case), an unsigned resolution, and Insular Lumber Co. vs. Court of
Tax Appeals, an en banc decision.[25] Petitioner also asks the Court to take a
second look at Rio Tuba and the second Atlas case, both decided by Divisions, in
view of Insular which was decided en banc. Petitioner posits that [I]n view of the
similarity of the situation of herein petitioner with Insular Lumber Company
(claimant in Insular Lumber) and Rio Tuba Nickel Mining Corporation (claimant
in Rio Tuba), a dilemma has been created as to whether or not Insular Lumber,
which has been decided by the Honorable Court en banc, or Rio Tuba, which was
decided only [by] the Third Division of the Honorable Court, should apply. [26]
We find no conflict between these two pairs of cases. Neither Insular Lumber
Co. nor the first Atlas case ruled on the issue of whether the
refund privilege under Section 5 should be computed based on the specific tax
deemed paid under Sections 1 and 2 of RA 1435, regardless of what was actually
paid under the increased rates. Rio Tuba and the second Atlas case did.
Insular Lumber Co. decided a claim for refund on specific tax paid on
petroleum products purchased in the year 1963, when the increased rates under
the NIRC of 1977 were not yet in effect. Thus, the issue now before us did not
exist at the time, since the applicable rates were still those prescribed under
Sections 1 and 2 of RA 1435.

On the other hand, the issue raised in the first Atlas case was whether the
claimant was entitled to the refund under Section 5, notwithstanding its failure to
pay any additional tax under a municipal or city ordinance. Although Atlas
purchased petroleum products in the years 1976 to 1978 when the rates had
already been changed, the Court did not decide or make any pronouncement on
the issue in that case.
Clearly, it is impossible for these two decisions to clash with our
pronouncement in Rio Tuba and second Atlas case, in which we ruled that the
refund granted be computed on the basis of the amounts deemed paid under
Sections 1 and 2 of RA 1435. In this light, we find no basis for petitioners
invocation of the constitutional proscription that no doctrine or principle of law
laid down by the Court in a decision rendered en banc or in division may be
modified or reversed except by the Court sitting en banc.[27]
Finally, petitioner asserts that equity and justice demand that the
computation of the tax refunds be based on actual amounts paid under Sections
153 and 156 of the NIRC.[28] We disagree.According to an eminent authority on
taxation, there is no tax exemption solely on the ground of equity.[29]
WHEREFORE, the petition is hereby DENIED and the assailed Decision of the
Court of Appeals is AFFIRMED.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug,
Kapunan, Mendoza, Martinez, Quisumbing, and Purisima, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-59431 July 25, 1984
ANTERO
M.
SISON,
JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue;
ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue;
TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue;
MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
Commissioner on Audit, and CESAR E. A. VIRATA, Minister of
Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.

FERNANDO, C.J.:

The success of the challenge posed in this suit for declaratory relief or prohibition
proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends
upon a showing of its constitutional infirmity. The assailed provision further
amends Section 21 of the 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 Petitioner3 as taxpayer alleges that by virtue thereof, "he would be
unduly discriminated against by the imposition of higher rates of tax upon his
income arising from the exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual taxpayers. 4 He characterizes
the above sction as arbitrary amounting to class legislation, oppressive and
capricious in character 5 For petitioner, therefore, there is a transgression of both
the equal protection and due process clauses 6 of the Constitution as well as of
the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an
answer within 10 days from notice. Such an answer, after two extensions were
granted the Office of the Solicitor General, was filed on May 28, 1982. 8 The facts
as alleged were admitted but not the allegations which to their mind are "mere
arguments, opinions or conclusions on the part of the petitioner, the truth [for
them] being those stated [in their] Special and Affirmative Defenses." 9The
answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's
power to tax. The authorities and cases cited while correctly quoted or
paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal
of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope,
The reason was so clearly set forth by retired Chief Justice Makalintal thus: "The
areas which used to be left to private enterprise and initiative and which the
government was called upon to enter optionally, and only 'because it was better

equipped to administer for the public welfare than is any private individual or
group of individuals,' continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign
capacity if it is to meet the increasing social challenges of the times." 11 Hence
the need for more revenues. The power to tax, an inherent prerogative, has to be
availed of to assure the performance of vital state functions. It is the source of the
bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of
the government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of
sovereignty. It is the strongest of all the powers of of government." 13 It is, of
course, to be admitted that for all its plenitude 'the power to tax is not
unconfined. There are restrictions. The Constitution sets forth such limits .
Adversely affecting as it does properly rights, both the due process and equal
protection clauses inay properly be invoked, all petitioner does, to invalidate in
appropriate cases a revenue measure. if it were otherwise, there would -be truth
to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the
power to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice
Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a
flourish of rhetoric [attributable to] the intellectual fashion of the times following]
a free use of absolutes." 16 This is merely to emphasize that it is riot and there
cannot be such a constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's famous dictum was brushed
away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power
to destroy while this Court sits." 17 So it is in the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law
overrides any legislative or executive, act that runs counter to it. In any case
therefore where it can be demonstrated that the challenged statutory provision
as petitioner here alleges fails to abide by its command, then this Court must
so declare and adjudge it null. The injury thus is centered on the question of
whether the imposition of a higher tax rate on taxable net income derived from
business or profession than on compensation is constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A

mere allegation, as here. does not suffice. There must be a factual foundation of
such unconstitutional taint. Considering that petitioner here would condemn such
a provision as void or its face, he has not made out a case. This is merely to
adhere to the authoritative doctrine that were the due process and equal
protection clauses are invoked, considering that they arc not fixed rules but rather
broad standards, there is a need for of such persuasive character as would lead to
such a conclusion. Absent such a showing, the presumption of validity must
prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing
statute is so arbitrary that it finds no support in the Constitution. An obvious
example is where it can be shown to amount to the confiscation of property. That
would be a clear abuse of power. It then becomes the duty of this Court to say
that such an arbitrary act amounted to the exercise of an authority not conferred.
That properly calls for the application of the Holmes dictum. It has also been held
that where the assailed tax measure is beyond the jurisdiction of the state, or is
not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that
there is a denial of this constitutional mandate whether the assailed act is in the
exercise of the lice power or the power of eminent domain is to demonstrated
that the governmental act assailed, far from being inspired by the attainment of
the common weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws
operate equally and uniformly on all persons under similar circumstances or that
all persons must be treated in the same manner, the conditions not being
different, both in the privileges conferred and the liabilities imposed. Favoritism
and undue preference cannot be allowed. For the principle is that equal protection
and security shall be given to every person under circumtances which if not
Identical are analogous. If law be looked upon in terms of burden or charges,
those that fall within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest." 20 That same
formulation applies as well to taxation measures. The equal protection clause is,

of course, inspired by the noble concept of approximating the Ideal of the laws
benefits being available to all and the affairs of men being governed by that
serene and impartial uniformity, which is of the very essence of the Idea of law.
There is, however, wisdom, as well as realism in these words of Justice
Frankfurter: "The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of
the laws,' and laws are not abstract propositions. They do not relate to abstract
units A, B and C, but are expressions of policy arising out of specific difficulties,
address to the attainment of specific ends by the use of specific remedies. The
Constitution does not require things which are different in fact or opinion to be
treated in law as though they were the same." 21 Hence the constant reiteration of
the view that classification if rational in character is allowable. As a matter of fact,
in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes,
went so far as to hold "at any rate, it is inherent in the power to tax that a state
be free to select the subjects of taxation, and it has been repeatedly held that
'inequalities which result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the
Constitution: "The rule of taxation shag be uniform and equitable." 24 This
requirement is met according to Justice Laurel in Philippine Trust Company v.
Yatco, 25 decided in 1940, when the tax "operates with the same force and effect
in every place where the subject may be found. " 26 He likewise added: "The rule
of uniformity does not call for perfect uniformity or perfect equality, because this
is hardly attainable." 27 The problem of classification did not present itself in that
case. It did not arise until nine years later, when the Supreme Court held:
"Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications for purposes of
taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation"
complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore
uniform." 29 There is quite a similarity then to the standard of equal protection for
all that is required is that the tax "applies equally to all persons, firms and
corporations placed in similar situation." 30

8. Further on this point. Apparently, what misled petitioner is his failure to take
into consideration the distinction between a tax rate and a tax base. There is no
legal objection to a broader tax base or taxable income by eliminating all
deductible items and at the same time reducing the applicable tax rate.
Taxpayers may be classified into different categories. To repeat, it. is enough that
the classification must rest upon substantial distinctions that make real
differences. In the case of the gross income taxation embodied in Batas
Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of
the income to the application of generalized rules removing all deductible items
for all taxpayers within the class and fixing a set of reduced tax rates to be
applied to all of them. Taxpayers who are recipients of compensation income are
set apart as a class. As there is practically no overhead expense, these taxpayers
are e not entitled to make deductions for income tax purposes because they are
in the same situation more or less. On the other hand, in the case of professionals
in the practice of their calling and businessmen, there is no uniformity in the costs
or expenses necessary to produce their income. It would not be just then to
disregard the disparities by giving all of them zero deduction and indiscriminately
impose on all alike the same tax rates on the basis of gross income. There is
ample justification then for the Batasang Pambansa to adopt the gross system of
income taxation to compensation income, while continuing the system of net
income taxation as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit,
considering the (1) lack of factual foundation to show the arbitrary character of
the assailed provision; 31 (2) the force of controlling doctrines on due process,
equal protection, and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of professionals and
businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez,
Jr., De la Fuente and Cuevas, JJ., concur.

Teehankee, J., concurs in the result.

Plana, J., took no part.

Santiago F. Alidio and Restituto R. Villanueva for petitioners.

Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.

MARTIN, J.:
The chief question to be decided in this case is what law shall govern the
publication of a tax ordinance enacted by the Municipal Board of Manila, the
Revised City Charter (R.A. 409, as amended), which requires publication of the
ordinance before its enactment and after its approval, or the Local Tax Code (P.D.
No. 231), which only demands publication after approval.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-41631 December 17, 1976
HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G.
GARGANTIEL, as Secretary to the Mayor; THE MARKET ADMINISTRATOR;
and
THE
MUNICIPAL
BOARD
OF
MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court
of First Instance of Manila, Branch XXX and the FEDERATION OF MANILA
MARKET VENDORS, INC., respondents.

On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN
ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND
PRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING PENALTIES FOR
VIOLATION THEREOF AND FOR OTHER PURPOSES." The petitioner City Mayor,
Ramon D. Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc.
commenced Civil Case 96787 before the Court of First Instance of Manila presided
over by respondent Judge, seeking the declaration of nullity of Ordinance No.
7522 for the reason that (a) the publication requirement under the Revised
Charter of the City of Manila has not been complied with; (b) the Market
Committee was not given any participation in the enactment of the ordinance, as
envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt
Practices Act has been violated; and (d) the ordinance would violate Presidential
Decree No. 7 of September 30, 1972 prescribing the collection of fees and
charges on livestock and animal products.

Resolving the accompanying prayer for the issuance of a writ of preliminary

injunction, respondent Judge issued an order on March 11, 1975, denying the plea
for failure of the respondent Federation of Manila Market Vendors, Inc. to exhaust
the administrative remedies outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on August
29, 1975, declaring the nullity of Ordinance No. 7522 of the City of Manila on the
primary ground of non-compliance with the requirement of publication under the
Revised City Charter. Respondent Judge ruled:
There is, therefore, no question that the ordinance in question was
not published at all in two daily newspapers of general circulation in
the City of Manila before its enactment. Neither was it published in
the same manner after approval, although it was posted in the
legislative hall and in all city public markets and city public
libraries. There being no compliance with the mandatory
requirement of publication before and after approval, the ordinance
in question is invalid and, therefore, null and void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a)
only a post-publication is required by the Local Tax Code; and (b) private
respondent failed to exhaust all administrative remedies before instituting an
action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for
review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the
Revised Charter of the City of Manila and the Local Tax Code on the manner of

publishing a tax ordinance enacted by the Municipal Board of Manila. For, while
Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily
newspapers of general circulation in the city, and shall not be
discussed or enacted by the Board until after the third day following
such publication. * * * Each approved ordinance * * * shall be
published in two daily newspapers of general circulation in the city,
within ten days after its approval; and shall take effect and be in
force on and after the twentieth day following its publication, if no
date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all
provincial, city, municipal and barrioordinances levying or imposing
taxes, fees or other charges shall be published for three
consecutive days in a newspaper or publication widely circulated
within the jurisdiction of the local government, or posted in the
local legislative hall or premises and in two other conspicuous
places within the territorial jurisdiction of the local government. In
either case, copies of all provincial, city, municipal and barrio
ordinances shall be furnished the treasurers of the respective
component and mother units of a local government for
dissemination.
In other words, while the Revised Charter of the City of Manila requires
publication before the enactment of the ordinance and after the approval thereof
in two daily newspapers of general circulation in the city, the Local Tax Code only
prescribes for publication after the approval of "ordinances levying or imposing
taxes, fees or other charges" either in a newspaper or publication widely
circulated within the jurisdiction of the local government or by posting the
ordinance in the local legislative hall or premises and in two other conspicuous
places within the territorial jurisdiction of the local government. Petitioners'

compliance with the Local Tax Code rather than with the Revised Charter of the
City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special
act since it relates only to the City of Manila, whereas the Local Tax Code is a
general law because it applies universally to all local governments. Blackstone
defines general law as a universal rule affecting the entire community and special
law as one relating to particular persons or things of a class. 1 And the rule
commonly said is that a prior special law is not ordinarily repealed by a
subsequent general law. The fact that one is special and the other general creates
a presumption that the special is to be considered as remaining an exception of
the general, one as a general law of the land, the other as the law of a particular
case. 2 However, the rule readily yields to a situation where the special statute
refers to a subject in general, which the general statute treats in particular. The
exactly is the circumstance obtaining in the case at bar. Section 17 of the Revised
Charter of the City of Manila speaks of "ordinance" in general, i.e., irrespective of
the nature and scope thereof,whereas, Section 43 of the Local Tax Code relates to
"ordinances levying or imposing taxes, fees or other charges" in particular. In
regard, therefore, to ordinances in general, the Revised Charter of the City of
Manila is doubtless dominant, but, that dominant force loses its continuity when it
approaches the realm of "ordinances levying or imposing taxes, fees or other
charges" in particular. There, the Local Tax Code controls. Here, as always, a
general provision must give way to a particular provision. 3 Special provision
governs. 4 This is especially true where the law containing the particular provision
was enacted later than the one containing the general provision. The City Charter
of Manila was promulgated on June 18, 1949 as against the Local Tax Code which
was decreed on June 1, 1973. The law-making power cannot be said to have
intended the establishment of conflicting and hostile systems upon the same
subject, or to leave in force provisions of a prior law by which the new will of the
legislating power may be thwarted and overthrown. Such a result would render
legislation a useless and Idle ceremony, and subject the law to the reproach of
uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the
City of Manila for damages arising from the injuries he suffered when he fell inside

an uncovered and unlighted catchbasin or manhole on P. Burgos Avenue. The City

of Manila denied liability on the basis of the City Charter (R.A. 409) exempting the
City of Manila from any liability for damages or injury to persons or property
arising from the failure of the city officers to enforce the provisions of the charter
or any other law or ordinance, or from negligence of the City Mayor, Municipal
Board, or other officers while enforcing or attempting to enforce the provisions of
the charter or of any other law or ordinance. Upon the other hand, Article 2189 of
the Civil Code makes cities liable for damages for the death of, or injury suffered
by any persons by reason of the defective condition of roads, streets, bridges,
public buildings, and other public works under their control or supervision. On
review, the Court held the Civil Code controlling. It is true that, insofar as its
territorial application is concerned, the Revised City Charter is a special law and
the subject matter of the two laws, the Revised City Charter establishes a general
rule of liability arising from negligence in general, regardless of the object thereof,
whereas the Civil Code constitutes a particular prescription for liability due to
defective streets in particular. In the same manner, the Revised Charter of the
City prescribes a rule for the publication of "ordinance" in general, while the Local
Tax Code establishes a rule for the publication of "ordinance levying or imposing
taxes fees or other charges in particular.
In fact, there is no rule which prohibits the repeal even by implication of a special
or specific act by a general or broad one. 7 A charter provision may be impliedly
modified or superseded by a later statute, and where a statute is controlling, it
must be read into the charter notwithstanding any particular charter provision. 8 A
subsequent general law similarly applicable to all cities prevails over any
conflicting charter provision, for the reason that a charter must not be
inconsistent with the general laws and public policy of the state. 9 A chartered city
is not an independent sovereignty. The state remains supreme in all matters not
purely local. Otherwise stated, a charter must yield to the constitution and
general laws of the state, it is to have read into it that general law which governs
the municipal corporation and which the corporation cannot set aside but to
which it must yield. When a city adopts a charter, it in effect adopts as part of its
charter general law of such character. 10

2. The principle of exhaustion of administrative remedies is strongly asserted by

petitioners as having been violated by private respondent in bringing a direct suit
in court. This is because Section 47 of the Local Tax Code provides that any
question or issue raised against the legality of any tax ordinance, or portion
thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance
of a city. The opinion of the city fiscal is appealable to the Secretary of Justice,
whose decision shall be final and executory unless contested before a competent
court within thirty (30) days. But, the petition below plainly shows that the
controversy between the parties is deeply rooted in a pure question of law:
whether it is the Revised Charter of the City of Manila or the Local Tax Code that
should govern the publication of the tax ordinance. In other words, the dispute is
sharply focused on the applicability of the Revised City Charter or the Local Tax
Code on the point at issue, and not on the legality of the imposition of the tax.
Exhaustion of administrative remedies before resort to judicial bodies is not an
absolute rule. It admits of exceptions. Where the question litigated upon is purely
a legal one, the rule does not apply. 11 The principle may also be disregarded
when it does not provide a plain, speedy and adequate remedy. It may and should
be relaxed when its application may cause great and irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is not a "tax
ordinance," because the imposition of rentals, permit fees, tolls and other fees is
not strictly a taxing power but a revenue-raising function, so that the procedure
for publication under the Local Tax Code finds no application. The pretense bears
its own marks of fallacy. Precisely, the raising of revenues is the principal object of
taxation. Under Section 5, Article XI of the New Constitution, "Each local
government unit shall have the power to create its own sources of revenue and to
levy taxes, subject to such provisions as may be provided by law." 13 And one of
those sources of revenue is what the Local Tax Code points to in particular: "Local
governments may collect fees or rentals for the occupancy or use of public
markets and premises * * *." 14 They can provide for and regulate market stands,
stalls and privileges, and, also, the sale, lease or occupancy thereof. They can
license, or permit the use of, lease, sell or otherwise dispose of stands, stalls or
marketing privileges. 15

It is a feeble attempt to argue that the ordinance violates Presidential Decree No.
7, dated September 30, 1972, insofar as it affects livestock and animal products,
because the said decree prescribes the collection of other fees and charges
thereon "with the exception of ante-mortem and post-mortem inspection fees, as
well as the delivery, stockyard and slaughter fees as may be authorized by the
Secretary of Agriculture and Natural Resources." 16Clearly, even the exception
clause of the decree itself permits the collection of the proper fees for livestock.
And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local
governments may collect fees for the slaughter of animals and the use of corrals *
**"
4. The non-participation of the Market Committee in the enactment of Ordinance
No. 7522 supposedly in accordance with Republic Act No. 6039, an amendment to
the City Charter of Manila, providing that "the market committee shall formulate,
recommend and adopt, subject to the ratification of the municipal board, and
approval of the mayor, policies and rules or regulation repealing or maneding
existing provisions of the market code" does not infect the ordinance with any
germ of invalidity. 17 The function of the committee is purely recommendatory as
the underscored phrase suggests, its recommendation is without binding effect on
the Municipal Board and the City Mayor. Its prior acquiescence of an intended or
proposed city ordinance is not a condition sine qua non before the Municipal
Board could enact such ordinance. The native power of the Municipal Board to
legislate remains undisturbed even in the slightest degree. It can move in its own
initiative and the Market Committee cannot demur. At most, the Market
Committee may serve as a legislative aide of the Municipal Board in the
enactment of city ordinances affecting the city markets or, in plain words, in the
gathering of the necessary data, studies and the collection of consensus for the
proposal of ordinances regarding city markets. Much less could it be said that
Republic Act 6039 intended to delegate to the Market Committee the adoption of
regulatory measures for the operation and administration of the city
markets. Potestas delegata non delegare potest.
5. Private respondent bewails that the market stall fees imposed in the disputed
ordinance are diverted to the exclusive private use of the Asiatic Integrated
Corporation since the collection of said fees had been let by the City of Manila to

the said corporation in a "Management and Operating Contract." The assumption

is of course saddled on erroneous premise. The fees collected do not go direct to
the private coffers of the corporation. Ordinance No. 7522 was not made for the
corporation but for the purpose of raising revenues for the city. That is the object
it serves. The entrusting of the collection of the fees does not destroy the public
purpose of the ordinance. So long as the purpose is public, it does not matter
whether the agency through which the money is dispensed is public or private.
The right to tax depends upon the ultimate use, purpose and object for which the
fund is raised. It is not dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in applying it. The people
may be taxed for a public purpose, although it be under the direction of an
individual or private corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of the AntiGraft and Corrupt Practices Act because the increased rates of market stall fees
as levied by the ordinance will necessarily inure to the unwarranted benefit and
advantage of the corporation. 19 We are concerned only with the issue whether
the ordinance in question is intra vires. Once determined in the affirmative, the
measure may not be invalidated because of consequences that may arise from its
enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and set aside.
Ordinance No. 7522 of the City of Manila, dated June 15, 1975, is hereby held to
have been validly enacted. No. costs.
SO ORDERED.

impairment

of

contracts.

ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the
contract clause under Art. III, sec 10 of the Bill of Rights.

ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THE

COMMISSIONER
OF
INTERNAL
REVENUE
1994
Aug
25
G.R.
No.
115455
235
SCRA
630
FACTS: The valued-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. It is
equivalent to 10% of the gross selling price or gross value in money of goods or
properties sold, bartered or exchanged or of the gross receipts from the sale or
exchange of services. Republic Act No. 7716 seeks to widen the tax base of the
existing VAT system and enhance its administration by amending the National
Internal
Revenue
Code.
The Chamber of Real Estate and Builders Association (CREBA) contends that the
imposition of VAT on sales and leases by virtue of contracts entered into prior to
the effectivity of the law would violate the constitutional provision of non-

RULING: No. The Supreme Court the contention of CREBA, that the imposition of
the VAT on the sales and leases of real estate by virtue of contracts entered into
prior to the effectivity of the law would violate the constitutional provision of nonimpairment of contracts, is only slightly less abstract but nonetheless
hypothetical. It is enough to say that the parties to a contract cannot, through the
exercise of prophetic discernment, fetter the exercise of the taxing power of the
State. For not only are existing laws read into contracts in order to fix obligations
as between parties, but the reservation of essential attributes of sovereign power
is also read into contracts as a basic postulate of the legal order. The policy of
protecting contracts against impairment presupposes the maintenance of a
government which retains adequate authority to secure the peace and good order
of society. In truth, the Contract Clause has never been thought as a limitation on
the exercise of the State's power of taxation save only where a tax exemption has
been
granted
for
a
valid
consideration.
Such is not the case of PAL in G.R. No. 115852, and the Court does not
understand it to make this claim. Rather, its position, as discussed above, is that
the removal of its tax exemption cannot be made by a general, but only by a
specific,
law.
Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal
and substantive aspects as this has been raised in the various cases before it. To
sum
up,
the
Court
holds:
(1) That the procedural requirements of the Constitution have been complied with
by
Congress
in
the
enactment
of
the
statute;
(2) That judicial inquiry whether the formal requirements for the enactment of
statutes - beyond those prescribed by the Constitution - have been observed is
precluded
by
the
principle
of
separation
of
powers;

(3) That the law does not abridge freedom of speech, expression or the press, nor
interfere with the free exercise of religion, nor deny to any of the parties the right
to
an
education;
and
(4) That, in view of the absence of a factual foundation of record, claims that the
law is regressive, oppressive and confiscatory and that it violates vested rights
protected under the Contract Clause are prematurely raised and do not justify the
grant
of
prospective
relief
by
writ
of
prohibition.
WHEREFORE, the petitions are DISMISSE

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
Office of the Solicitor General for respondents.

for

petitioners.

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;
(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

Republic
SUPREME
Manila

of

EN BANC
G.R. No. L-25043

April 26, 1968

the

Philippines
COURT

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 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
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

Antonio Roxas
Eduardo Roxas
Jose Roxas

In the same assessment, the Commissioner assessed deficiency income taxes

against the Roxas Brothers for the years 1953 and 1955, as follows:

1955
P5,813.00
5,828.00
5,588.00

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.
The following deductions were disallowed:
ROXAS Y CIA.:
195
3

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.

1953
P7,010.00
7,281.00
6,323.00

Tickets for Banquet in honor of

S. Osmea

P
40.00

Gifts of San Miguel beer

28.00

Contributions to
Philippine Air Force Chapel

100.0
0

Manila Police Trust Fund

150.0
0

Philippines Herald's fund for Manila's 100.0

neediest families
0
195
5

Contributions to Contribution to
Our Lady of Fatima Chapel,
FEU
50.00

ANTONIO ROXAS:
195
3

195
5

Herald's fund for Manila's

neediest families

Contributions to
Pasay City Firemen Christmas Fund

25.00

Pasay City Police Dept. X'mas fund

50.00

Baguio City Police Christmas fund

25.00

Pasay City Firemen Christmas fund

25.00

Pasay City Police Christmas fund

50.00

Contributions to
Hijas de Jesus' Retiro de Manresa

450.0
0

Philippines Herald's fund for Manila's 100.0

neediest families
0
195
5

Contributions
to
Philippines
Herald's fund for Manila's
neediest families

120.0
0

JOSE ROXAS:
195
5

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:

Contributions to

EDUARDO ROXAS:
195
3

Contributions

to

Philippines

120.0

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:
(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary
gain, hence 100% taxable?
(2) Are the
deductible?

deductions

for

business

expenses

and

contributions

(3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate
dealers?
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.
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: *
ANTONIO ROXAS

P315,476.
59

Net income per return

Add: 1/3 share, profits in Roxas y Cia.

P
153,249.1
5

Less amount declared

146,135.4
6

Amount understated

P 7,113.69

Contributions disallowed

115.00
P 7,228.69

Less 1/3 share of contributions

amounting to P21,126.06 disallowed
from partnership but allowed to
partners
7,042.02

186.67

Net income per review

P315,663.
26

Less: Exemptions

4,200.00

Net taxable income

P311,463.
26

Tax due

154,169.0
0

Tax paid

154,060.0
0

Deficiency

P
109.00
======
====

EDUARDO ROXAS
P
304,166.9
2

Net income per return

Add: 1/3 share, profits in Roxas y Cia

P
153,249.1
5

Less profits declared

146,052.5
8

Amount understated

P 7,196.57

Less 1/3 share in contributions

amounting to P21,126.06 disallowed
from partnership but allowed to
partners
7,042.02

155.55

Net income per review

P304,322.
47

Less: Exemptions

4,800.00
P299,592.
47

Net taxable income

Tax Due

P147,250.
00

Tax paid

147,159.0
0

Deficiency

JOSE ROXAS

P222,681.
76

Net income per return

P91.00
======
=====

Add: 1/3 share, profits in Roxas y Cia.

P153,429.
15

Less amount reported

146,135.4
6

Amount understated

7,113.69

Less 1/3 share of contributions

disallowed
from partnership but
allowed as deductions to partners
7,042.02

71.67

Net income per review

P222,753.
43

Less: Exemption

1,800.00

Net income subject to tax

P220,953.
43

Tax due

P102,763.
00

Tax paid

102,714.0
0

Deficiency

P
49.00
======
=====

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.
Concepcion, C.J., is on leave.

PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES

BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED FOR
UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS
AMENDED

Republic
SUPREME
Manila

WHEREAS, the collection of real property taxes is still based on the

1978 revision of property values;

of

the

Philippines
COURT

WHEREAS, the latest general revision of real property assessments

completed in 1984 has rendered the 1978 revised values obsolete;

EN BANC
G.R. No. 76778 June 6, 1990
FRANCISCO
I.
CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA
CRUZ, in her capacity as Acting Municipal Treasurer of the Municipality
of Las Pias, respondents, REALTY OWNERS ASSOCIATION OF THE
PHILIPPINES, INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and
Oppression (Bonifacio) for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners
Association.

MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order No. 73 dated
November 25, 1986, which We quote in full, as follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73

WHEREAS, the collection of real property taxes based on the 1984

real property values was deferred to take effect on January 1, 1988
instead of January 1, 1985, thus depriving the local government
units of an additional source of revenue;
WHEREAS, there is an urgent need for local governments to
augment their financial resources to meet the rising cost of
rendering effective services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the
Philippines, do hereby order:
SECTION 1. Real property values as of December 31, 1984 as
determined by the local assessors during the latest general revision
of assessments shall take effect beginning January 1, 1987 for
purposes of real property tax collection.
SEC. 2. The Minister of Finance shall promulgate the necessary
rules and regulations to implement this Executive Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby
repealed.

SEC. 4. All laws, orders, issuances, and rules and regulations or

parts thereof inconsistent with this Executive Order are hereby
repealed or modified accordingly.

The Office of the Solicitor General argues against the petition.

SEC. 5. This Executive Order shall take effect immediately.

Petitioner Chavez and intervenor ROAP question the constitutionality of Executive

Order No. 73 insofar as the revision of the assessments and the effectivity thereof
are concerned. It should be emphasized that Executive Order No. 73 merely
directs, in Section 1 thereof, that:

On March 31, 1987, Memorandum Order No. 77 was issued suspending the
implementation of Executive Order No. 73 until June 30, 1987.
The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels
of land. He alleges the following: that Executive Order No. 73 accelerated the
application of the general revision of assessments to January 1, 1987 thereby
mandating an excessive increase in real property taxes by 100% to 400% on
improvements, and up to 100% on land; that any increase in the value of real
property brought about by the revision of real property values and assessments
would necessarily lead to a proportionate increase in real property taxes; that
sheer oppression is the result of increasing real property taxes at a period of time
when harsh economic conditions prevail; and that the increase in the market
values of real property as reflected in the schedule of values was brought about
only by inflation and economic recession.
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is
the national association of owners-lessors, joins Chavez in his petition to declare
unconstitutional Executive Order No. 73, but additionally alleges the following:
that Presidential Decree No. 464 is unconstitutional insofar as it imposes an
additional one percent (1%) tax on all property owners to raise funds for
education, as real property tax is admittedly a local tax for local governments;
that the General Revision of Assessments does not meet the requirements of due
process as regards publication, notice of hearing, opportunity to be heard and
insofar as it authorizes "replacement cost" of buildings (improvements) which is
not provided in Presidential Decree No. 464, but only in an administrative
regulation of the Department of Finance; and that the Joint Local
Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and
unconstitutional as it imposes successive increase of 150% over the 1986 tax.

The petition is not impressed with merit.

SECTION 1. Real property values as of December 31, 1984 as

determined by the local assessors during the latest general revision
of assessments shall take effect beginning January 1, 1987 for
purposes of real property tax collection. (emphasis supplied)
The general revision of assessments completed in 1984 is based on Section 21 of
Presidential Decree No. 464 which provides, as follows:
SEC. 21. General Revision of Assessments. Beginning with the
assessor shall make a calendar year 1978, the provincial or city
general revision of real property assessments in the province or city
to take effect January 1, 1979, and once every five years thereafter:
Provided; however, That if property values in a province or city, or
in any municipality, have greatly changed since the last general
revision, the provincial or city assesor may, with the approval of the
Secretary of Finance or upon bis direction, undertake a general
revision of assessments in the province or city, or in any
municipality before the fifth year from the effectivity of the last
general revision.
Thus, We agree with the Office of the Solicitor General that the attack on
Executive Order No. 73 has no legal basis as the general revision of assessments
is a continuing process mandated by Section 21 of Presidential Decree No. 464. If
at all, it is Presidential Decree No. 464 which should be challenged as
constitutionally infirm. However, Chavez failed to raise any objection against said

decree. It was ROAP which questioned the constitutionality thereof. Furthermore,

Presidential Decree No. 464 furnishes the procedure by which a tax assessment
may be questioned:
SEC. 30. Local Board of Assessment Appeals. Any owner who is
not satisfied with the action of the provincial or city assessor in the
assessment of his property may, within sixty days from the date of
receipt by him of the written notice of assessment as provided in
this Code, appeal to the Board of Assessment Appeals of the
province or city, by filing with it a petition under oath using the
form prescribed for the purpose, together with copies of the tax
declarations and such affidavit or documents submitted in support
of the appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals. The
Local Board of Assessment Appeals shall decide the appeal within
one hundred and twenty days from the date of receipt of such
appeal. The decision rendered must be based on substantial
evidence presented at the hearing or at least contained in the
record and disclosed to the parties or such relevant evidence as a
reasonable mind might accept as adequate to support the
conclusion.
In the exercise of its appellate jurisdiction, the Board shall have the
power to summon witnesses, administer oaths, conduct ocular
inspection,
take
depositions,
and
issue
subpoena
and
subpoenaduces tecum. The proceedings of the Board shall be
conducted solely for the purpose of ascertaining the truth withoutnecessarily adhering to technical rules applicable in judicial
proceedings.

The Secretary of the Board shall furnish the property owner and the
Provincial or City Assessor with a copy each of the decision of the
Board. In case the provincial or city assessor concurs in the revision
or the assessment, it shall be his duty to notify the property owner
of such fact using the form prescribed for the purpose. The owner
or administrator of the property or the assessor who is not satisfied
with the decision of the Board of Assessment Appeals, may, within
thirty days after receipt of the decision of the local Board, appeal to
the Central Board of Assessment Appeals by filing his appeal under
oath with the Secretary of the proper provincial or city Board of
Assessment Appeals using the prescribed form stating therein the
grounds and the reasons for the appeal, and attaching thereto any
evidence pertinent to the case. A copy of the appeal should be also
furnished the Central Board of Assessment Appeals, through its
Chairman, by the appellant.
Within ten (10) days from receipt of the appeal, the Secretary of the
Board of Assessment Appeals concerned shall forward the same
and all papers related thereto, to the Central Board of Assessment
Appeals through the Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. The Central Board of
Assessment Appeals shall have jurisdiction over appealed
assessment cases decided by the Local Board of Assessment
Appeals. The said Board shall decide cases brought on appeal
within twelve (12) months from the date of receipt, which decision
shall become final and executory after the lapse of fifteen (15) days
from the date of receipt of a copy of the decision by the appellant.

In the exercise of its appellate jurisdiction, the Central Board of

Assessment Appeals, or upon express authority, the Hearing
Commissioner, shall have the power to summon witnesses,
administer
oaths,
take
depositions,
and
issue subpoenas and subpoenas duces tecum.

Indeed, the government recognized the financial burden to the taxpayers that will
result from an increase in real property taxes. Hence, Executive Order No. 1019
was issued on April 18, 1985, deferring the implementation of the increase in real
property taxes resulting from the revised real property assessments, from January
1, 1985 to January 1, 1988. Section 5 thereof is quoted herein as follows:

The Central Board of assessment Appeals shall adopt and

promulgate rules of procedure relative to the conduct of its
business.

SEC. 5. The increase in real property taxes resulting from the

revised real property assessments as provided for under Section 21
of Presidential Decree No. 464, as amended by Presidential Decree
No. 1621, shall be collected beginning January 1, 1988 instead of
January 1, 1985 in order to enable the Ministry of Finance and the
Ministry of Local Government to establish the new systems of tax
collection and assessment provided herein and in order to alleviate
the condition of the people, including real property owners, as a
result of temporary economic difficulties. (emphasis supplied)

Simply stated, within sixty days from the date of receipt of the, written notice of
assessment, any owner who doubts the assessment of his property, may appeal
to the Local Board of Assessment Appeals. In case the, owner or administrator of
the property or the assessor is not satisfied with the decision of the Local Board of
Assessment Appeals, he may, within thirty days from the receipt of the decision,
appeal to the Central Board of Assessment Appeals. The decision of the Central
Board of Assessment Appeals shall become final and executory after the lapse of
fifteen days from the date of receipt of the decision.
Chavez argues further that the unreasonable increase in real property taxes
brought about by Executive Order No. 73 amounts to a confiscation of property
repugnant to the constitutional guarantee of due process, invoking the cases
of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967,
20 SCRA 849) andSison v. Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130
SCRA 654).
The reliance on these two cases is certainly misplaced because the due process
requirement called for therein applies to the "power to tax." Executive Order No.
73 does not impose new taxes nor increase taxes.

The issuance of Executive Order No. 73 which changed the date of

implementation of the increase in real property taxes from January 1, 1988 to
January 1, 1987 and therefore repealed Executive Order No. 1019, also finds
ample justification in its "whereas' clauses, as follows:
WHEREAS, the collection of real property taxes based on the 1984
real property values was deferred to take effect on January 1, 1988
instead of January 1, 1985, thus depriving the local government
units of an additional source of revenue;
WHEREAS, there is an urgent need for local governments to
augment their financial resources to meet the rising cost of
rendering effective services to the people; (emphasis supplied)
xxx xxx xxx
The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional,
is not proper to be resolved in the present petition. As stated at the outset, the

issue here is limited to the constitutionality of Executive Order No. 73.

Intervention is not an independent proceeding, but an ancillary and supplemental
one which, in the nature of things, unless otherwise provided for by legislation (or
Rules of Court), must be in subordination to the main proceeding, and it may be
laid down as a general rule that an intervention is limited to the field of litigation
open to the original parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67
Phil. 279).
We agree with the observation of the Office of the Solicitor General that without
Executive Order No. 73, the basis for collection of real property taxes win still be
the 1978 revision of property values. Certainly, to continue collecting real
property taxes based on valuations arrived at several years ago, in disregard of
the increases in the value of real properties that have occurred since then, is not
in consonance with a sound tax system. Fiscal adequacy, which is one of the
characteristics of a sound tax system, requires that sources of revenues must be
adequate to meet government expenditures and their variations.
ACCORDINGLY,
DISMISSED.
SO ORDERED.

the

petition

and

the

petition-in-intervention

are

hereby

EN BANC
RENATO V. DIAZ and G.R. No. 193007
AURORA MA. F. TIMBOL,
Petitioners, Present:
CORONA, C.J.,
CARPIO,
VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION,
- versus - PERALTA,

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this
petition for declaratory relief[1] assailing the validity of the impending imposition
of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the
collections of tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees,
they have an interest as regular users of tollways in stopping the BIR
BERSAMIN,*
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO,** JJ.

action. Additionally, Diaz claims that he sponsored the approval of Republic Act
7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997
National

Internal

Revenue

Code

or

the

NIRC)

at

the

House

of

Representatives. Timbol, on the other hand, claims that she served as Assistant
Secretary of the Department of Trade and Industry and consultant of the Toll

THE SECRETARY OF FINANCE

and THE COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondents. July 19, 2011

Regulatory Board (TRB) in the past administration.

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

President Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was

Petitioners allege that the BIR attempted during the administration of

deferred, however, in view of the consistent opposition of Diaz and other sectors

DECISION
ABAD, J.:

May toll fees collected by tollway operators be subjected to value- added tax?

to such move. But, upon President Benigno C. Aquino IIIs assumption of office in
2010, the BIR revived the idea and would impose the challenged tax on toll fees
beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC,
intend to include toll fees within the meaning of sale of services that are subject
to VAT; that a toll fee is a users tax, not a sale of services; that to impose VAT on

The Facts and the Case

toll fees would amount to a tax on public service; and that, since VAT was never

factored into the formula for computing toll fees, its imposition would violate the

rate of return will be impaired by the VAT since this is imposed on top of the toll

non-impairment clause of the constitution.

rate. Further, the imposition of VAT on toll fees would have very minimal effect on
motorists using the tollways.

On August 13, 2010 the Court issued a temporary restraining order (TRO),
enjoining the implementation of the VAT. The Court required the government,

In their reply[6] to the governments comment, petitioners point out that

represented by respondents Cesar V. Purisima, Secretary of the Department of

tollway operators cannot be regarded as franchise grantees under the NIRC since

Finance, and Kim S. Jacinto-Henares, Commissioner of Internal Revenue, to

they do not hold legislative franchises. Further, the BIR intends to collect the VAT

comment on the petition within 10 days from notice. [2] Later, the Court issued

by rounding off the toll rate and putting any excess collection in an escrow

another resolution treating the petition as one for prohibition.

[3]

account. But this would be illegal since only the Congress can modify VAT rates
and authorize its disbursement. Finally, BIR Revenue Memorandum Circular 63-

On August 23, 2010 the Office of the Solicitor General filed the governments

2010 (BIR RMC 63-2010), which directs toll companies to record an accumulated

comment.[4] The government avers that the NIRC imposes VAT on all kinds of

input VAT of zero balance in their books as of August 16, 2010, contravenes

services of franchise grantees, including tollway operations, except where the law

Section 111 of the NIRC which grants entities that first become liable to VAT a

provides otherwise; that the Court should seek the meaning and intent of the law

transitional input tax credit of 2% on beginning inventory. For this reason, the VAT

from the words used in the statute; and that the imposition of VAT on tollway

on toll fees cannot be implemented.

operations has been the subject as early as 2003 of several BIR rulings and

The Issues Presented

circulars.

[5]

The case presents two procedural issues:

The government also argues that petitioners have no right to invoke the
non-impairment of contracts clause since they clearly have no personal interest in
existing toll operating agreements (TOAs) between the government and tollway
operators. At any rate, the non-impairment clause cannot limit the States

1. Whether or not the Court may treat the petition for declaratory relief as
one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to file
the action.

sovereign taxing power which is generally read into contracts.

Finally, the government contends that the non-inclusion of VAT in the parametric
formula for computing toll rates cannot exempt tollway operators from VAT. In any
event, it cannot be claimed that the rights of tollway operators to a reasonable

The case also presents two substantive issues:

1. Whether or not the government is unlawfully expanding VAT coverage

by including tollway operators and tollway operations in the terms franchise
grantees and sale of services under Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts to
a tax on tax and not a tax on services; b) will impair the tollway operators right to
a reasonable return of investment under their TOAs; and c) is not administratively
feasible and cannot be implemented.

for prohibition is a proper remedy to prohibit or nullify acts of executive officials

that amount to usurpation of legislative authority.[9]
Here, the imposition of VAT on toll fees has far-reaching implications. Its
imposition would impact, not only on the more than half a million motorists who
use the tollways everyday, but more so on the governments effort to raise

The Courts Rulings

A. On the Procedural Issues:

revenue for funding various projects and for reducing budgetary deficits.
To dismiss the petition and resolve the issues later, after the challenged
VAT has been imposed, could cause more mischief both to the tax-paying public

On August 24, 2010 the Court issued a resolution, treating the petition as

and the government. A belated declaration of nullity of the BIR action would make

one for prohibition rather than one for declaratory relief, the characterization that

any attempt to refund to the motorists what they paid an administrative

petitioners Diaz and Timbol gave their action. The government has sought

nightmare with no solution.Consequently, it is not only the right, but the duty of

reconsideration of the Courts resolution, [7] however, arguing that petitioners

the Court to take cognizance of and resolve the issues that the petition raises.

allegations clearly made out a case for declaratory relief, an action over which the
Court has no original jurisdiction. The government adds, moreover, that the

Although the petition does not strictly comply with the requirements of

petition does not meet the requirements of Rule 65 for actions for prohibition

Rule 65, the Court has ample power to waive such technical requirements when

since the BIR did not exercise judicial, quasi-judicial, or ministerial functions when

the legal questions to be resolved are of great importance to the public. The same

it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol has a

may be said of the requirement of locus standi which is a mere procedural

plain, speedy, and adequate remedy in the ordinary course of law against the BIR

requisite.[10]

action in the form of an appeal to the Secretary of Finance.

B. On the Substantive Issues:
But there are precedents for treating a petition for declaratory relief as one for

One. The relevant law in this case is Section 108 of the NIRC, as

prohibition if the case has far-reaching implications and raises questions that

amended. VAT is levied, assessed, and collected, according to Section 108, on the

need to be resolved for the public good. [8] The Court has also held that a petition

gross receipts derived from the sale or exchange of services as well as from the

use or lease of properties. The third paragraph of Section 108 defines sale or

enumeration of affected services is not exclusive. [11] By qualifying services with

exchange of services as follows:

the words all kinds, Congress has given the term services an all-encompassing

The phrase sale or exchange of services means the

performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration, including
those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether personal
or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling,
processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts; proprietors or
operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers; dealers in
securities; lending investors; transportation contractors on
their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic
common carriers by land relative to their transport of goods
or cargoes; common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in
the Philippines to another place in the Philippines; sales of
electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of
electric utilities, telephone and telegraph, radio and
television broadcasting and all other franchise grantees
except those under Section 119 of this Code and non-life
insurance companies (except their crop insurances),
including
surety,
fidelity,
indemnity
and
bonding
companies; and similar services regardless of whether or
not the performance thereof calls for the exercise or use of
the physical or mental faculties. (Underscoring supplied)
It is plain from the above that the law imposes VAT on all kinds of services
rendered in the Philippines for a fee, including those specified in the list. The

meaning. The listing of specific services are intended to illustrate how pervasive
and broad is the VATs reach rather than establish concrete limits to its
application. Thus, every activity that can be imagined as a form of service
rendered for a fee should be deemed included unless some provision of law
especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.)
1112 or the Toll Operation Decree establishes the legal basis for the services that
tollway operators render. Essentially, tollway operators construct, maintain, and
operate expressways, also called tollways, at the operators expense. Tollways
serve as alternatives to regular public highways that meander through populated
areas and branch out to local roads. Traffic in the regular public highways is for
this reason slow-moving. In consideration for constructing tollways at their
expense, the operators are allowed to collect government-approved fees from
motorists using the tollways until such operators could fully recover their
expenses and earn reasonable returns from their investments.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for
the latters use of the tollway facilities over which the operator enjoys private
proprietary rights[12]that its contract and the law recognize. In this sense, the
tollway operator is no different from the following service providers under Section
108 who allow others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;

2. Warehousing service operators;

3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for hire
and other domestic common carriers by land relative to their
transport of goods or cargoes; and
7. Common carriers by air and sea relative to their transport
of passengers, goods or cargoes from one place in
the Philippines to another place in thePhilippines.

government grants of a special right to do an act or series of acts of public

concern.[14]
Petitioners of course contend that tollway operators cannot be considered
franchise grantees under Section 108 since they do not hold legislative
franchises. But nothing in Section 108 indicates that the franchise grantees it
speaks of are those who hold legislative franchises. Petitioners give no reason,
and the Court cannot surmise any, for making a distinction between franchises
granted by Congress and franchises granted by some other government

It does not help petitioners cause that Section 108 subjects to VAT all kinds

agency. The latter, properly constituted, may grant franchises. Indeed, franchises

of services rendered for a fee regardless of whether or not the performance

conferred or granted by local authorities, as agents of the state, constitute as

thereof calls for the exercise or use of the physical or mental faculties. This means

much a legislative franchise as though the grant had been made by Congress

that services to be subject to VAT need not fall under the traditional concept of

itself.[15] The term franchise has been broadly construed as referring, not only to

services, the personal or professional kinds that require the use of human

authorizations that Congress directly issues in the form of a special law, but also

knowledge and skills.

to those granted by administrative agencies to which the power to grant

franchises has been delegated by Congress. [16]

And not only do tollway operators come under the broad term all kinds of
services, they also come under the specific class described in Section 108 as all

Tollway operators are, owing to the nature and object of their business,

other franchise grantees who are subject to VAT, except those under Section 119

franchise grantees. The construction, operation, and maintenance of toll facilities

of this Code.

on public improvements are activities of public consequence that necessarily

require a special grant of authority from the state. Indeed, Congress granted

Tollway operators are franchise grantees and they do not belong to

special franchise for the operation of tollways to the Philippine National

exceptions (the low-income radio and/or television broadcasting companies with

Construction Company, the former tollway concessionaire for the North and South

gross annual incomes of less than P10 million and gas and water utilities) that

Luzon Expressways. Apart from Congress, tollway franchises may also be granted

Section 119[13] spares from the payment of VAT. The word franchise broadly covers

by the TRB, pursuant to the exercise of its delegated powers under P.D. 1112.
[17]

The franchise in this case is evidenced by a Toll Operation Certificate. [18]

on the following discussion in Manila International Airport Authority (MIAA) v.

Petitioners contend that the public nature of the services rendered by
tollway operators excludes such services from the term sale of services under
Section 108 of the Code. But, again, nothing in Section 108 supports this
contention. The reverse is true. In specifically including by way of example
electric utilities, telephone, telegraph, and broadcasting companies in its list of
VAT-covered businesses, Section 108 opens other companies rendering public
service for a fee to the imposition of VAT. Businesses of a public nature such as
public utilities and the collection of tolls or charges for its use or service is a
franchise.[19]
Nor can petitioners cite as binding on the Court statements made by
certain lawmakers in the course of congressional deliberations of the would-be
law. As the Court said in South African Airways v. Commissioner of Internal
Revenue,[20] statements made by individual members of Congress in the
consideration of a bill do not necessarily reflect the sense of that body and are,
consequently, not controlling in the interpretation of law. The congressional will is
ultimately determined by the language of the law that the lawmakers voted
on. Consequently, the meaning and intention of the law must first be sought in
the words of the statute itself, read and considered in their natural, ordinary,
commonly accepted and most obvious significations, according to good and
approved usage and without resorting to forced or subtle construction.
Two. Petitioners argue that a toll fee is a users tax and to impose VAT on
toll fees is tantamount to taxing a tax. [21] Actually, petitioners base this argument

Court of Appeals:[22]
No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like roads,
canals, rivers, torrents, ports and bridges constructed by
the State, are owned by the State. The term ports includes
seaports
and
airports.
The MIAA Airport Lands and
Buildings constitute a port constructed by the State. Under
Article 420 of the Civil Code, the MIAA Airport Lands and
Buildings are properties of public dominion and thus owned
by the State or the Republic of the Philippines.
x x x The operation by the government of a tollway
does not change the character of the road as one for public
use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the
government, or only those among the public who actually
use the road through the toll fees they pay upon using the
road. The tollway system is even a more efficient and
equitable manner of taxing the public for the maintenance
of public roads.
The charging of fees to the public does not determine
the character of the property whether it is for public
dominion or not. Article 420 of the Civil Code defines
property of public dominion as one intended for public
use. Even if the government collects toll fees, the road is
still intended for public use if anyone can use the road
under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of
vehicles that can use the road, the speed restrictions and
other conditions for the use of the road do not affect the
public character of the road.
The terminal fees MIAA charges to passengers, as
well as the landing fees MIAA charges to airlines, constitute
the bulk of the income that maintains the operations of

MIAA.The collection of such fees does not change the

character of MIAA as an airport for public use. Such fees are
often termed users tax. This means taxing those among the
public who actually use a public facility instead of taxing all
the public including those who never use the particular
public facility. A users tax is more equitable a principle of
taxation mandated in the 1987 Constitution.[23] (Underscoring
supplied)

certain roadways.The tax in such a case goes directly to the government for the
replenishment of resources it spends for the roadways. This is not the case
here. What the government seeks to tax here are fees collected from tollways
that are constructed, maintained, and operated by private tollway operators at
their own expense under the build, operate, and transfer scheme that the
government has adopted for expressways.[26] Except for a fraction given to the

Petitioners assume that what the Court said above, equating terminal fees

government, the toll fees essentially end up as earnings of the tollway operators.

to a users tax must also pertain to tollway fees. But the main issue in
the MIAA case was whether or not Paraaque City could sell airport lands and

In sum, fees paid by the public to tollway operators for use of the tollways, are not

buildings under MIAA administration at public auction to satisfy unpaid real estate

taxes in any sense. A tax is imposed under the taxing power of the government

taxes. Since local governments have no power to tax the national government,

principally for the purpose of raising revenues to fund public expenditures. [27] Toll

the Court held that the City could not proceed with the auction sale. MIAA forms

fees, on the other hand, are collected by private tollway operators as

part of the national government although not integrated in the department

reimbursement for the costs and expenses incurred in the construction,

framework.[24] Thus, its airport lands and buildings are properties of public

maintenance and operation of the tollways, as well as to assure them a

dominion beyond the commerce of man under Article 420(1) [25] of the Civil Code

reasonable margin of income. Although toll fees are charged for the use of public

and could not be sold at public auction.

facilities, therefore, they are not government exactions that can be properly
treated as a tax. Taxes may be imposed only by the government under its

As can be seen, the discussion in the MIAA case on toll roads and toll fees
was made, not to establish a rule that tollway fees are users tax, but to make the

sovereign authority, toll fees may be demanded by either the government or

private individuals or entities, as an attribute of ownership. [28]

point that airport lands and buildings are properties of public dominion and that
the collection of terminal fees for their use does not make them private

Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to

properties. Tollway fees are not taxes.Indeed, they are not assessed and collected

the nature of VAT as an indirect tax. In indirect taxation, a distinction is made

by the BIR and do not go to the general coffers of the government.

between the liability for the tax and burden of the tax. The seller who is liable for

It would of course be another matter if Congress enacts a law imposing a

the VAT may shift or pass on the amount of VAT it paid on goods, properties or

users tax, collectible from motorists, for the construction and maintenance of

services to the buyer. In such a case, what is transferred is not the sellers liability
but merely the burden of the VAT.[29]

Thus, the seller remains directly and legally liable for payment of the VAT,

Besides, her allegation that the private investors rate of recovery will be

but the buyer bears its burden since the amount of VAT paid by the former is

adversely affected by imposing VAT on tollway operations is purely speculative.

added to the selling price. Once shifted, the VAT ceases to be a tax [30] and simply

Equally presumptuous is her assertion that a stipulation in the TOAs known as the

becomes part of the cost that the buyer must pay in order to purchase the good,

Material Adverse Grantor Action will be activated if VAT is thus imposed. The

property or service.

Court cannot rule on matters that are manifestly conjectural. Neither can it
prohibit the State from exercising its sovereign taxing power based on uncertain,

Consequently, VAT on tollway operations is not really a tax on the tollway

user, but on the tollway operator. Under Section 105 of the Code,

[31]

prophetic grounds.

VAT is

imposed on any person who, in the course of trade or business, sells or renders

Four. Finally, petitioners assert that the substantiation requirements for

services for a fee. In other words, the seller of services, who in this case is the

claiming input VAT make the VAT on tollway operations impractical and incapable

tollway operator, is the person liable for VAT. The latter merely shifts the burden

of implementation. They cite the fact that, in order to claim input VAT, the name,

of VAT to the tollway user as part of the toll fees.

address and tax identification number of the tollway user must be indicated in the

For this reason, VAT on tollway operations cannot be a tax on tax even if

VAT receipt or invoice. The manner by which the BIR intends to implement the

toll fees were deemed as a users tax. VAT is assessed against the tollway

VAT by rounding off the toll rate and putting any excess collection in an escrow

operators gross receipts and not necessarily on the toll fees. Although the tollway

account is also illegal, while the alternative of giving change to thousands of

operator may shift the VAT burden to the tollway user, it will not make the latter

motorists in order to meet the exact toll rate would be a logistical nightmare.

directly liable for the VAT. The shifted VAT burden simply becomes part of the toll

Thus, according to them, the VAT on tollway operations is not administratively

fees that one has to pay in order to use the tollways.

[32]

feasible.[33]

Three. Petitioner Timbol has no personality to invoke the non-impairment of

Administrative feasibility is one of the canons of a sound tax system. It

contract clause on behalf of private investors in the tollway projects. She will

simply means that the tax system should be capable of being effectively

neither be prejudiced by nor be affected by the alleged diminution in return of

administered and enforced with the least inconvenience to the taxpayer. Non-

investments that may result from the VAT imposition. She has no interest at all in

observance of the canon, however, will not render a tax imposition invalid except

the profits to be earned under the TOAs. The interest in and right to recover

to the extent that specific constitutional or statutory limitations are impaired.

investments solely belongs to the private tollway investors.

[34]

Thus, even if the imposition of VAT on tollway operations may seem

burdensome to implement, it is not necessarily invalid unless some aspect of it is

the right to claim the 2% transitional input VAT belongs to the tollway operators

shown to violate any law or the Constitution.

who have not questioned the circulars validity. They are thus the ones who have a
right to challenge the circular in a direct and proper action brought for the

Here, it remains to be seen how the taxing authority will actually

purpose.

implement the VAT on tollway operations. Any declaration by the Court that the
manner of its implementation is illegal or unconstitutional would be premature.

Conclusion

Although the transcript of the August 12, 2010 Senate hearing provides some clue
as to how the BIR intends to go about it, [35] the facts pertaining to the matter are

In fine, the Commissioner of Internal Revenue did not usurp legislative

not sufficiently established for the Court to pass judgment on. Besides, any

prerogative or expand the VAT laws coverage when she sought to impose VAT on

concern about how the VAT on tollway operations will be enforced must first be

tollway operations. Section 108(A) of the Code clearly states that services of all

addressed to the BIR on whom the task of implementing tax laws primarily and

other franchise grantees are subject to VAT, except as may be provided under

exclusively rests. The Court cannot preempt the BIRs discretion on the matter,

Section 119 of the Code.Tollway operators are not among the franchise grantees

absent any clear violation of law or the Constitution.

subject to franchise tax under the latter provision. Neither are their services
among the VAT-exempt transactions under Section 109 of the Code.

For the same reason, the Court cannot prematurely declare as illegal, BIR
RMC 63-2010 which directs toll companies to record an accumulated input VAT of

If the legislative intent was to exempt tollway operations from VAT, as

zero balance in their books as of August 16, 2010, the date when the VAT

petitioners so strongly allege, then it would have been well for the law to clearly

imposition was supposed to take effect. The issuance allegedly violates Section

say so. Tax exemptions must be justified by clear statutory grant and based on

111(A)

[36]

of the Code which grants first time VAT payers a transitional input VAT of

2% on beginning inventory.

language in the law too plain to be mistaken. [37] But as the law is written, no such
exemption obtains for tollway operators. The Court is thus duty-bound to simply
apply the law as it is found.

In this connection, the BIR explained that BIR RMC 63-2010 is actually the
product of negotiations with tollway operators who have been assessed VAT as

Lastly, the grant of tax exemption is a matter of legislative policy that is

early as 2005, but failed to charge VAT-inclusive toll fees which by now can no

within the exclusive prerogative of Congress. The Courts role is to merely uphold

longer be collected. The tollway operators agreed to waive the 2% transitional

this legislative policy, as reflected first and foremost in the language of the tax

input VAT, in exchange for cancellation of their past due VAT liabilities. Notably,

statute. Thus, any unwarranted burden that may be perceived to result from

enforcing such policy must be properly referred to Congress. The Court has no
discretion on the matter but simply applies the law.
The VAT on franchise grantees has been in the statute books since 1994
when R.A. 7716 or the Expanded Value-Added Tax law was passed. It is only now,
however, that the executive has earnestly pursued the VAT imposition against
tollway operators. The executive exercises exclusive discretion in matters
pertaining to the implementation and execution of tax laws. Consequently, the
executive is more properly suited to deal with the immediate and practical
consequences of the VAT imposition.

VILLANUEVA, petitioners,
vs.
HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent.
G.R. No. 81820 June 30, 1988
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated
labor
federations
and
alliances,petitioners,
vs.
THE
EXECUTIVE
SECRETARY,
SECRETARY
OF
FINANCE,
THE
COMMISSIONER
OF
INTERNAL
REVENUE,
and
SECRETARY
OF
BUDGET, respondents.
G.R. No. 81921 June 30, 1988

WHEREFORE, the Court DENIES respondents Secretary of Finance and

Commissioner of Internal Revenues motion for reconsideration of its August 24,
2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F.

INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and

JESUS
B.
BANAL, petitioners,
vs.
The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE, respondent.

Timbols petition for lack of merit, and SETS ASIDE the Courts temporary
G.R. No. 82152 June 30, 1988

restraining order dated August 13, 2010.

SO ORDERED.
Republic
SUPREME
Manila

of

the

Philippines
COURT

RICARDO
C.
VALMONTE, petitioner,
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF
INTERNAL REVENUE and SECRETARY OF BUDGET, respondent.
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.

EN BANC
Jaime C. Opinion for individual petitioners in G.R. No. 81311.
G.R. No. 81311 June 30, 1988
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS,
INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C.

Banzuela, Flores, Miralles, Raeses, Sy, Taquio and Associates for petitioners in
G.R. No 81820.

Union of Lawyers and Advocates for Peoples Right collaborating counsel for
petitioners in G.R. No 81820.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.

PADILLA, J.:
These four (4) petitions, which have been consolidated because of the similarity
of the main issues involved therein, seek to nullify Executive Order No. 273 (EO
273, for short), issued by the President of the Philippines on 25 July 1987, to take
effect on 1 January 1988, and which amended certain sections of the National
Internal Revenue Code and adopted the value-added tax (VAT, for short), for being
unconstitutional in that its enactment is not alledgedly within the powers of the
President; that the VAT is oppressive, discriminatory, regressive, and violates the
due process and equal protection clauses and other provisions of the 1987
Constitution.
The Solicitor General prays for the dismissal of the petitions on the ground that
the petitioners have failed to show justification for the exercise of its judicial
powers, viz. (1) the existence of an appropriate case; (2) an interest, personal and
substantial, of the party raising the constitutional questions; (3) the constitutional
question should be raised at the earliest opportunity; and (4) the question of
constitutionality is directly and necessarily involved in a justiciable controversy
and its resolution is essential to the protection of the rights of the parties.
According to the Solicitor General, only the third requisite that the
constitutional question should be raised at the earliest opportunity has been
complied with. He also questions the legal standing of the petitioners who, he
contends, are merely asking for an advisory opinion from the Court, there being
no justiciable controversy for resolution.
Objections to taxpayers' suit for lack of sufficient personality standing, or interest
are, however, in the main procedural matters. Considering the importance to the

public of the cases at bar, and in keeping with the Court's duty, under the 1987
Constitution, to determine wether or not the other branches of government have
kept themselves within the limits of the Constitution and the laws and that they
have not abused the discretion given to them, the Court has brushed aside
technicalities of procedure and has taken cognizance of these petitions.
But, before resolving the issues raised, a brief look into the tax law in question is
in order.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the
value, added by every seller, with aggregate gross annual sales of articles and/or
services, exceeding P200,00.00, to his purchase of goods and services, unless
exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of
goods or gross receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on
manufacturers and producers, advance sales tax, and compensating tax on
importations. The framers of EO 273 that it is principally aimed to rationalize the
system of taxing goods and services; simplify tax administration; and make the
tax system more equitable, to enable the country to attain economic recovery.
The VAT is not entirely new. It was already in force, in a modified form, before EO
273 was issued. As pointed out by the Solicitor General, the Philippine sales tax
system, prior to the issuance of EO 273, was essentially a single stage value
added tax system computed under the "cost subtraction method" or "cost
deduction method" and was imposed only on original sale, barter or exchange of
articles by manufacturers, producers, or importers. Subsequent sales of such
articles were not subject to sales tax. However, with the issuance of PD 1991 on
31 October 1985, a 3% tax was imposed on a second sale, which was reduced to
1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1
January 1986. Reduced sales taxes were imposed not only on the second sale, but
on every subsequent sale, as well. EO 273 merely increased the VAT on every
sale to 10%, unless zero-rated or exempt.

Petitioners first contend that EO 273 is unconstitutional on the Ground that the
President had no authority to issue EO 273 on 25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3, which decreed a Provisional
Constitution, sole legislative authority was vested upon the President. Art. II, sec.
1 of the Provisional Constitution states:
Sec. 1. Until a legislature is elected and convened under a new
Constitution, the President shall continue to exercise legislative
powers.
On 15 October 1986, the Constitutional Commission of 1986 adopted a new
Constitution for the Republic of the Philippines which was ratified in a plebiscite
conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution, hereafter
referred to as the 1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise
legislative powers until the first Congress is convened.
It should be noted that, under both the Provisional and the 1987 Constitutions,
the President is vested with legislative powers until a legislature under a new
Constitution is convened. The first Congress, created and elected under the 1987
Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on
25 July 1987, two (2) days before Congress convened on 27 July 1987, was within
the President's constitutional power and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was really convened on 30
June 1987 (not 27 July 1987). He contends that the word "convene" is
synonymous with "the date when the elected members of Congress assumed
office."

The contention is without merit. The word "convene" which has been interpreted
to mean "to call together, cause to assemble, or convoke," 1 is clearly different
from assumption of office by the individual members of Congress or their taking
the oath of office. As an example, we call to mind the interim National Assembly
created under the 1973 Constitution, which had not been "convened" but some
members of the body, more particularly the delegates to the 1971 Constitutional
Convention who had opted to serve therein by voting affirmatively for the
approval of said Constitution, had taken their oath of office.
To uphold the submission of petitioner Valmonte would stretch the definition of
the word "convene" a bit too far. It would also defeat the purpose of the framers
of the 1987 Constitutional and render meaningless some other provisions of said
Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress
to convene once every year on the fourth Monday of July for its regular session
would be a contrariety, since Congress would already be deemed to be in session
after the individual members have taken their oath of office. A portion of the
provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of
enacting a law calling for a special election to elect a President and Vice-President
in case a vacancy occurs in said offices, would also be a surplusage. The portion
of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in
session, to decide a conflict between the President and the Cabinet as to whether
or not the President and the Cabinet as to whether or not the President can reassume the powers and duties of his office, would also be redundant. The same is
true with the portion of Art. VII, sec. 18, which requires Congress to convene
within twenty-four (24) hours following the declaration of martial law or the
suspension of the privilage of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her
power to legislate. If the framers of said Constitution had intended to terminate
the exercise of legislative powers by the President at the beginning of the term of
office of the members of Congress, they should have so stated (but did not) in
clear and unequivocal terms. The Court has not power to re-write the Constitution
and give it a meaning different from that intended.

The Court also finds no merit in the petitioners' claim that EO 273 was issued by
the President in grave abuse of discretion amounting to lack or excess of
jurisdiction. "Grave abuse of discretion" has been defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction (Abad
Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other words,
where the power is exercised in an arbitrary or despotic manner by
reason of passion or personal hostility, and it must be so patent and
gross as to amount to an evasion of positive duty or to a virtual
refusal to perform the duty enjoined or to act at all in
contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz.
62). 2
Petitioners have failed to show that EO 273 was issued capriciously and
whimsically or in an arbitrary or despotic manner by reason of passion or personal
hostility. It appears that a comprehensive study of the VAT had been extensively
discussed by this framers and other government agencies involved in its
implementation, even under the past administration. As the Solicitor General
correctly sated. "The signing of E.O. 273 was merely the last stage in the exercise
of her legislative powers. The legislative process started long before the signing
when the data were gathered, proposals were weighed and the final wordings of
the measure were drafted, revised and finalized. Certainly, it cannot be said that
the President made a jump, so to speak, on the Congress, two days before it
convened." 3
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and
regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987
Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.

The petitioners" assertions in this regard are not supported by facts and
circumstances to warrant their conclusions. They have failed to adequately show
that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon
newspaper articles which are actually hearsay and have evidentiary value. To
justify the nullification of a law. there must be a clear and unequivocal breach of
the Constitution, not a doubtful and argumentative implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
uniform. The court, in City of Baguio vs. De Leon, 5 said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel,
speaking for the Court, stated: "A tax is considered uniform when it
operates with the same force and effect in every place where the
subject may be found."
There was no occasion in that case to consider the possible effect
on such a constitutional requirement where there is a classification.
The opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil.
852, 862). Thus: "Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be
taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation; . . ."
About two years later, Justice Tuason, speaking for this Court in
Manila Race Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65)
incorporated the above excerpt in his opinion and continued;
"Taking everything into account, the differentiation against which
the plaintiffs complain conforms to the practical dictates of justice
and equity and is not discriminatory within the meaning of the
Constitution."
To satisfy this requirement then, all that is needed as held in
another case decided two years later, (Uy Matias v. City of Cebu, 93
Phil. 300) is that the statute or ordinance in question "applies
equally to all persons, firms and corporations placed in similar

situation." This Court is on record as accepting the view in a leading

American case (Carmichael v. Southern Coal and Coke Co., 301 US
495) 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).
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 engage 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, spared as they are from the incidence of the VAT, are expected to be
relatively lower and within the reach of the general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated
Customs Brokers Association of the Philippines that EO 273, more particularly the
new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates
against customs brokers. The contested provision states:
Sec. 103. Exempt transactions. The following shall be exempt
from the value-added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling (except
customs brokers) subject to the occupation tax under the Local Tax
Code, and professional services performed by registered general
professional partnerships;
The phrase "except customs brokers" is not meant to discriminate against
customs brokers. It was inserted in Sec. 103(r) to complement the provisions of
Sec. 102 of the Code, which makes the services of customs brokers subject to the

payment of the VAT and to distinguish customs brokers from other professionals
who are subject to the payment of an occupation tax under the Local Tax Code.
Pertinent provisions of Sec. 102 read:
Sec. 102. Value-added tax on sale of services. There shall be
levied, assessed and collected, a value-added tax equivalent to
10% percent of gross receipts derived by any person engaged in
the sale of services. The phrase sale of services" means the
performance of all kinds of services for others for a fee,
remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real
estate, commercial, customs and immigration brokers; lessors of
personal property; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or repacking
goods for others; and similar services regardless of whether or not
the performance thereof call for the exercise or use of the physical
or mental faculties: ...
With the insertion of the clarificatory phrase "except customs brokers" in Sec.
103(r), a potential conflict between the two sections, (Secs. 102 and 103), insofar
as customs brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from the other professionals
who are subject to occupation tax under the Local Tax Code is based upon
material differences, in that the activities of customs brokers (like those of stock,
real estate and immigration brokers) partake more of a business, rather than a
profession and were thus subjected to the percentage tax under Sec. 174 of the
National Internal Revenue Code prior to its amendment by EO 273. EO 273
abolished the percentage tax and replaced it with the VAT. If the petitioner
Association did not protest the classification of customs brokers then, the Court
sees no reason why it should protest now.
The Court takes note that EO 273 has been in effect for more than five (5) months
now, so that the fears expressed by the petitioners that the adoption of the VAT

will trigger skyrocketing of prices of basic commodities and services, as well as

mass actions and demonstrations against the VAT should by now be evident. The
fact that nothing of the sort has happened shows that the fears and
apprehensions of the petitioners appear to be more imagined than real. It would
seem that the VAT is not as bad as we are made to believe.

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of

Rizal, petitioner-appellant,
vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET
AL., respondents-appellees.

In any event, if petitioners seriously believe that the adoption and continued
application of the VAT are prejudicial to the general welfare or the interests of the
majority of the people, they should seek recourse and relief from the political
branches of the government. The Court, following the time-honored doctrine of
separation of powers, cannot substitute its judgment for that of the President as
to the wisdom, justice and advisability of the adoption of the VAT. The Court can
only look into and determine whether or not EO 273 was enacted and made
effective as law, in the manner required by, and consistent with, the Constitution,
and to make sure that it was not issued in grave abuse of discretion amounting to
lack or excess of jurisdiction; and, in this regard, the Court finds no reason to
impede its application or continued implementation.

Asst.
Fiscal
Noli
M.
Cortes
and
Jose
P.
Santos
for
appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for
appellee.

WHEREFORE, the petitions are DISMISSED. Without pronouncem

On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal,

instituted this action for declaratory relief, with injunction, upon the ground that
Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works",
approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h])
of P85,000.00 "for the construction, reconstruction, repair, extension and
improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen.
Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen.
Lim)"; that, at the time of the passage and approval of said Act, the
aforementioned feeder roads were "nothing but projected and planned
subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . .
situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as
Annexes A and B, near Shaw Boulevard, not far away from the intersection
between the latter and Highway 54), which projected feeder roads "do not
connect any government property or any important premises to the main
highway"; that the aforementioned Antonio Subdivision (as well as the lands on
which said feeder roads were to be construed) were private properties of

Republic
SUPREME
Manila

of

EN BANC
G.R. No. L-10405

December 29, 1960

the

Philippines
COURT

CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First
Instance of Rizal, dismissing the above entitled case and dissolving the writ of
preliminary injunction therein issued, without costs.

respondent Jose C. Zulueta, who, at the time of the passage and approval of said
Act, was a member of the Senate of the Philippines; that on May, 1953,
respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal,
offering to donate said projected feeder roads to the municipality of Pasig, Rizal;
that, on June 13, 1953, the offer was accepted by the council, subject to the
condition "that the donor would submit a plan of the said roads and agree to
change the names of two of them"; that no deed of donation in favor of the
municipality of Pasig was, however, executed; that on July 10, 1953, respondent
Zulueta wrote another letter to said council, calling attention to the approval of
Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for the
construction of the projected feeder roads in question; that the municipal council
of Pasig endorsed said letter of respondent Zulueta to the District Engineer of
Rizal, who, up to the present "has not made any endorsement thereon" that
inasmuch as the projected feeder roads in question were private property at the
time of the passage and approval of Republic Act No. 920, the appropriation of
P85,000.00 therein made, for the construction, reconstruction, repair, extension
and improvement of said projected feeder roads, was illegal and, therefore,
void ab initio"; that said appropriation of P85,000.00 was made by Congress
because its members were made to believe that the projected feeder roads in
question were "public roads and not private streets of a private subdivision"';
that, "in order to give a semblance of legality, when there is absolutely none, to
the aforementioned appropriation", respondents Zulueta executed on December
12, 1953, while he was a member of the Senate of the Philippines, an alleged
deed of donation copy of which is annexed to the petition of the four (4)
parcels of land constituting said projected feeder roads, in favor of the
Government of the Republic of the Philippines; that said alleged deed of donation
was, on the same date, accepted by the then Executive Secretary; that being
subject to an onerous condition, said donation partook of the nature of a contract;
that, such, said donation violated the provision of our fundamental law prohibiting
members of Congress from being directly or indirectly financially interested in any
contract with the Government, and, hence, is unconstitutional, as well as null and
voidab initio, for the construction of the projected feeder roads in question with
public funds would greatly enhance or increase the value of the aforementioned
subdivision of respondent Zulueta, "aside from relieving him from the burden of
constructing his subdivision streets or roads at his own expense"; that the

construction of said projected feeder roads was then being undertaken by the
Bureau of Public Highways; and that, unless restrained by the court, the
respondents would continue to execute, comply with, follow and implement the
aforementioned illegal provision of law, "to the irreparable damage, detriment
and prejudice not only to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be
declared null and void; that the alleged deed of donation of the feeder roads in
question be "declared unconstitutional and, therefor, illegal"; that a writ of
injunction be issued enjoining the Secretary of Public Works and Communications,
the Director of the Bureau of Public Works and Highways and Jose C. Zulueta from
ordering or allowing the continuance of the above-mentioned feeder roads
project, and from making and securing any new and further releases on the
aforementioned item of Republic Act No. 920, and the disbursing officers of the
Department of Public Works and Highways from making any further payments out
of said funds provided for in Republic Act No. 920; and that pending final hearing
on the merits, a writ of preliminary injunction be issued enjoining the
aforementioned parties respondent from making and securing any new and
further releases on the aforesaid item of Republic Act No. 920 and from making
any further payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had
"no legal capacity to sue", and that the petition did "not state a cause of action".
In support to this motion, respondent Zulueta alleged that the Provincial Fiscal of
Rizal, not its provincial governor, should represent the Province of Rizal, pursuant
to section 1683 of the Revised Administrative Code; that said respondent is " not
aware of any law which makes illegal the appropriation of public funds for the
improvements of . . . private property"; and that, the constitutional provision
invoked by petitioner is inapplicable to the donation in question, the same being a
pure act of liberality, not a contract. The other respondents, in turn, maintained
that petitioner could not assail the appropriation in question because "there is no
actual bona fide case . . . in which the validity of Republic Act No. 920 is
necessarily involved" and petitioner "has not shown that he has a personal and
substantial interest" in said Act "and that its enforcement has caused or will cause
him a direct injury."

Acting upon said motions to dismiss, the lower court rendered the aforementioned
decision, dated October 29, 1953, holding that, since public interest is involved in
this case, the Provincial Governor of Rizal and the provincial fiscal thereof who
represents him therein, "have the requisite personalities" to question the
constitutionality of the disputed item of Republic Act No. 920; that "the legislature
is without power appropriate public revenues for anything but a public purpose",
that the instructions and improvement of the feeder roads in question, if such
roads where private property, would not be a public purpose; that, being subject
to the following condition:

"construction, reconstruction, repair, extension and improvement" of said roads,

was passed by Congress, as well as when it was approved by the President on
June 20, 1953. The petition further alleges that the construction of said roads, to
be undertaken with the aforementioned appropriation of P85,000.00, would have
the effect of relieving respondent Zulueta of the burden of constructing his
subdivision streets or roads at his own expenses, 1and would "greatly enhance or
increase the value of the subdivision" of said respondent. The lower court held
that under these circumstances, the appropriation in question was "clearly for a
private, not a public purpose."

The within donation is hereby made upon the condition that the
Government of the Republic of the Philippines will use the parcels of land
hereby donated for street purposes only and for no other purposes
whatsoever; it being expressly understood that should the Government of
the Republic of the Philippines violate the condition hereby imposed upon
it, the title to the land hereby donated shall, upon such violation, ipso facto
revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.)

Respondents do not deny the accuracy of this conclusion, which is selfevident. 2However, respondent Zulueta contended, in his motion to dismiss that:

which is onerous, the donation in question is a contract; that said donation or

contract is "absolutely forbidden by the Constitution" and consequently "illegal",
for Article 1409 of the Civil Code of the Philippines, declares in existence and void
from the very beginning contracts "whose cause, objector purpose is contrary to
law, morals . . . or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interest are not directly
affected" thereby; and that, accordingly, the appropriation in question "should be
upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting
the aforementioned motions to dismiss, which as much, are deemed to have
admitted hypothetically the allegations of fact made in the petition of appellant
herein. According to said petition, respondent Zulueta is the owner of several
parcels of residential land situated in Pasig, Rizal, and known as the Antonio
Subdivision, certain portions of which had been reserved for the projected feeder
roads aforementioned, which, admittedly, were private property of said
respondent when Republic Act No. 920, appropriating P85,000.00 for the

A law passed by Congress and approved by the President can never be

illegal because Congress is the source of all laws . . . Aside from the fact
that movant is not aware of any law which makes illegal the appropriation
of public funds for the improvement of what we, in the meantime, may
assume as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent
with the nature of the Government established under the Constitution of the
Republic of the Philippines and the system of checks and balances underlying our
political structure. Moreover, it is refuted by the decisions of this Court
invalidating legislative enactments deemed violative of the Constitution or
organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose,
the principle according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate
public revenue for anything but a public purpose. . . . It is the essential
character of the direct object of the expenditure which must determine its
validity as justifying a tax, and not the magnitude of the interest to be
affected nor the degree to which the general advantage of the community,

and thus the public welfare, may be ultimately benefited by their

promotion. Incidental to the public or to the state, which results from the
promotion of private interest and the prosperity of private enterprises or
business, does not justify their aid by the use public money. (25 R.L.C. pp.
398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for
public purposes only, discussedsupra sec. 14, money raised by taxation
can be expended only for public purposes and not for the advantage of
private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the
constitution, public funds may be used only for public purpose. The right of
the legislature to appropriate funds is correlative with its right to tax, and,
under constitutional provisions against taxation except for public purposes
and prohibiting the collection of a tax for one purpose and the devotion
thereof to another purpose, no appropriation of state funds can be made
for other than for a public purpose.
xxx

xxx

xxx

The test of the constitutionality of a statute requiring the use of public

funds is whether the statute is designed to promote the public interest, as
opposed to the furtherance of the advantage of individuals, although each
advantage to individuals might incidentally serve the public. (81 C.J.S. pp.
1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart
from being patently sound, are a necessary corollary to our democratic system of
government, which, as such, exists primarily for the promotion of the general

welfare. Besides, reflecting as they do, the established jurisprudence in the United
States, after whose constitutional system ours has been patterned, said views and
jurisprudence are, likewise, part and parcel of our own constitutional
law.lawphil.net
This notwithstanding, the lower court felt constrained to uphold the appropriation
in question, upon the ground that petitioner may not contest the legality of the
donation above referred to because the same does not affect him directly. This
conclusion is, presumably, based upon the following premises, namely: (1) that, if
valid, said donation cured the constitutional infirmity of the aforementioned
appropriation; (2) that the latter may not be annulled without a previous
declaration of unconstitutionality of the said donation; and (3) that the rule set
forth in Article 1421 of the Civil Code is absolute, and admits of no exception. We
do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its
passage or approval, not upon events occurring, or acts performed, subsequently
thereto, unless the latter consists of an amendment of the organic law, removing,
with retrospective operation, the constitutional limitation infringed by said
statute. Referring to the P85,000.00 appropriation for the projected feeder roads
in question, the legality thereof depended upon whether said roads were public or
private property when the bill, which, latter on, became Republic Act 920, was
passed by Congress, or, when said bill was approved by the President and the
disbursement of said sum became effective, or on June 20, 1953 (see section 13
of said Act). Inasmuch as the land on which the projected feeder roads were to be
constructed belonged then to respondent Zulueta, the result is that said
appropriation sought a private purpose, and hence, was null and void. 4 The
donation to the Government, over five (5) months after the approval and
effectivity of said Act, made, according to the petition, for the purpose of giving a
"semblance of legality", or legalizing, the appropriation in question, did not cure
its aforementioned basic defect. Consequently, a judicial nullification of said
donation need not precede the declaration of unconstitutionality of said
appropriation.

Again, Article 1421 of our Civil Code, like many other statutory enactments, is
subject to exceptions. For instance, the creditors of a party to an illegal contract
may, under the conditions set forth in Article 1177 of said Code, exercise the
rights and actions of the latter, except only those which are inherent in his
person, including therefore, his right to the annulment of said contract, even
though such creditors are not affected by the same, except indirectly, in the
manner indicated in said legal provision.
Again, it is well-stated that the validity of a statute may be contested only by one
who will sustain a direct injury in consequence of its enforcement. Yet, there are
many decisions nullifying, at the instance of taxpayers, laws providing for the
disbursement of public funds, 5upon the theory that "the expenditure of public
funds by an officer of the State for the purpose of administering
an unconstitutional act constitutes a misapplication of such funds," which may be
enjoined at the request of a taxpayer. 6Although there are some decisions to the
contrary, 7the prevailing view in the United States is stated in the American
Jurisprudence as follows:
In the determination of the degree of interest essential to give the
requisite standing to attack the constitutionality of a statute, the general
rule is that not only persons individually affected, but alsotaxpayers, have
sufficient interest in preventing the illegal expenditure of moneys raised
by taxation and may therefore question the constitutionality of statutes
requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis
supplied.)
However, this view was not favored by the Supreme Court of the U.S. in
Frothingham vs. Mellon (262 U.S. 447), insofar as federal laws are concerned,
upon the ground that the relationship of a taxpayer of the U.S. to its Federal
Government is different from that of a taxpayer of a municipal corporation to its
government. Indeed, under the composite system of government existing in the
U.S., the states of the Union are integral part of the Federation from
an international viewpoint, but, each state enjoys internally a substantial measure
of sovereignty, subject to the limitations imposed by the Federal Constitution. In
fact, the same was made by representatives ofeach state of the Union, not of the

people of the U.S., except insofar as the former represented the people of the
respective States, and the people of each State has, independently of that of the
others, ratified said Constitution. In other words, the Federal Constitution and the
Federal statutes have become binding upon the people of the U.S. in
consequence of an act of, and, in this sense, through the respective states of the
Union of which they are citizens. The peculiar nature of the relation between said
people and the Federal Government of the U.S. is reflected in the election of its
President, who is chosen directly, not by the people of the U.S., but by electors
chosen by each State, in such manner as the legislature thereof may direct
(Article II, section 2, of the Federal Constitution).lawphi1.net
The relation between the people of the Philippines and its taxpayers, on the other
hand, and the Republic of the Philippines, on the other, is not identical to that
obtaining between the people and taxpayers of the U.S. and its Federal
Government. It is closer, from a domestic viewpoint, to that existing between the
people and taxpayers of each state and the government thereof, except that the
authority of the Republic of the Philippines over the people of the Philippines
is more fully direct than that of the states of the Union, insofar as
the simple and unitary type of our national government is not subject to
limitations analogous to those imposed by the Federal Constitution upon the
states of the Union, and those imposed upon the Federal Government in the
interest of the Union. For this reason, the rule recognizing the right of taxpayers
to assail the constitutionality of a legislation appropriating local or state public
funds which has been upheld by the Federal Supreme Court
(Crampton vs. Zabriskie, 101 U.S. 601) has greater application in the
Philippines than that adopted with respect to acts of Congress of the United
States appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the
expropriation of a land by the Province of Tayabas, two (2) taxpayers thereof were
allowed to intervene for the purpose of contesting the price being paid to the
owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the
Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not
permitted to question the constitutionality of an appropriation for backpay of
members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and

Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we
entertained the action of taxpayers impugning the validity of certain
appropriations of public funds, and invalidated the same. Moreover, the reason
that impelled this Court to take such position in said two (2) cases the
importance of the issues therein raised is present in the case at bar. Again, like
the petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely
a taxpayer. The Province of Rizal, which he represents officially as its Provincial
Governor, is our most populated political subdivision, 8and, the taxpayers therein
bear a substantial portion of the burden of taxation, in the Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case
sufficiently justify petitioners action in contesting the appropriation and donation
in question; that this action should not have been dismissed by the lower court;
and that the writ of preliminary injunction should have been maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are
remanded to the lower court for further proceedings not inconsistent with this
decision, with the costs of this instance against respondent Jose C. Zulueta. It is
so ordered.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera,
Gutierrez David, Paredes, and Dizon, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. 87479 June 4, 1990
NATIONAL
POWER
CORPORATION, petitioner,
vs.
THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R. SALALIMA, and
ALBAY PROVINCIAL TREASURER ABUNDIO M. NUEZ, respondents.
Romulo L. Ricafort and Jesus R. Cornago for respondents.

SARMIENTO, J.:
The National Power Corporation (NAPOCOR) questions the power of the provincial
government of Albay to collect real property taxes on its properties located at
Tiwi, Albay, amassed between June 11, 1984 up to March 10, 1987.
It appears that on March 14 and 15, 1989, the respondents caused the publication
of a notice of auction sale involving the properties of NAPOCOR and the Philippine
Geothermal Inc. consisting of buildings, machines, and similar improvements
standing on their offices at Tiwi, Albay. The amounts to be realized from this
advertised auction sale are supposed to be applied to the tax delinquencies
claimed, as and for, as we said, real property taxes. The back taxes NAPOCOR has
supposedly accumulated were computed at P214,845,184.76.
NAPOCOR opposed the sale, interposing in support of its non-liability Resolution
No. 17-87, of the Fiscal Incentives Review Board (FIRB), which provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty

exemption privileges of the National Power Corporation, including
those pertaining to its domestic purchases of petroleum and
petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power
Corporation, defining its powers, objectives and functions, and for
other purposes), as amended, are restored effective March 10,
1987, subject to the following conditions: 1
as well as the Memorandum of Executive Secretary Catalino Macaraig, which also
states thus:
Pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93,
series of 1986, FIRB Resolution No. 17-87, series of 1987, restoring,
subject to certain conditions prescribed therein, the tax and duty
exemption privileges of NPC as provided under Commonwealth Act
No. 120, as amended, effective March 10, 1987, is hereby
confirmed and approved. 2
On March 10, 1989, the Court resolved to issue a temporary restraining order
directing the Albay provincial government "to CEASE AND DESIST from selling and
disposing of the NAPOCOR properties subject matter of this petition. 3 It appears,
however, that "the temporary restraining order failed to reach respondents before
the scheduled bidding at 10:00 a.m. on March 30, 1989 ... [h]ence, the
respondents proceeded with the bidding wherein the Province of Albay was the
highest bidder. 4
The Court gathers from the records that:
(1) Under Section 13, of Republic Act No. 6395, amending Commonwealth Act No.
120 (charter of NAPOCOR):
Section 13. Non-profit Character of the Corporation; Exemption
from All Taxes, Duties, Fees, Imposts and Other Charges by the

Government and Government Instrumentalities. 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,
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. 5
(2) On August 24, 1975, Presidential Decree No. 776 was promulgated, creating
the Fiscal Incentives Review Board (FIRB). Among other things, the Board was
tasked as follows:
Section 2. A Fiscal Incentives Review Board is hereby created for
the purpose of determining what subsidies and tax exemptions
should be modified, withdrawn, revoked or suspended, which shall
be composed of the following officials:
Chairman
Secretary
of
Finance
Members
Secretary
of
Industry
Director
General
of
the
National
Economic
and
Development
Authority
Commissioner
of
Internal
Revenue
- Commissioner of Customs
The Board may recommend to the President of the Philippines and
for reasons of compatibility with the declared economic policy, the
withdrawal, modification, revocation or suspension of the
enforceability of any of the abovestated statutory subsidies or tax
exemption grants, except those granted by the Constitution. To
attain its objectives, the Board may require the assistance of any

appropriate government agency or entity. The Board shall meet

once a month, or oftener at the call of the Secretary of Finance. 6

a) restore tax and/or duty exemptions withdrawn hereunder in

whole or in part;

(3) On June 11, 1984, Presidential Decree No.

promulgated, prescribing, among other things, that:

was

b) revise the scope and coverage of tax and/or duty exemption that
may be restored;

Section 1. The provisions of special or general law to the contrary

notwithstanding, all exemptions from the payment of duties, taxes,
fees, impost and other charges heretofore granted in favor of
government-owned or controlled corporations including their
subsidiaries are hereby withdrawn. 7

c) impose conditions for the restoration of tax and/or duty

exemption;

(4) Meanwhile, FIRB Resolution No. 10-85 was issued, "restoring" NAPOCOR's tax
exemption effective June 11, 1984 to June 30, 1985;

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 commitments of the Philippines and the necessary
precautions such that the grant of subsidies does not become the
basis for countervailing action. 10

1931

(5) Thereafter, FIRB Resolution No. 1-86 was issued, granting tax exemption
privileges to NAPOCOR from July 1, 1985 and indefinitely thereafter;
(6) Likewise, FIRB Resolution No. 17-87 was promulgated, giving NAPOCOR tax
exemption privileges effective until March 10, 1987; 8
(7) On December 17, 1986, Executive Order No. 93 was promulgated by President
Corazon Aquino, providing, among other things, as follows:
SECTION 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. 9
and
SECTION 2. The Fiscal Incentives Review Board created under
Presidential Decree No. 776, as amended, is hereby authorized to:

d) prescribe the date or period of effectivity of the restoration of tax

and/or duty exemption;

(8) On October 5, 1987, the Office of the President issued the Memorandum,
confirming NAPOCOR's tax exemption aforesaid. 11
The provincial government of Albay now defends the auction sale in question on
the theory that the various FIRB issuances constitute an undue delegation of the
taxing Power and hence, null and void, under the Constitution. It is also
contended that, insofar as Executive Order No. 93 authorizes the FIRB to grant tax
exemptions, the same is of no force and effect under the constitutional provision
allowing the legislature alone to accord tax exemption privileges.
It is to be pointed out that under Presidential Decree No. 776, the power of the
FIRB was merely to "recommend to the President of the Philippines and for

reasons of compatibility with the declared economic policy, the withdrawal,

modification, revocation or suspension of the enforceability of any of the abovecited statutory subsidies or tax exemption grants, except those granted by the
Constitution." It has no authority to impose taxes or revoke existing ones, which,
after all, under the Constitution, only the legislature may accomplish. 12 The
question therefore is whether or not the various tax exemptions granted by virtue
of FIRB Resolutions Nos. 10-85, 1-86, and 17-87 are valid and constitutional.
We shall deal with FIRB No. 17-87 later, but with respect to FIRB Resolutions Nos.
10- 85 and 1-86, we sustain the provincial government of Albay.
As we said, the FIRB, under its charter, Presidential Decree No. 776, had been
empowered merely to "recommend" tax exemptions. By itself, it could not have
validly prescribed exemptions or restore taxability. Hence, as of June 11, 1984
(promulgation of Presidential Decree No. 1931), NAPOCOR had ceased to enjoy
tax exemption privileges.
The fact that under Executive Order No. 93, the FIRB has been given the
prerogative to "restore tax and/or duty exemptions withdrawn hereunder in whole
or in part," 13 and "impose conditions for ... tax and/or duty exemption" 14 is of no
moment. These provisions are prospective in character and can not affect the
Board's past acts.
The Court is aware that in its preamble, Executive Order No. 93 states:
WHEREAS, a number of affected entities, government and private were able to
get back their tax and duty exemption privileges through the review mechanism
implemented by the Fiscal Incentives Review Board (FIRB); 15but by no means can
we say that it has "ratified" the acts of FIRB. It is to misinterpret the scope of
FIRB's powers under Presidential Decree No. 776 to say that it has. Apart from
that, Section 2 of the Executive Order was clearly intended to amend Presidential
Decree No. 776, which means, mutatis mutandis, that FIRB did not have the right,
in the first place, to grant tax exemptions or withdraw existing ones.

Does Executive Order No. 93 constitute an unlawful delegation of legislative

power? It is to be stressed that the provincial government of Albay admits that as
of March 10, 1987 (the date Resolution No. 17-87 was affirmed by the
Memorandum of the Office of the President, dated October 5, 1987), NAPOCOR's
exemption had been validly restored. What it questions is NAPOCOR's liability in
the interregnum between June 11, 1984, the date its tax privileges were
withdrawn, and March 10, 1987, the date they were purportedly restored. To be
sure, it objects to Executive Order No. 93 as alledgedly a delegation of legislative
power, but only insofar as its (NAPOCOR's) June 11, 1984 to March 10, 1987 tax
accumulation is concerned. We therefore leave the issue of "delegation" to the
future and its constitutionality when the proper case arises. For the nonce, we
leave Executive Order No. 93 alone, and so also, its validity as far as it grants tax
exemptions (through the FIRB) beginning December 17, 1986, the date of its
promulgation.
NAPOCOR must then be held liable for the intervening years aforesaid. So it has
been held:
xxx xxx xxx
The last issue to be resolved is whether or not the privaterespondent is liable for the fixed and deficiency percentage taxes in
the amount of P3,025.96 (i.e. for the period from January 1, 1946 to
February 29, 1948) before the approval of its municipal franchises.
As aforestated, the franchises were approved by the President only
on February 24,1948. Therefore, before the said date, the private
respondent was liable for the payment of percentage and fixed
taxes as seller of light, heat, and power which, as the petitioner
claims, amounted to P3,025.96. The legislative franchise (R.A. No.
3843) exempted the grantee from all kinds of taxes other than the
2% tax from the date the original franchise was granted. The
exemption, therefore, did not cover the period before the franchise
was granted, i.e. before February 24, 1948. ... 16

Actually, the State has no reason to decry the taxation of NAPOCOR's properties,
as and by way of real property taxes. Real property taxes, after all, form part and
parcel of the financing apparatus of the Government in development and nationbuilding, particularly in the local government level, Thus:
SEC. 86. Distribution of proceeds. (a) The proceeds of the real
property tax, except as otherwise provided in this Code, shall
accrue to the province, city or municipality where the property
subject to the tax is situated and shall be applied by the respective
local government unit for its own use and benefit.
(b) Barrio shares in real property tax collections. The annual
shares of the barrios in real property tax collections shall be as
follows:
(1) Five per cent of the real property tax collections of the province
and another five percent of the collections of the municipality shall
accrue to the barrio where the property subject to the tax is
situated.
(2) In the case of the city, ten per cent of the collections of the tax
shag likewise accrue to the barrio where the property is situated.
Thirty per cent of the barrio shares herein referred to may be spent for salaries or
per diems of the barrio officials and other administrative expenses, while the
remaining seventy per cent shall be utilized for development projects approved
by the Secretary of Local Government and Community Development or by such
committee created, or representatives designated, by him.
SEC. 87. Application of proceeds. (a) The proceeds of the real
property tax pertaining to the city and to the municipality shall
accrue entirely to their respective general funds. In the case of the
province, one-fourth thereof shall accrue to its road and bridge fund
and the remaining three-fourths, to its general fund.

(b) The entire proceeds of the additional one per cent real property
tax levied for the Special Education Fund created under R.A. No.
5447 collected in the province or city on real property situated in
their respective territorial jurisdictions shall be distributed as
follows:
(1) Collections in the provinces: Fifty per cent shall accrue to the
municipality where the property subject to the tax is situated;
twenty per cent shall accrue to the province; and thirty per cent
shall be remitted to the Treasurer of the Philippines to be expended
exclusively for stabilizing the Special Education Fund in
municipalities, cities and provinces in accordance with the
provisions of Section seven of R.A. No. 5447.
(2) Collections in the cities: Sixty per cent shall be retained by the
city; and forty per cent shall be remitted to the Treasurer of the
Philippines to be expended exclusively for stabilizing the special
education fund in municipalities, cities and provinces as provided
under Section 7 of R.A. No. 5447.
However, any increase in the shares of provinces,
cities and municipalities from said additional tax
accruing to their respective local school boards
commencing with fiscal year 1973-74 over what has
been actually realized during the fiscal year 1971-72
which, for purposes of this Code, shall remain as the
based year, shall be divided equally between the
general fund and the special education fund of the
local government units concerned. The Secretary of
Finance may, however, at his discretion, increase to
not more than seventy-five per cent the amount that
shall accrue annually to the local general fund.

(c) The proceeds of all delinquent taxes and penalties, as well as

the income realized from the use, lease or other disposition of real
property acquired by the province or city at a public auction in
accordance with the provisions of this Code, and the proceeds of
the sale of the delinquent real property or, of the redemption
thereof shall accrue to the province, city or municipality in the
same manner and proportion as if the tax or taxes had been paid in
regular course.
(d) The proceeds of the additional real property tax on Idle private
lands shall accrue to the respective general funds of the province,
city and municipality where the land subject to the tax is
situated. 17
To all intents and purposes, real property taxes are funds taken by the State with
one hand and given to the other. In no measure can the Government be said to
have lost anything.
As a rule finally, claims of tax exemption are construed strongly against the
claimant. 18 They must also be shown to exist clearly and categorically, and
supported by clear legal provisions. 19
Taxes are the lifeblood of the nation. 20 Their primary purpose is to generate funds
for the State to finance the needs of the citizenry and to advance the common
weal.
WHEREFORE, the petition is DENIED. No costs. The auction sale of the petitioner's
properties to answer for real estate taxes accumulated between June 11, 1984
through March 10, 1987 is hereby declared valid.
SO ORDERED.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC

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.
Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:
Just like lightning which does strike the same place twice in some instances, this
matter of indirect tax exemption of the private respondent National Power
Corporation (NPC) is brought to this Court a second time. Unfazed by the Decision
We promulgated on May 31, 1991 1 petitioner Ernesto Maceda asks this Court to
reconsider said Decision. Lest We be criticized for denying due process to the
petitioner. We have decided to take a second look at the issues. In the process, a
hearing was held on July 9, 1992 where all parties presented their respective
arguments. Etched in this Court's mind are the paradoxical claims by both

petitioner and private respondents that their respective positions are for the
benefit of the Filipino people.
I
A Chronological review of the relevant NPC laws, specially with respect to its tax
exemption provisions, at the risk of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the
National Power Corporation, a public corporation, mainly to develop hydraulic
power from all water sources in the Philippines. 2 The sum of P250,000.00 was
appropriated out of the funds in the Philippine Treasury for the purpose of
organizing the NPC and conducting its preliminary work. 3 The main source of
funds for the NPC was the flotation of bonds in the capital markets 4 and these
bonds
. . . issued under the authority of this Act shall be exempt from the
payment of all taxes by the Commonwealth of the Philippines, or by
any authority, branch, division or political subdivision thereof and
subject to the provisions of the Act of Congress, approved March
24, 1934, otherwise known as the Tydings McDuffle Law, which
facts shall be stated upon the face of said bonds. . . . . 5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds
needed for the initial operations of the NPC and reiterating the provision of the
flotation of bonds as soon as the first construction of any hydraulic power project
was to be decided by the NPC Board. 6 The provision on tax exemption in relation
to the issuance of the NPC bonds was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was enacted removing the provision on the
payment of the bond's principal and interest in "gold coins" but adding that
payment could be made in United States dollars. 7 The provision on tax exemption
in relation to the issuance of the NPC bonds was neither amended nor deleted.

On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of
the Philippines to guarantee, absolutely and unconditionally, as primary obligor,
the payment of any and all NPC loans. 8 He was also authorized to contract on
behalf of the NPC with the International Bank for Reconstruction and Development
(IBRD) for NPC loans for the accomplishment of NPC's corporate objectives 9 and
for the reconstruction and development of the economy of the country. 10 It was
expressly stated that:
Any such loan or loans shall be exempt from taxes, duties, fees,
imposts, charges, contributions and restrictions of the Republic of
the Philippines, its provinces, cities and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for
the first time, to incur other types of indebtedness, aside from indebtedness
incurred by flotation of bonds. 12 As to the pertinent tax exemption provision, the
law stated as follows:
To facilitate payment of its indebtedness, the National Power
Corporation shall be exempt from all taxes, duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside
from the IBRD, the President of the Philippines was authorized to negotiate,
contract and guarantee loans with the Export-Import Bank of of Washigton, D.C.,
U.S.A., or any other international financial institution. 14 The tax provision for
repayment of these loans, as stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax
exemption for real estate taxes. As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power
Corporation shall be exempt from all taxes, except real property
tax, and from all duties, fees, imposts, charges, and restrictions of

the Republic of
municipalities. 15

the

Philippines,

its

provinces,

cities,

and

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.

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).

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

As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as
follows:

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.

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

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.

As to the foreign loans the NPC was authorized to contract, Paragraph No. 5,
Section 8(b), states as follows:

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:

The loans, credits and indebtedness contracted under this

subsection and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery,
equipment, materials and supplies by the Corporation, paid from
the proceeds of any loan, credit or indebtedeness incurred under
this Act, shall also be exempt from all taxes, fees, imposts, other
charges and restrictions, including import restrictions, by the

Republic of the Philippines, or any of its agencies and political

subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A. No. 6395,
which declares the non-profit character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns
from its capital investment, as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act,
the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges
costs and service fees in any court or administrative proceedings in
which it may be a party, restrictions and duties to the Republic of
the Philippines, its provinces, cities, and municipalities and other
government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be
paid to the National Government, its provinces, cities,
municipalities
and
other
government
agencies
and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales
tax, and wharfage fees on import of foreign goods required for its
operations and projects; and
(d) From all taxes, duties, fees, imposts and all other charges its
provinces, cities, municipalities and other government agencies
and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of
electric power. 26

On November 7, 1972, Presidential Decree No. 40 was issued

declaring that the electrification of the entire country was one of
the primary concerns of the country. And in connection with this, it
was specifically stated that:
The setting up of transmission line grids and the construction of
associated generation facilities in Luzon, Mindanao and major
islands of the country, including the Visayas, shall be the
responsibility of the National Power Corporation (NPC) as the
authorized implementing agency of the State. 27
xxx xxx xxx
It is the ultimate objective of the State for the NPC to own and
operate as a single integrated system all generating facilities
supplying electric power to the entire area embraced by any grid
set up by the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to
enable it to fulfill its role under aforesaid P.D. No. 40. Its authorized capital stock
was raised to P2,000,000,000.00, 29 its total domestic indebtedness was pegged
at a maximum of P3,000,000,000.00 at any one time, 30 and the NPC was
authorized to borrow a total of US$1,000,000,000.00 31 in foreign loans.
The relevant tax exemption provision for these foreign loans states as follows:
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, 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 ThirtySeven, 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 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

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies
and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization and sale of
electric power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the
NPC's sale of electricity to its different customers. 34 No tax exemption provision
was amended, deleted or added.

(I)n the application of the tax exemption provisions of the Revised

Charter, the non-profit character of NPC has not been fully utilized
because of restrictive interpretation of the taxing agencies of the
government on said provisions; 37
xxx xxx xxx
(I)n order to effect the accelerated expansion program and attain
the declared objective of total electrification of the country, further
amendments of certain sections of Republic Act No. 6395, as
amended by Presidential Decrees Nos. 380, 395 and 758, have
become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic
indebtedness ceiling was increased to P12,000,000,000.00, 40 the total foreign
loan ceiling was raised to US$4,000,000,000.00 41 and Section 13 of R.A. No.
6395, was amended to read as follows:

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 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

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:

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).

(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.

II

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:

(a) That no such article of local manufacture are available in

sufficient quantity and comparable quality at reasonable prices;
(b) That the articles to be imported are directly and actually needed
and will be used exclusively by the grantee of the exemption for its
operations and projects or in the conduct of its functions; and

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 governmentowned 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 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:

On July 30, 1977, P.D. 1177 was issued as it was

. . . declared the policy of the State to formulate and implement a
National Budget that is an instrument of national development,
reflective of national objectives, strategies and plans. The budget
shall be supportive of and consistent with the socio-economic
development plan and shall be oriented towards the achievement
of explicit objectives and expected results, to ensure that funds are
utilized and operations are conducted effectively, economically and
efficiently. The national budget shall be formulated within a context
of a regionalized government structure and of the totality of
revenues and other receipts, expenditures and borrowings of all
levels of government-owned or controlled corporations. The budget
shall likewise be prepared within the context of the national longterm plan and of a long-term budget program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or controlled corporations,
shall pay income taxes, customs duties and other taxes and fees are imposed
under revenues laws: provided, that organizations otherwise exempted by law
from the payment of such taxes/duties may ask for a subsidy from the General
Fund in the exact amount of taxes/duties due: provided, further, that a procedure
shall be established by the Secretary of Finance and the Commissioner of the
Budget, whereby such subsidies shall automatically be considered as both
revenue and expenditure of the General Fund. 44
The law also declared that
[A]ll laws, decrees, executive orders, rules and regulations or parts
thereof which are inconsistent with the provisions of the Decree are
hereby repealed and/or modified accordingly. 45

WHEREAS, Presidential Decree No. 1177 has already expressly

repealed the grant of tax privileges to any government-owned or
controlled corporation and all other units of government; 46
and since there was a
. . . need for government-owned or controlled corporations and all
other units of government enjoying tax privileges to share in the
requirements of development, fiscal or otherwise, by paying the
duties, taxes and other charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on general law to the contrary
notwithstanding, all exemptions from the payment of duties, taxes,
fees, imposts and other charges heretofore granted in favor of
government-owned or controlled corporations including their
subsidiaries, are hereby withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of
Finance, upon the recommendation of the Fiscal Incentives Review
Board created under Presidential Decree No. 776, is hereby
empowered to restore, partially or totally, the exemptions
withdrawn by Section 1 above, any applicable tax and duty, taking
into account, among others, any or all of the following:
1) The effect on the relative price levels;
2) The relative contribution of the corporation to the revenue
generation effort;

3) The nature of the activity in which the corporation is engaged in;

or
4) In general the greater national interest to be served.
xxx xxx xxx
Sec. 5. The provisions of Presidential Decree No. 1177 as well as all
other laws, decrees, executive orders, administrative orders, rules,
regulations or parts thereof which are inconsistent with this Decree
are hereby repealed, amended or modified accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct
presidential restoration or grant of tax exemption to other government and
private entities without benefit of review by the Fiscal Incentives Review Board, to
wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June
11, 1984 and October 14, 1984, respectively, withdrew the tax and
duty exemption privileges, including the preferential tax treatment,
of government and private entities with certain exceptions, in order
that the requirements of national economic development, in terms
of fiscals and other resources, may be met more adequately;
xxx xxx xxx

Since it was decided that:

[A]ssistance to government and private entities may be better
provided where necessary by explicit subsidy and budgetary
support rather than tax and duty exemption privileges if only to
improve the fiscal monitoring aspects of government operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the contrary
notwithstanding, all tax and duty incentives granted to government
and private entities are hereby withdrawn, except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective internation agreement to which the
Government of the Republic of the Philippines is a signatory;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential
Decree No. 1789, as amended;
(ii) the Export Processing Zone Authority, pursuant to
Presidential Decree No. 66 as amended;

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);

d) those enjoyed by the copper mining industry pursuant to the

provisions of Letter of Instructions No. 1416;

xxx xxx xxx

e) those conferred under the four basic codes namely:

(iii) the Philippine Veterans Investment Development

Corporation
Industrial
Authority
pursuant
to
Presidential Decree No. 538, was amended.

(i) the Tariff and Customs Code, as amended;

precautions such that the grant of subsidies does not become the
basis for countervailing action.

(ii) the National Internal Revenue Code, as amended;

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:

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

a) the effect on relative price levels;

f) those approved by the President upon the
recommendation of the Fiscal Incentives Review
Board.

b) relative contribution of the beneficiary to the revenue generation

effort;
c) nature of the activity the beneficiary is engaged; and

Sec. 2. The Fiscal Incentives Review Board created under

Presidential Decree No. 776, as amended, is hereby authorized to:

d) in general, the greater national interest to be served.

a) restore tax and/or duty exemptions withdrawn hereunder in
whole or in part;

xxx xxx xxx

b) revise the scope and coverage of tax and/or duty exemption that
may be restored;
c) impose conditions for the restoration of tax and/or duty
exemption;
d) prescribe the date of period of effectivity of the restoration of tax
and/or duty exemption;
e) formulate and submit to the President for approval, a complete
system for the grant of subsidies to deserving beneficiaries, in lieu
of or in combination with the restoration of tax and duty
exemptions or preferential treatment in taxation, indicating the
source of funding therefor, eligible beneficiaries and the terms and
conditions for the grant thereof taking into consideration the
international commitment of the Philippines and the necessary

Sec. 5. All laws, orders, issuances, rules and regulations or parts

thereof inconsistent with this Executive Order are hereby repealed
or modified accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the
rules and regulations, to be issued by the Ministry of Finance. 49 Said rules and
regulations were promulgated and published in the Official Gazette
on February 23, 1987. These became effective on the 15th day after
promulgation 50 in the Official Gasetter, 51 which 15th day was March 10, 1987.
III
Now to some definitions. We refer to the very simplistic approach that all wouldbe lawyers, learn in their TAXATION I course, which fro convenient reference, is as
follows:

Classifications or kinds of Taxes:

According to Persons who pay or who bear the burden:
a. Direct Tax the where the person supposed to pay the tax really
pays it. WITHOUT transferring the burden to someone else.
Examples: Individual income tax, corporate income tax, transfer
taxes (estate tax, donor's tax), residence tax, immigration tax
b. Indirect Tax that where the tax is imposed upon
goods BEFORE reaching the consumer who ultimately pays for it,
not as a tax, but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax,
percentage taxes, (VAT) and the tariff and customs indirect taxes
(import duties, special import tax and other dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for reconsideration
can be reduced to the following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay for these taxes?
V

Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC
as the phrase "all forms of taxes etc.," in its section 10, amending Section 13, R.A.
No. 6395, as amended by P.D. No. 380, does not expressly include "indirect
taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the lawmaker's
intention that the NPC was to be completely tax exempt from all forms of taxes
direct and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float to
finance its operations upon its creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign financing, any
loans obtained were to be completely tax exempt.
After the NPC was authorized to borrow from other sources of funds aside
issuance of bonds it was again specifically exempted from all types of taxes "to
facilitate payment of its indebtedness." Even when the ceilings for domestic and
foreign borrowings were periodically increased, the tax exemption privileges of
the NPC were maintained.
NPC's tax exemption from real estate taxes was, however, specifically withdrawn
by Rep. Act No. 987, as above stated. The exemption was, however, restored by
R.A. No. 6395.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax
exemptions allowed NPC. Its section 13(d) is the starting point of this bone of
contention among the parties. For easy reference, it is reproduced as follows:
[T]he Corporation is hereby declared exempt:
xxx xxx xxx

(d) From all taxes, duties, fees, imposts and all other charges
imposed by the Republic of the Philippines, its provinces, cities,
municipalities
and
other
government
agencies
and
instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of
electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now
reads as follows:

[I]t must be borne in mind that Presidential Decree Nos. 380

and 938 were issued by one man, acting as such the Executive and
Legislative. 53
xxx xxx xxx
[S]ince both presidential decrees were made by the same person, it
would have been very easy for him to retain the same or similar
language used in P.D. No. 380 P.D. No. 938 if his intention were to
preserve the indirect tax exemption of NPC. 54

xxx xxx xxx

(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies
and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization and sale of
electric power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very
simple paragraph as follows:
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, 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:

Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no
matter what his fault were. It should be noted that section 13, R.A. No. 6395,
provided for tax exemptions for the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and
projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF
TAXES, ETC.,", included 13(a) under the "as well as" clause and added PNOC
subsidiaries as qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the
order of enactment or issuance as narrated above in part I hereof. President
Marcos must have considered all the NPC statutes from C.A. No. 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.
The above conclusion that then President Marcos lumped up Sections 13 (b), 13
(c) and (d) into the phrase "All FORMS OF" is supported by the fact that he did not
do the same for the tax exemption provision for the foreign loans to be incurred.
The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as
follows:
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 indebtedness incurred under this
Act, shall also be exempt from all taxes, fees, imposts, other
charges and restrictions, including import restrictions, by the
Republic of the Philippines, or any of its agencies and political
subdivisions. 57

The same was amended by P.D. No. 380 as follows:

The loans, credits and indebtedness contracted this subsection and
the payment of the principal, interest and other charges thereon, as
well as the importation of machinery, equipment, materials,
supplies and services, by the Corporation, paid from the proceeds
of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all direct and indirect taxes, fees, imposts,
other
charges
and
restrictions,
including
import
restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies
and political subdivisions. 58(Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax exemption provision in
Section 8 (b), R.A. No. 6395, as amended by P.D. No. 380, still stands. Since the
subject matter of this particular Section 8 (b) had to do only with loans and
machinery imported, paid for from the proceeds of these foreign loans, THERE
WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption
stood
as
is

with
the
express
mention
of
"direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption
privilege extended to "taxes, fees, imposts, other charges . . . to be imposed" in
the future surely, an indication that the lawmakers wanted the NPC to be
exempt from ALL FORMS of taxes direct and indirect.
It is crystal clear, therefore, that NPC had been granted tax exemption privileges
for both direct and indirect taxes under P.D. No. 938.
VI
Five (5) years on into the now discredited New Society, the Government decided
to rationalize government receipts and expenditures by formulating and
implementing a National Budget. 60 The NPC, being a government owned and
controlled corporation had to be shed off its tax exemption status privileges under

P.D. No. 1177. It was, however, allowed to ask for a subsidy from the General Fund
in the exact amount of taxes/duties due.
Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free
importation privileges. It allowed, however, NPC to appeal said repeal with the
Office of the President and to avail of tax-free importation privileges under its
Section 1, subject to the prior approval of an Inter-Agency Committed created by
virtue of 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 governmentowned or controlled corporations including their
subsidiaries are hereby withdrawn."
Sec. 2. The President of the Philippines and/or the
Minister of Finance, upon the recommendation of the

Fiscal Incentives Review Board created under P.D. No.

776, is hereby empowered to restore partially or
totally, the exemptions withdrawn by section 1
above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change NPC's
status. Since it had already lost all its tax exemptions privilege with
the issuance of P.D. No. 1177 seven (7) years earlier or on July 30,
1977, there were no tax exemptions to be withdrawn by section 1
which could later be restored by the Minister of Finance upon the
recommendation of the FIRB under Section 2 of P.D. No. 1931.
Consequently, FIRB resolutions No. 10-85, and 1-86, were all
illegally and validly issued since FIRB acted beyond their statutory
authority by creating and not merely restoring the tax exempt
status of NPC. The same is true for FIRB Res. No. 17-87 which
restored NPC's tax exemption under E.O. No. 93 which likewise
abolished all duties and tax exemptions but allowed the President
upon recommendation of the FIRB to restore those abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or
substantially the same terms the provisions of the act or acts so
revised and consolidated, the revision and consolidation shall be
taken to be a continuation of the former act or acts, although the
former act or acts may be expressly repealed by the revised and
consolidated
act;
and
all
rights
and liabilities under the former act or acts are preserved and may
be enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the
first half of Section 23, P.D. No. 1177, on withdrawal of tax exemption privileges of

all GOCC's said Section 1, P.D. No. 1931 was deemed to be a continuation of the
first half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D.
No. 177, on the subsidy scheme for former tax exempt GOCCs had been expressly
repealed by Section 2 with its institution of the FIRB recommendation of
partial/total restoration of tax exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the
same NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC
could no longer obtain a subsidy for the taxes it had to pay. It could, however,
under P.D. No. 1931, ask for a total restoration of its tax exemption privileges,
which, it did, and the same were granted under FIRB Resolutions Nos. 1085 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 inZambales 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.
88

By virtue of P.D. No. 83, 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, 90wherein he stated and We quote:
xxx xxx xxx
Republic Act No. 358 exempts the National Power Corporation from
"all taxes, duties, fees, imposts, charges, and restrictions of the
Republic of the Philippines and its provinces, cities, and
municipalities." This exemption is broad enough to include all taxes,
whether direct or indirect, which the National Power Corporation
may be required to pay, such as the specific tax on petroleum
products. That it is indirect or is of no amount [should be of no
moment], for it is the corporation that ultimately pays it. The view
which refuses to accord the exemption because the tax is first paid
by the seller disregards realities and gives more importance to
form than to substance. Equity and law always exalt substance
over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not so
grudgingly as knowledge that many impositions taxpayers have to
pay are in the nature of indirect taxes. To limit the exemption
granted the National Power Corporation to direct taxes
notwithstanding the general and broad language of the statue will
be to thwrat the legislative intention in giving exemption from all
forms of taxes and impositions without distinguishing between
those that are direct and those that are not. (Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil companies
which supply bunker fuel oil to NPC have to pay the taxes imposed upon said
bunker fuel oil sold to NPC. By the very nature of indirect taxation, the economic
burden of such taxation is expected to be passed on through the channels of
commerce to the user or consumer of the goods sold. Because, however, the NPC

has been exempted from both direct and indirect taxation, the NPC must beheld
exempted from absorbing the economic burden of indirect taxation. This means,
on the one hand, that the oil companies which wish to sell to NPC absorb all or
part of the economic burden of the taxes previously paid to BIR, which could they
shift to NPC if NPC did not enjoy exemption from indirect taxes. This means also,
on the other hand, that the NPC may refuse to pay the part of the "normal"
purchase price of bunker fuel oil which represents all or part of the taxes
previously paid by the oil companies to BIR. If NPC nonetheless purchases such oil
from the oil companies because to do so may be more convenient and
ultimately less costly for NPC than NPC itself importing and hauling and storing
the oil from overseas NPC is entitled to be reimbursed by the BIR for that part
of the buying price of NPC which verifiably represents the tax already paid by the
oil company-vendor to the BIR.
It should be noted at this point in time that the whole issue of who WILL pay these
indirect taxes HAS BEEN RENDERED moot and academic by E.O. No. 195 issued
on June 16, 1987 by virtue of which the ad valorem tax rate on bunker fuel oil was
reduced to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED BY REVISING THE EXCISE
TAX RATES OF CERTAIN PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal
Revenue Code, as amended, is hereby amended to read as follows:
Par. (b) For products subject to ad valorem tax only:
PRODUCT AD VALOREM TAX RATE

1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially known as bunker oil and on similar fuel oils
having more or less the same generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our
Lord, nineteen hundred and eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry
about who is going to bear the economic burden of the ad valorem taxes. What
this Court will now dispose of are petitioner's complaints that some indirect tax
money has been illegally refunded by the Bureau of Internal Revenue to the NPC
and that more claims for refunds by the NPC are being processed for payment by
the BIR.
A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in
favor of the NPC last July 7, 1986 for P58.020.110.79 which were for "erroneously
paid specific and ad valorem taxes during the period from October 31, 1984 to
April 27, 1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as the
PNC did not have indirect tax exemptions with the enactment of P.D. No. 938. As
We have already ruled otherwise, the only questions left are whether NPC Is
entitled to a tax refund for the tax component of the price of the bunker fuel oil
purchased from Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue
properly refunded the amount to NPC.

After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs NPC included, it was only on May 8, 1985 when
the BIR issues its letter authority to the NPC authorizing it to withdraw tax-free
bunker fuel oil from the oil companies pursuant to FIRB Resolution No. 1085. 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
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 97executed by
and between NPC and Caltex (Phils.) Inc., as follows:
That the ASSIGNOR(NPC) has a pending tax credit claim with the
Bureau of Internal Revenue amounting to P442,887,716.16.
P58.020,110.79 of which is due to Assignor's oil purchases from the
Assignee (Caltex [Phils.] Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We
cannot restrain the BIR from refunding said amount because of Our ruling that
NPC has both direct and indirect tax exemption privileges. Neither can We order
the BIR to refund said amount to NPC as there is no pending petition for review
on certiorari of a suit for its collection before Us. At any rate, at this point in time,
NPC can no longer file any suit to collect said amount EVEN IF lt has previously
filed a claim with the BIR because it is time-barred under Section 230 of the
National Internal Revenue Code of 1977. as amended, which states:
In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or
penalty REGARDLESS of any supervening cause that may arise
afterpayment. . . . (Emphasis supplied)

The date of the Deed of Assignment is June 6. 1986. Even if We were to assume
that payment by NPC for the amount of P410,580,000.00 had been made on said
date. it is clear that more than two (2) years had already elapsed from said date.
At the same time, We should note that there is no legal obstacle to the BIR
granting, even without a suit by NPC, the tax credit or refund claimed by NPC,
assuming that NPC's claim had been made seasonably, and assuming the
amounts covered had actually been paid previously by the oil companies to the
BIR.
WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of
petitioner is hereby DENIED for lack of merit and the decision of this Court
promulgated on May 31, 1991 is hereby AFFIRMED.
SO ORDERED.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-18125

May 31, 1963

BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner,

vs.

COURT OF TAX APPEALS and THE NATIONAL

SEWERAGE AUTHORITY (NAWASA),respondents.

WATERWORKS

AND

Gabriel
V.
Valero
and
Rodolfo
F.
de
Gorostiza
for
petitioner.
Manuel B. Roo for respondent National Waterworks and Sewerage Authority.
CONCEPCION, J.:
This is a petition for review of a decision of the Court of Tax Appeals reversing a
resolution or decision of the Board of Assessment Appeals for the Province of
Laguna.
The question involved in this case is whether the water pipes, reservoir, intake
and buildings used by herein respondent, National Waterworks and Sewerage
Authority hereinafter referred to as NAWASA in the operation of its
waterworks system in the municipalities of Cabuyao, Sta. Rosa and Bian,
province of Laguna, are subject to real estate tax.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
admitted and approved by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not covered by this stipulation of
facts. 1wph1.t
The parties have submitted in the Court of Tax Appeals a stipulation of facts. The
pertinent parts thereof are to the effect:
1. That the petitioner National Waterworks and Sewerage Authority
(NWSA) is a public corporation created by virtue of Republic Act No. 1383,
and that it is owned by the Government of the Philippines as well as all
property comprising waterworks and sewerage systems placed under it:.
2. That, pursuant to the provisions of Republic Act No. 1383, petitioner
NWSA took over all the property of the former Metropolitan Water District
and all the existing local government-owned waterworks and sewerage

systems all over the Philippines, including the Cabuyao-Sta. Rosa-Bian

Waterworks System owned by the Province of Laguna (Section 8, Republic
Act No. 1283);
3. That the functions and activities of petitioner NWSA, as enumerated in
Republic Act No. 1383, more particularly Section 2 thereof, are the same
and identical with the functions of the defunct Metropolitan Water District,
particularly Section 2, Act 2832, is amended;
4. That petitioner National Waterworks and Sewerage Authority (NWSA)
has no capital stock divided into shares of stocks, no stockholders, and is
not authorized by its Charter to distribute dividends; and, on the other
hand, whatever surplus funds it has realized, may and will after meeting
its yearly obligations, have been, are and may be, used for the
construction, expansion and improvement of its waterworks and sewer
services;
5. That at the time that the Cabuyao-Sta. Rosa-Bian Waterworks System
was taken over by petitioner NWSA in 1956, the former was self-supporting
and revenue-producing, but that all its surplus income are not declared as
profits as this surplus are or may be invested for the expansion thereof;
6. That in the year 1956 the Provincial Assessor of Laguna assessed, for
purposes of real estate taxes, the property comprising the Cabuyao-Sta.
Rosa-Bian Waterworks System and described in Tax Declaration No. 5987
(Exh. "A-l") which, as stated in Paragraph 2 hereof, herein petitioner NWSA
had taken over;
7. That against the above-mentioned assessment made by the Provincial
Assessor of Laguna, petitioner NWSA protested, claiming that the property
described under Tax Declaration No. 5987 (Exh. "A-l") are exempted from
the payment of real estate taxes in view of the nature and kind of said
property and functions and activities of petitioner, as provided in Republic
Act No. 1383;.

8. That the said protest of petitioner NWSA was overruled on appeal before
the herein respondent Board of Assessment Appeals, hence the present
petition for review filed by petitioner;
xxx

xxx

xxx"

After appropriate proceedings, the Court of Tax Appeals rendered the

aforementioned decision reversing the action taken by petitioner Board, which,
accordingly, has brought the case to us for review, under the provisions of
Republic Act No. 1125, contending that the properties in question are subject to
real estate tax because: (1) although said properties belong to the Republic of the
Philippines, the same holds it, not in its governmental, political or sovereign
capacity, but in a private, proprietary or patrimonial character, which, allegedly, is
not covered by the exemption contained in section 3(a) of Republic Act No. 470;
and 2) this exemption, even if applicable to patrimonial property, must yield to
the provisions of section 1 of Republic Act No. 104, under which all corporations,
agencies or instrumentalities owned or controlled by the Government are subject
to taxation, according to petitioner appellant.
Sections 2 and 3(a) of Commonwealth Act No. 470 provide:
SEC. 2. Incidence of real property tax. Except in chartered cities, there
shall be levied, assessed, and collected, an annual ad valorem tax on real
property, including land, buildings, machinery, and other improvements
not hereinafter specifically exempted.
SEC. 3. Property exempt from tax. The exemptions shall be as follows:
(a) Property owned by . . . the Republic of the Philippines, any province,
city, municipality or municipal district. . . .
It is conceded, in the stipulation of facts, that the property involved in this case "is
owned by the Government of the Philippines". Hence, it belongs to the Republic of
the Philippines and falls squarely within the letter of the above provision. This

notwithstanding, petitioner Board maintains that respondent NAWASA is not

entitled to the benefits of the exemption established in said section 3(a),
inasmuch as, in the case of the City of Cebu vs. NAWASA, G. R. No. L-12892,
decided on April 30, 1960, we ruled that the assets of the water system of the
City of Cebu, which the NAWASA had sought to take over, pursuant to the
provisions of Republic Act No. 1383 as it did in the case at bar, with respect to
the Cabuyao-Sta. Rosa-Bian Waterworks System are patrimonial property of
said city, which held it in a proprietary character, not in its governmental capacity.
We did not declare, however, in the Cebu case that said assets were subject to
taxation. In that case we merely reiterated the doctrine, laid down in the case of
City of Baguio vs. NAWASA, G. R. No. L-12032, decided on August 31, 1959, that
municipal corporations hold in their proprietary character, the assets of their
respective waterworks, which, accordingly, cannot be taken or appropriated by
the National Government and placed under the NAWASA without payment of just
compensation. Neither the Cebu case nor that of Baguio sustains the theory that
said assets are taxable.
Upon the other hand, in exempting from taxation "property owned by the
Republic of the Philippines, any province, city, municipality or municipal
district . . .," said section 3(a) of Republic Act No. 470 makes no distinction
between property held in a sovereign, governmental or political capacity and
those possessed in a private, proprietary or patrimonial character. And where the
law does not distinguish neither may we, unless there are facts and
circumstances clearly showing that the lawmaker intended the contrary, but no
such facts and circumstances have been brought to our attention. Indeed, the
noun "property" and the verb "owned" used in said section 3(a) strongly suggest
that the object of exemption is considered more from the view point of dominion,
than from that of domain. Moreover, taxes are financial burdens imposed for the
purpose of raising revenues with which to defray the cost of the operation of the
Government, and a tax on property of the Government, whether national or local,
would merely have the effect of taking money from one pocket to put it in another
pocket (Cooley on Taxation, Sec. 621, 4th Edition.) Hence, it would not serve, in
the final analysis, the main purpose of taxation. What is more, it would tend to

defeat it, on account of the paper work, time and consequently, expenses it would
entail. (The Law on Local Taxation, by Justiniano Y. Castillo, p. 13.)

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol
and Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes
for appellees.

Section 1 of the Republic Act No. 101, upon which petitioner relies, reads:
. . . All corporations, agencies, or instrumentalities owned or controlled by
the government shall pay such duties, taxes, fees and other charges upon
their transaction, business, industries, sale, or income as are imposed by
law upon individuals, associations or corporations engaged in any taxable
business, industry, or activity except on goods or commodities imported or
purchased and sold or distributed for relief purposes as may be
determined by the President of the Philippines.
This provision is inapplicable to the case at bar for it refers only to duties, taxes,
fees and other charges upon "transaction, business, industry, sale or income" and
does not include taxes on property like real estate tax.WHEREFORE, the decision
appealed from is hereby affirmed, without special pronouncement as to costs. It is
so ordered.
Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiffappellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET
AL., defendant appellees.
Sabido, Sabido & Associates for appellant.

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

Treasurer a monthly report, of the total number of bottles produced and corked
during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October
28, 1962, levies and collects "on soft drinks produced or manufactured within the
territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each
gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of
computing the taxes due, the person, fun company, partnership, corporation or
plant producing soft drinks shall submit to the Municipal Treasurer a monthly
report of the total number of gallons produced or manufactured during the
month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal
production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment
"dismissing the complaint and upholding the constitutionality of [Section 2,
Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and
constitutional; ordering the plaintiff to pay the taxes due under the oft the said
Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the
Court of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of
the Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of
power, confiscatory and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and
impose percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty,

belonging as a matter of right to every independent government, without being
expressly conferred by the people. 6 It is a power that is purely legislative and
which the central legislative body cannot delegate either to the executive or
judicial department of the government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of municipal
corporations, to which, said theory does not apply. Legislative powers may be
delegated to local governments in respect of matters of local concern. 7 This is
sanctioned by immemorial practice. 8 By necessary implication, the legislative
power to create political corporations for purposes of local self-government carries
with it the power to confer on such 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 plaintiffappellant's pretense, would not suffice to invalidate the said law as confiscatory
and oppressive. In delegating the authority, the State is not limited 6 the exact
measure of that which is exercised by itself. When it is said that the taxing power
may be delegated to municipalities and the like, it is meant that there may be
delegated such measure of power to impose and collect taxes as the legislature
may deem expedient. Thus, municipalities may be permitted to tax subjects
which for reasons of public policy the State has not deemed wise to tax for more
general purposes. 10 This is not to say though that the constitutional injunction
against deprivation of property without due process of law may be passed over
under the guise of the taxing power, except when the taking of the property is in
the lawful exercise of the taxing power, as when (1) the tax is for a public
purpose; (2) the rule on uniformity of taxation is observed; (3) either the person
or property taxed is within the jurisdiction of the government levying the tax; and
(4) in the assessment and collection of certain kinds of taxes notice and
opportunity for hearing are provided. 11 Due process is usually violated where the

tax imposed is for a private as distinguished from a public purpose; a tax is

imposed on property outside the State, i.e., extraterritorial taxation; and arbitrary
or oppressive methods are used in assessing and collecting taxes. But, a tax does
not violate the due process clause, as applied to a particular taxpayer, although
the purpose of the tax will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property subject to the tax or the
amount of tax to be raised should be determined by judicial inquiry, and a notice
and hearing as to the amount of the tax and the manner in which it shall be
apportioned are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the
delegating authority specifies the limitations and enumerates the taxes over
which local taxation may not be exercised. 13 The reason is that the State has
exclusively reserved the same for its own prerogative. Moreover, double taxation,
in general, is not forbidden by our fundamental law, since We have not adopted
as part thereof the injunction against double taxation found in the Constitution of
the United States and some states of the Union. 14 Double taxation becomes
obnoxious only where the taxpayer is taxed twice for the benefit of the same
governmental entity 15 or by the same jurisdiction for the same purpose, 16 but
not in a case where one tax is imposed by the State and the other by the city or
municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double
taxation, because these two ordinances cover the same subject matter and
impose practically the same tax rate. The thesis proceeds from its assumption
that both ordinances are valid and legally enforceable. This is not so. As earlier
quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or
collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of
a centavo for .every bottle corked, irrespective of the volume contents of the
bottle used. When it was discovered that the producer or manufacturer could
increase the volume contents of the bottle and still pay the same tax rate, the
Municipality of Tanauan enacted Ordinance No. 27, approved on October 28,
1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity. The difference between the two ordinances clearly lies in

the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a
centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on
each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the
Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was
intended as a plain substitute for the prior Ordinance No. 23, and operates as a
repeal of the latter, even without words to that effect. 18 Plaintiff-appellant in its
brief admitted that defendants-appellees are only seeking to enforce Ordinance
No. 27, series of 1962. Even the stipulation of facts confirms the fact that the
Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the
plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The
aforementioned admission shows that only Ordinance No. 27, series of 1962 is
being enforced by defendants-appellees. Even the Provincial Fiscal, counsel for
defendants-appellees admits in his brief "that Section 7 of Ordinance No. 27,
series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are
inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27
imposes a percentage or a specific tax. Undoubtedly, the taxing authority
conferred on local governments under Section 2, Republic Act No. 2264, is broad
enough as to extend to almost "everything, accepting those which are mentioned
therein." As long as the text levied under the authority of a city or municipal
ordinance is not within the exceptions and limitations in the law, the same comes
within the ambit of the general rule, pursuant to the rules of exclucion
attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation
applies, particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based
thereon nor impose taxes on articles subject to specific tax except gasoline,
under the provisions of the National Internal Revenue Code." For purposes of this
particular limitation, a municipal ordinance which prescribes a set ratio between
the amount of the tax and the volume of sale of the taxpayer imposes a sales tax
and is null and void for being outside the power of the municipality to
enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity" on all soft drinks produced or
manufactured under Ordinance No. 27 does not partake of the nature of a
percentage tax on sales, or other taxes in any form based thereon. The tax is

levied on the produce (whether sold or not) and not on the sales. The volume
capacity of the taxpayer's production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is not set ratio
between the volume of sales and the amount of the tax. 21
Nor can the tax levied be treated as a specific tax. Specific taxes are those
imposed on specified articles, such as distilled spirits, wines, fermented liquors,
products of tobacco other than cigars and cigarettes, matches firecrackers,
manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil,
cinematographic films, playing cards, saccharine, opium and other habit-forming
drugs. 22 Soft drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all softdrinks, produced or manufactured, or an equivalent of 1-
centavos per case, 23 cannot be considered unjust and unfair. 24 an increase in
the tax alone would not support the claim that the tax is oppressive, unjust and
confiscatory. Municipal corporations are allowed much discretion in determining
the reates of imposable taxes. 25 This is in line with the constutional policy of
according the widest possible autonomy to local governments in matters of local
taxation, an aspect that is given expression in the Local Tax Code (PD No. 231,
July 1, 1973). 26 Unless the amount is so excessive as to be prohibitive, courts
will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not
deter compliance with an ordinance such as Ordinance No. 27 if the purpose of
the law to further strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but
not more than ten crowners or P2,000.00 with ten but not more than twenty
crowners imposed on manufacturers, producers, importers and dealers of soft
drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended
by Ordinance No. 41, series of 1968, of defendant Municipality, 29 appears not to
affect the resolution of the validity of Ordinance No. 27. Municipalities are
empowered to impose, not only municipal license taxes upon persons engaged in
any business or occupation but also to levy for public purposes, just and uniform
taxes. The ordinance in question (Ordinance No. 27) comes within the second
power of a municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264,

otherwise known as the Local Autonomy Act, as amended, is hereby upheld and
Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962,
re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid
and legal effect. Costs against petitioner-appellant.
SO ORDERED.

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:

DECISION
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. CEB16900, 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 it raises issues dwelling on
the scope of the taxing power of local government units and the limits of tax
exemption privileges of government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in the instant
petition as follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by
virtue of Republic Act No. 6958, mandated to principally undertake the
economical, efficient and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the Lahug Airport in
Cebu City, x x x and such other airports as may be established in the Province of
Cebu x x x (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

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 x x x.
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 991A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total
amount ofP2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified,
claiming in its favor the aforecited Section 14 of RA 6958 which exempts 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:
Section 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 barangays shall not extend to the levy of the
following:
a) x x x

xxx
o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units. (underscoring supplied)
Respondent City refused to cancel and set aside petitioners 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 Government Code that took effect on January 1, 1992:
Section 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in
this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under RA
No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code. (underscoring supplied)
xxx
Section 234. Exemptions from Real Property Taxes. x x x
(a) x x x

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 instrumentalityof 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 MCIAA 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 governmentowned and controlled corporation per Sections after the effectivity of said Code
on January 1, 1992, to wit: [proceeds to quote Sections 193 and 234]

xxx
(e) x x x
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

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, decrees [sic], executive orders, proclamations and administrative
regulations, or part of 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 Courts 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. Toward 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. x x x[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 (hereinafterLGC) because Section 133 thereof
specifically states that the `taxing powers of local government units shall not
extend to the levy of taxes or 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 charter, PD 1869. All of its shares of stock are owned by 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.

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 governments.
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 to seriously burden it in the accomplishment of them.
(Antieau, Modern Constitutional Law, Vol. 2, p. 140)
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 for 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. (underscoring 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 government corporation performing governmental functions 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 powers of
the local government units.

In its comment, respondent City of Cebu alleges that as a local 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
petitioners 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 governmentowned 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 Court to apply by
analogy its ruling that the Manila International Airport Authority is a governmentowned corporation,[12] and to reject the application of Basco because it was
promulgated . . . before the enactment and the signing 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 rights of the people and takes
from them a portion of their 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 taxpayer and liberally in favor of the taxing

authority.[18] A claim of exemption from tax payments 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]

SEC. 133. Common Limitations on the Taxing Power of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial
institutions;
(b) Documentary stamp tax;

The power to tax is primarily vested in the Congress; however, in our

jurisdiction, it may be exercised by local legislative bodies, no longer merely by
virtue of a valid delegation as before, but pursuant to direct authority conferred
by Section 5, Article X of the Constitution. [22] Under the latter, the exercise of the
power may be subject to such guidelines and limitations as the Congress may
provide which, however, must be consistent with the basic policy of local
autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the
petitioner is exempt from the payment of realty taxes imposed by the National
Government
or
any
of
its
political
subdivisions,
agencies,
and
instrumentalities. Nevertheless, since taxation is the rule and exemption
therefrom the exception, the exemption may thus be withdrawn at the pleasure of
the taxing authority. The only exception to this rule is where the exemption was
granted to private parties based on material consideration of a mutual nature,
which then becomes contractual and is thus covered by the non-impairment
clause of the Constitution.[23]

(c) Taxes on estates, inheritance, gifts, legacies and

acquisitions mortis causa, except as otherwise provided herein;

other

(d) Customs duties, registration fees of vessel and wharfage on wharves,

tonnage dues, and all other kinds of customs fees, charges and dues
except wharfage on wharves constructed and maintained by the local
government unit concerned;
(e) Taxes, fees and charges and other impositions upon goods carried
into or out of, or passing through, the territorial jurisdictions of local
government units in the guise of charges for wharfage, tolls for
bridges or otherwise, or other taxes, fees or charges in any form
whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold
by marginal farmers or fishermen;

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 exemptions from taxation.

(g) Taxes on business enterprises certified to by the Board of Investments

as pioneer or non-pioneer 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:

(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 contractors and persons
engaged in the transportation of passengers or freight by hire and
common carriers by air, land or water, except as provided in this Code;
(k) Taxes on premiums paid by way of 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 thereof,
except, tricycles;
(m) Taxes, fees, or other charges on Philippine products actually
exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business
Enterprises 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 Cooperatives Code of the Philippines
respectively; 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 to 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 light of the above enumeration. The term fees
means charges fixed by law or ordinance for the regulation or inspection of
business or activity,[24] while charges are pecuniary liabilities such as rents or fees
against persons or property.[25]

Among the taxes enumerated in the LGC is real property tax, which is
governed by Section 232. It reads as follows:
SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality
within the Metropolitan Manila Area may levy an annual ad valorem tax on real
property such as land, building, machinery, and other improvements not hereafter
specifically exempted.
Section 234 of the 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 consideration or otherwise, to a taxable person;
(b) Charitable
institutions,
churches,
parsonages
or
convents
appurtenant thereto, mosques, nonprofit or religious cemeteries and
all lands, buildings 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

environmental protection.

used

for

pollution

control

and

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.

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 all government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.

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]

These exemptions are based on the ownership, character, and use of the
property. Thus:

Section 193 of the LGC is the general provision on withdrawal of tax

exemption privileges. It provides:

(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.

SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in

this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.

(b) Character Exemptions. Exempted from real property taxes on the

basis of their character are: (i) charitable institutions, (ii) houses and
temples of prayer like churches, parsonages or convents appurtenant
thereto, mosques, and (iii) non-profit or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on the basis of
the actual, direct and exclusive use to which they are devoted are: (i)
all lands, buildings and improvements which are actually directly and
exclusively used for religious, charitable or educational purposes; (ii)
all machineries and equipment actually, directly and exclusively used
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.

On the other hand, the LGC authorizes local government units to grant tax
exemption privileges. Thus, Section 192 thereof provides:
SEC. 192. Authority to Grant Tax Exemption Privileges.-- Local government units
may, through ordinances duly approved, grant tax exemptions, incentives or
reliefs under such terms and conditions as they may deem necessary.
The foregoing sections of the LGC speak 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 or provisos in these sections, as shown by the following clauses:
(1) unless otherwise provided herein in the opening paragraph of Section
133;
(2) Unless otherwise provided in this Code in Section 193;

(3) not hereafter specifically exempted in Section 232; and

(4) Except as provided herein in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in Section 133 seems to be inaccurately worded. Instead
of the clause unless otherwise provided herein, with the herein to mean, of
course, the section, it should have used the clause unless otherwise provided in
this Code. The former results in absurdity since the section itself enumerates
what are beyond the taxing powers of local government units and, where
exceptions were intended, the exceptions are explicitly indicated in the next. For
instance, in item (a) which excepts income taxes when levied on banks and other
financial institutions; item (d) which excepts wharfage on wharves constructed
and maintained by the local government unit concerned; and item (1) which
excepts taxes, fees and charges for the registration and issuance of licenses 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 provided
in this Code in item (j). These clauses would be obviously unnecessary or mere
surplusages 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 Sections 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 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 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 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 insofar as 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 to real property 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 a taxable person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from payment of 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 Sections 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.
It 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 none exists. In light of the petitioners
theory that it is an instrumentality of the Government, it could only be within the
first item of the first paragraph of the section by expanding the scope of the term
Republic of the Philippines to embrace its instrumentalities and agencies. For
expediency, we quote:
(a) 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.
This view does not persuade us. In the first place, the petitioners 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 subdivisions in Section 234(a).
The terms Republic of the Philippines and National Government are not
interchangeable. The former is broader and synonymous with Government of the
Republic of the Philippines which the Administrative Code of 1987 defines as the
corporate governmental entity through which the functions of government are
exercised throughout the Philippines, including, save as the contrary appears from

the context, the various arms through which political authority is made affective
in the Philippines, whether pertaining to the autonomous regions, the provincial,
city, municipal or barangay subdivisions or other forms of local government.
[27]
These autonomous regions, provincial, city, municipal or barangay subdivisions
are the political subdivisions.[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. 464, otherwise known as The Real Property
Tax Code, which reads:
SEC. 40. Exemptions 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 corporation so exempt by
its 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 reproduced in Section 234(a), the phrase and any governmentowned or controlled corporation so exempt by its charter was excluded. The
justification for this restricted exemption in Section 234(a) seems obvious: to limit
further tax exemption privileges, especially in light of the general provision on
withdrawal of tax exemption privileges in Section 193 and the special provision on
withdrawal of exemption from payment of real property taxes in the last
paragraph of Section 234. These policy considerations are consistent with the
State policy to ensure autonomy to local governments [33] and the objective of the
LGC that they enjoy genuine and meaningful local autonomy to enable them to
attain their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals. [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 these
entities to share in the requirements of 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 petitioners 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,
aerodrome control towers, crash, fire, and rescue facilities are hereby transferred
to the Authority: Provided, however, that the operations control of all equipment
necessary for the operation of radio aids to air navigation, airways
communication, the approach control office, and the area control center shall be
retained by the Air Transportation Office. No equipment, however, shall be
removed by the Air Transportation Office from Mactan without the concurrence of
the Authority. The Authority may assist in the maintenance of the Air
Transportation Office equipment.
The airports referred to are the Lahug Air Port in Cebu City and the Mactan
International Airport in the Province of Cebu,[36] which belonged to the Republic of
the Philippines, then under the Air Transportation Office (ATO). [37]
It may be reasonable to assume that the term lands refer to lands in Cebu
City then administered by the Lahug Air Port and includes the parcels of land the
respondent City of Cebu seeks to levy on for real property taxes. This section
involves a transfer of the lands, among other things, to the petitioner and not just
the transfer of the beneficial use thereof, with the ownership being retained by
the Republic of the Philippines.
This transfer is actually an absolute conveyance of the ownership thereof
because the petitioners 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 foregoing disquisitions, it had already become,
even if it be conceded to be an agency or instrumentality of the Government, a
taxable person for such purpose in view of the withdrawal in the last paragraph of
Section 234 of exemptions from the payment of real property taxes, which, as
earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance
on Basco vs. Philippine Amusement and Gaming 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.
WHEREFORE, the instant petition is DENIED. The challenged decision and
order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900
are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. 122605

April 30, 2001

SEA-LAND
vs.
COURT
OF
APPEALS
REVENUE, respondents.

SERVICE,
and

COMMISSIONER

INC., petitioner,
OF

INTERNAL

PARDO, J.:
The Case
Appeal via certiorari from the decision of the Court of Appeals affirming in
toto that of the Court of Tax Appeals which denied petitioners claim for tax credit

or refund of income tax paid on its gross Philippine billings for taxable year 1984,
in the amount of P870,093.12.1

On March 30, 1995, petitioner appealed the decision of the Court of Tax Appeals
to the Court of Appeals.3

The Facts

After due proceedings, on October 26, 1995, the Court of Appeals promulgated its
decision dismissing the appeal and affirming in toto the decision of the Court of
Tax Appeals.4

The facts, as found by the Court of Appeals, are as follows:

"Sea-Land Service Incorporated (SEA-LAND), an American
international shipping company licensed by the Securities and
Exchange Commission to do business in the Philippines entered into
a contract with the United States Government to transport military
household goods and effects of U.S. military personnel assigned to
the Subic Naval Base.
"From the aforesaid contract, SEA-LAND derived an income for the
taxable year 1984 amounting to P58,006,207.54. During the
taxable year in question, SEA-LAND filed with the Bureau of Internal
Revenue (BIR) the corresponding corporate Income Tax Return (ITR)
and paid the income tax due thereon of 1.5% as required in Section
25 (a)(2) of the National Internal Revenue Code (NIRC) in relation to
Article 9 of the RP-US Tax Treaty, amounting to P870,093.12.
"Claiming that it paid the aforementioned income tax by mistake, a
written claim for refund was filed with the BIR on 15 April 1987.
However, before the said claim for refund could be acted upon by
public respondent Commissioner of Internal Revenue, petitionerappellant filed a petition for review with the CTA docketed as CTA
Case No. 4149, to judicially pursue its claim for refund and to stop
the running of the two-year prescriptive period under the then
Section 243 of the NIRC.
"On 21 February 1995, CTA rendered its decision denying SEALANDs claim for refund of the income tax it paid in 1984." 2

Hence, this petition.5

The Issue
The issue raised is whether or not the income that petitioner derived from
services in transporting the household goods and effects of U.S. military
personnel falls within the tax exemption provided in Article XII, paragraph 4 of the
RP-US Military Bases Agreement.
The Courts Ruling
We deny the petition.
The RP-US Military Bases Agreement provides:
"No national of the United States, or corporation organized under
the laws of the United States, shall be liable to pay income tax in
the Philippines in respect of any profits derived under a contract
made in the United States with the government of the United
States in connection with the construction, maintenance, operation
and defense of the bases, or any tax in the nature of a license in
respect of any service or work for the United States in connection
with the construction, maintenance, operation and defense of the
bases."6

Petitioner Sea-Land Service, Inc. a US shipping company licensed to do business

in the Philippines earned income during taxable year 1984 amounting to
P58,006,207.54, and paid income tax thereon of 1.5% amounting to P870,093.12.

the grant of the exemption."10 The hauling or transport of household goods and
personal effects of U. S. military personnel would not directly contribute to the
defense and security of the Philippines.

The question is whether petitioner is exempted from the payment of income tax
on its revenue earned from the transport or shipment of household goods and
effects of US personnel assigned at Subic Naval Base.

We see no reason to reverse the ruling of the Court of Appeals, which affirmed the
decision of the Court of Tax Appeals. The Supreme "Court will not set aside lightly
the conclusion reached by the Court of Tax Appeals which, by the very nature of
its function, is dedicated exclusively to the consideration of tax problems and has
necessarily developed an expertise on the subject, unless there has been an
abuse or improvident exercise of authority."11

"Laws granting exemption from tax are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing power. Taxation is the rule and
exemption is the exception." 7 The law "does not look with favor on tax exemptions
and that he who would seek to be thus privileged must justify it by
words too plain to be mistaken andtoo categorical to be misinterpreted."8
Under Article XII (4) of the RP-US Military Bases Agreement, the Philippine
Government agreed to exempt from payment of Philippine income tax nationals of
the United States, or corporations organized under the laws of the United States,
residents in the United States in respect of any profit derived under a contract
made in the United States with the Government of the United States in
connection with the construction, maintenance, operation and defense of
the bases.
It is obvious that the transport or shipment of household goods and effects of U.S.
military personnel is not included in the term "construction, maintenance,
operation and defense of the bases." Neither could the performance of this
service to the U.S. government be interpreted as directly related to the defense
and security of the Philippine territories. "When the law speaks in clear and
categorical language, there is no reason for interpretation or construction, but
only for application."9 Any interpretation that would give it an expansive
construction to encompass petitioners exemption from taxation would be
unwarranted.
The avowed purpose of tax exemption "is some public benefit or interest, which
the lawmaking body considers sufficient to offset the monetary loss entailed in

Hence, the Court of Appeals did not err or gravely abuse its discretion in
dismissing the petition for review. We can not grant the petition.1wphi1.nt
The Judgment
WHEREFORE, the Court DENIES the petition for lack of merit.
No costs.
SO ORDERED.