CIR v CTA

GR No 106611, July 21, 1994

FACTS:
Citytrust filed a petition with the Court of Tax Appeals claiming the refund of its income tax
overpayments for the years 1983, 1984 and 1985 in the total amount of P19,971,745. The CIR
could not present any evidence due to the repeated failure of the tax credit/refund division
of the BIR to transmit the records of the case and the investigation report to the Solicitor
General. The case was decided in favor of City Trust. Upon motion of reconsideration,
petitioner alleged that through an inter-office memorandum of the Tax Credit/Refund
Division, dated August 8, 1991, he came to know only that Citytrust had outstanding tax
liabilities for 1984 in the amount of P56,588,740.91 representing deficiency income and
business taxes.

ISSUES:
1. Whether the BIR was denied its day in court
2. Whether the CTA erred in denying petitioner’s supplemental motion for reconsideration
alleging bringing to said court’s attention the existence of deficiency income and business
taxes

RULING:
1. Yes, the BIR is denied its day in court. When it was petitioner’s turn to present evident
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. It was under such predicament and in deference to the
tax court that the counsel was constrained to submit the case for decision without
presenting any evidence. It is a long and firmly settled rule of law that the Government is not
bound by the errors committed by its agents.
2. Yes. The fact of such deficiency assessment is intimately related and inextricably
intertwined with the right of the bank. The private respondent cannot be entitled to refund
and at the same time be liable for a deficiency tax assessment for the same year.
CASE DIGEST: LA SUERTE CIGAR & CIGARETTE FACTORY, Petitioner, vs. COURT OF APPEALS
and COMMISSIONER OF INTERNAL REVENUE, Respondents. (G.R. No. 125346; November 11,
2014)

FACTS:
These cases involve the taxability of stemmed leaf tobacco imported and locally purchased
by cigarette manufacturers for use as raw material in the manufacture of their cigarettes.
Under the Tax Code, if it is to be exported or to be used in the manufacture of cigars,
cigarettes, or other tobacco products on which the excise tax will eventually be paid on the
finished product.

La Suerte was assessed by the BIR for excise tax deficiency amounting to more than 34
million pesos. La Suerte protested invoking the Tax Code which allows the sale of stemmed
leaf tobacco as raw material by one manufacturer directly to another without payment of
the excise tax. However, the CIR insisted that stemmed leaf tobacco is subject to excise tax
"unless there is an express grant of exemption from [the] payment of tax."

La Suerte petitioned for review before the CTA which cancelled the assessment. The CIR
appealed to the CA which reversed the CTA. The CIR invoked a revenue regulation (RR)
which limits the exemption from payment of specific tax on stemmed leaf tobacco to sales
transactions between manufacturers classified as L-7 permittees.

ISSUES:
[1] Is stemmed leaf tobacco subject to excise (specific) tax?
[2] Is purchase of stemmed leaf tobacco from manufacturers who are not classified as L-7
permittees subject to tax?
[3] Is the RR valid?
[4] Is the possessor or owner, or importer or exporter, of stemmed leaf tobacco liable for
the payment of specific tax if such tobacco product is removed from the place of production
without payment of said tax?
[5] Does the imposition of excise tax on stemmed leaf tobacco under Section 141 of the 1986
Tax Code constitute double taxation, considering they are paying the specific tax on the raw
material and on the finished product in which the raw material was a part?

HELD:
[1] Yes, excise taxes on domestic products shall be paid by the manufacturer or producer
before[the] removal [of those products] from the place of production." "It does not matter
to what use the article[s] subject to tax is put; the excise taxes are still due, even though the
articles are removed merely for storage in someother place and are not actually sold or
consumed.

When tobacco is harvested and processed either by hand or by machine, all itsproducts
become subject to specific tax. Section 141 reveals the legislative policy to tax all forms of
manufactured tobacco — in contrast to raw tobacco leaves — including tobacco refuse or
all other tobacco which has been cut, split, twisted, or pressed and is capable of being
smoked without further industrial processing.

Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a partially
prepared tobacco. The removal of the stem or midrib from the leaf tobacco makes the
resulting stemmed leaf tobacco a prepared or partially prepared tobacco.

Despite the differing definitions for "stemmed leaf tobacco" under revenue regulations, the
onus of proving that stemmed leaf tobacco is not subject to the specific tax lies with the
cigarette manufacturers. Taxation is the rule, exemption is the exception.

[2] Stemmed leaf tobacco transferred in bulk between cigarette manufacturers are exempt
from excise tax under the Tax Code vis-a-vis RRs.

Section 137 authorizes a tax exemption subject to the following: (1) that the stemmed leaf
tobacco is sold in bulk as raw material by one manufacturer directly to another; and (2) that
the sale or transfer has complied with the conditions prescribed by the Department of
Finance.

The conditions under which stemmed leaf tobacco may be transferred from one factory to
another without prepayment of specific tax are as follows: (a) The transfer shall be under an
official L-7 invoice on which shall be entered the exact weight of the tobacco at the time of
its removal; (b) Entry shall be made in the L-7 register in the place provided on the page for
removals; and (c) Corresponding debit entry shall bemade in the L-7 register book of the
factory receiving the tobacco under the heading, "Refuse, etc.,received from the other
factory," showing the date of receipt, assessment and invoice numbers, name and address
of the consignor, formin which received, and the weight of the tobacco.

[3] Yes, valid. Under Section 3(h) of RR No. 17-67, entities that were issued by the Bureau of
Internal Revenue with an L-7 permit refer to "manufacturers of tobacco products." Hence,
the transferor and transferee of the stemmed leaf tobacco must be an L-7 tobacco
manufacturer.
The reason behind the tax exemption of stemmed leaf tobacco transferred between two L-7
manufacturers is that the same had already been previously-taxed when acquired by the L-7
manufacturer from dealers of tobacco. There is no new product when stemmed leaf
tobacco is transferred between two L-7 permit holders. Thus, there can be no excise tax that
will attach. The regulation, therefore, is reasonable and does not create a new statutory
right.

Moreover, although delegation is not allowed as a rule, the power to fill in the details and
manner as to the enforcement and administration of a law may be delegated to various
specialized administrative agencies.

[4] Importation of stemmed leaf tobacco not included in the exemption. The transaction
contemplated in Section 137 does not include importation of stemmed leaf tobacco for the
reason that the law uses the word "sold" to describe the transaction of transferring the raw
materials from one manufacturer to another.

[5] In this case, there is no double taxation in the prohibited sense because the specific tax is
imposed by explicit provisions of the Tax Code on two different articles or products: (1) on
the stemmed leaf tobacco; and (2) on cigar or cigarette.
Commissioner of Internal Revenue vs. Cebu Portland Cement Co.
G.R. No. L-29059, 15 December 1987

Facts: CTA decision ordered the petitioner CIR to refund to the Cebu Portland Cement
Company, respondent, P 359,408.98 representing overpayments of ad valorem taxes on
cement sold by it. Execution of judgement was opposed by the petitioner citing that private
respondent had an outstanding sales tax liability to which the judgment debt had already
been credited. In fact, there was still a P4 M plus balance they owed. The Court of Tax
Appeals, in 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, granted private
respondent's motion. The private respondent questioned the assessed tax based on Article
186 of the Tax Code, contending that cement was adjudged a mineral and not a
manufactured product; and thusly they were not liable for their alleged tax deficiency.
Thereby, petitioner filed this petition for review.

Issue: Whether or not assessment of taxes can be enforced even if there is a case contesting
it.

Held: 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 in RA 1125 , the Tax Code
provides that injunction is not available to restrain collection of tax. Thereby, we hold that
the respondent Court of Tax Appeals erred in its order.
TITLE: J.B.L. Reyes, Edmundo Reyes, et al, petitioner, v. Board of Assessment Appeals of
Manila and City Assessor of Manila, respondents

CITATION: G.R. Nos. L-49839-46, 196 SCRA 322

DATE: April 26, 1991

FACTS:

J.B.L Reyes, et al., petitioners, owners of parcels of land in Tondo and Sta. Cruz
Districts, City of Manila which are leased by tenants for a monthly rentals not exceeding
three hundred pesos (P300.00) in July 1971. Around that time, a law was passed prohibiting
the increase of rentals of properties leased for rentals not exceeding P300.00 monthly and
ejecting lessees after the expiration of the usual legal period of lease. In 1973, respondent
City Assessor of Manila re-classified and reassessed the value of the subject properties based
on the schedule of market values which entailed an increase in the acorresponding tax rates
prompting petitioners to file a Memorandum of Disagreement with the Board of Tax
Assessment Appeals. They averred that the reassessments made were "excessive,
unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes
imposed upon them greatly exceeded the annual income derived from their properties. They
argued that the income approach should have been used in determining the land values
instead of the comparable sales approach which the City Assessor adopted

ISSUE:

Is the approach adopted by the City Assessor appropriate in assessing the property?

HELD:

No. The taxing power is an attribute of sovereignty. However, the power to tax is not
unconfined as there are restrictions. The due process and equal protection clauses of the
Constitution limit this power. The laws should 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.
The market value of properties covered by P.D. No. 20 cannot be equated with the market
value of properties not covered. The former has naturally a much lesser market value in view
of the rental restrictions. Consequently, the use of the Comparable Sales Approach in the
assessment of the properties on the ground of uniformity is unreasonable.
PHIL. GUARANTY CO. VS. CIR

GR L-22074, April 30, 1965

TOPIC: Cession of the premiums taxable as income from sources within the Philippines.

FACTS: The Philippine Guaranty Co., Inc., a domestic insurance company, entered into
reinsurance contracts, on various dates, with foreign insurance companies not doing
business in the Philippines. Petitioner thereby agreed to cede to the foreign reinsurers a
portion of the premiums on insurance it has originally underwritten in the Philippines, in
consideration for the assumption by the latter of liability on an equivalent portion of the
risks insured.

Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the
foreign reinsurers outside the Philippines.

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it
file its income tax returns. It did not withhold or pay tax on them. Consequently, the CIR
assessed against PETITIONER .withholding tax on the ceded reinsurance premiums.

Petitioner protested the assessment on the ground that reinsurance premiums ceded to
foreign reinsurers not doing business in the Philippines are not subject to withholding tax.

CTA: IN FAVOR OF RESPONDENT

ISSUE: Whether reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines are subject to tax

HELD: Yes. The reinsurance premiums are subject to tax.

The reinsurance contracts show that the transactions or activities that constituted the
undertaking to reinsure Philippine Guaranty Co., Inc. against loses arising from the original
insurances in the Philippines were performed in the Philippines.

Section 24 of the Tax Code subjects foreign corporations to tax on their income from
sources within the Philippine .“Sources” means the activity, property, or service giving rise
to the income. The original insurance undertakings took place in the Philippines. It is not
required that the foreign corporation be engaged in business in the Philippines. What is
controlling is no the place of business, but the place of activity that created the income.
Thus, the income is subject to income tax.
NOTE: The foreign insurers' place of business should not be confused with their place of
activity. Business should not be continuity and progression of transactions while activity
may consist of only a single transaction. An activity may occur outside the place of business.
Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988

Facts:
Algue Inc. is a domestic corp engaged in engineering, construction and other allied
activities. On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency
income taxes from 1958-1959, amtg to P83,183.85. A letter of protest or reconsideration was
filed by Algue Inc on Jan 18. On March 12, a warrant of distraint and levy was presented to
Algue Inc. thru its counsel, Atty. Guevara, who refused to receive it on the ground of the
pending protest. Since the protest was not found on the records, a file copy from the corp
was produced and given to BIR Agent Reyes, who deferred service of the warrant. On April
7, Atty. Guevara was 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.
On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax
Appeals

CIR contentions:
- the claimed deduction of P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense
- payments are fictitious because most of the payees are members of the same family in
control of Algue and that there is not enough substantiation of such payments

CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered 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.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by Algue as legitimate business expenses in its income tax returns

Ruling:
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance, made in accordance with law. RA 1125: the appeal may be made
within thirty days after receipt of the decision or ruling challenged. During the intervening
period, the warrant was premature and could therefore not be served. Originally, CIR
claimed that the 75K promotional fees to be personal holding company income, but later on
conformed to the decision of CTA. 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. CTA also found, after examining the evidence, that no distribution of dividends was
involved. CIR suggests a tax dodge, an attempt to evade a legitimate assessment by
involving an imaginary deduction. Algue Inc. was a family corporation where strict business
procedures were not applied and immediate issuance of receipts was not required. 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. This arrangement was
understandable in view of the close relationship among the persons in the family
corporation. The amount of the promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After
deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything,
from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it
of the Sugar Estate properties.

Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - 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 xxx the burden is on the taxpayer to prove the validity of
the claimed deduction. In this case, Algue Inc. 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. 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. Taxation must 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

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in accordance
with Rep. Act No. 1125. And we also find that the claimed deduction by Algue Inc. was
permitted under the Internal Revenue Code and should therefore not have been disallowed
by the CIR.
Lutz v Araneta
GR No L-7859 December 22, 1955

FACTS: Walter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, sought to recover the sum of P14,666.40 paid by the estate as taxes from the
Commissioner under Section e of Commonwealth Act 567 or the Sugar Adjustment Act,
alleging that such tax is unconstitutional as it levied for the aid and support of the sugar
industry exclusively, which is in his opinion not a public purpose.

ISSUE: Is the tax valid?

HELD: Yes. The tax is levied with a regulatory purpose, i.e. to provide means for the
rehabilitation and stabilization of the threatened sugar industry. The act is primarily an
exercise of police power and is not a pure exercise of taxing power.
As sugar production is one of the great industries of the Philippines and its promotion,
protection and advancement redounds greatly to the general welfare, the legislature found
that the general welfare demanded that the industry should be stabilized, and provided that
the distribution of benefits had to sustain.
Further, 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, etc., as well as to the
improvement of living and working conditions in sugar mills and plantations without any
part of such money being channeled directly to private persons, constitute expenditure of
tax money for private purposes.
Hence, the tax is valid.
GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando,
Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was returned
to the petitioner. Petitioner now assails the constitutionality of the statute claiming that RA
1635 otherwise known as the Anti-TB Stamp law is violative of the equal protection clause
because 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 exemptions. The law in question requires an additional 5 centavo
stamp for every mail being posted, and no mail shall be delivered unless bearing the said
stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal
protection clause?

HELD: No. It is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions. This power has aptly been described as "of wide range
and flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in classification. 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.
The classification of mail users is based on the ability to pay, the enjoyment of a privilege and
on administrative convenience. Tax exemptions have never been thought of as raising
revenues under the equal protection clause.
Chavez v Ongpin
GR No 76778, June 6, 1990

FACTS:
Section 21 of Presidential Decree 464 provides that every 5 years starting calendar year 1978,
there shall be a provincial or city general revision of real property assessments. The general
revision was completed in 1984.
On November 25, 1986, President Corazon Aquino issued EO 73 stating that beginning
January 1, 1987, the 1984 assessments shall be the basis of real property taxes. Francisco
Chavez, a taxpayer and landowner, questioned the constitutionality of EO 74. He alleges that
it will bring unreasonable increase in real property taxes.

ISSUE:
Is EO 73 constitutional?

RULING:
Yes. Without EO 73, the basis for collection of real property taxes will 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 revenue must be adequate to meet government expenditures and their
variations.
RENATO V. DIAZ v. SECRETARY OF FINANCE, GR No. 193007, 2011-07-19
Facts:
Petitioners filed this petition for declaratory relief... 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 action. Additionally, Diaz claims that he
sponsored the approval of EVAT Law... and... the 1997 National Internal Revenue Code... 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
Regulatory Board (TRB) in... the past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria
Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred, however, in
view of the consistent opposition of Diaz and other sectors to such move. But, upon
President Benigno C. Aquino III's 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
"user's tax," not a sale of services; that to impose VAT on 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 non-impairment clause of the constitution.
On August 13, 2010 the Court issued a TRO enjoining the implementation of the VAT.
The Court required the government, represented by respondents Cesar V. Purisima,
Secretary of the Department of Finance, and Kim S. Jacinto-Henares, Commissioner of
Internal Revenue, to comment on the petition within 10 days from notice.
Later, the Court issued another resolution treating the petition as one for prohibition.
The government avers that the NIRC imposes VAT on all kinds of services of franchise
grantees, including tollway operations, except where the law provides... otherwise; that the
Court should seek the meaning and intent of the law from the words used in the statute; and
that the imposition of VAT on tollway operations has been the subject as early as 2003 of
several BIR rulings and circulars.
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... between the government and tollway operators.
Finally, the government contends that the non-inclusion of VAT in the parametric formula
for computing toll rates cannot exempt tollway operators from VAT.
Issues:
Whether or not the imposition of VAT on tollway operators... is not administratively feasible
and cannot be... implemented.
Ruling:
Administrative feasibility is one of the canons of a sound tax system. It simply means that
the tax system should be capable of being effectively administered and enforced with the
least inconvenience to the taxpayer. Non-observance of the canon, however, will not render
a tax... imposition invalid "except to the extent that specific constitutional or statutory
limitations are impaired."
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 shown to violate any law
or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on
tollway operations. Any declaration by the Court that the manner of its implementation is
illegal or unconstitutional would be premature. Although the transcript of the August 12,
2010 Senate... hearing provides some clue as to how the BIR intends to go about it,... the
facts pertaining to the matter are not sufficiently established for the Court to pass judgment
on. Besides, any concern about how the VAT on tollway operations will be enforced... must
first be addressed to the BIR on whom the task of implementing tax laws primarily and
exclusively rests. The Court cannot preempt the BIR's discretion on the matter, absent any
clear violation of law or the Constitution.
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or
expand the VAT law's coverage when she sought to impose VAT on tollway
operations. Section 108(A) of the Code clearly states that services of all other franchise
grantees are subject to
VAT, except as may be provided under Section 119 of the Code. Tollway operators are not
among the franchise grantees subject to franchise tax under the latter provision. Neither are
their services among the VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so
strongly allege, then it would have been well for the law to clearly say so. Tax exemptions
must be justified by clear statutory grant and based on language in the law too plain to be...
mistaken.
But as the law is written, no such exemption obtains for tollway operators.
ASSOCIATION OF CUSTOM BROKERS, INC. vs. MUNICIPAL BOARD
G.R. No. L-4376 May 22, 1953

FACTS:
The Association of Customs Brokers, Inc., which is composed of all brokers and public
service operators of motor vehicles in the City of Manila challenge the validity Ordinance No.
3379 on the ground that (1) while it levies a so-called property tax it is in reality a license tax
which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance
offends against the rule of uniformity of taxation; and (3) it constitutes double taxation.
The respondents contend on their part that the challenged ordinance imposes a property
tax which is within the power of the City of Manila to impose under its Revised Charter
[Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the
rule of uniformity of taxation, nor does it constitute double taxation.
ISSUE:
Whether or not the ordinance is null and void
RULING:
The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution.
Note that the ordinance exacts the tax upon all motor vehicles operating within the City of
Manila. It does not distinguish between a motor vehicle for hire and one which is purely for
private use. Neither does it distinguish between a motor vehicle registered in the City of
Manila and one registered in another place but occasionally comes to Manila and uses its
streets and public highways. This is an inequality which we find in the ordinance, and which
renders it offensive to the Constitution.
Esso Standard Eastern, Inc. v CIR GR Nos L-28508-9, July 7, 1989

Facts:
ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business
expenses, the amount it had spent for drilling and exploration of its petroleum concessions.
The Commissioner disallowed the claim on the ground that the expenses should be
capitalized and might be written off as a loss only when a “dry hole” should result. Hence,
ESSO filed an amended return where it asked for the refund of P323,270 by reason of its
abandonment, as dry holes, of several of its oil wells. It also claimed as ordinary and
necessary expenses in the same return amount representing margin fees it had paid to the
Central Bank on its profit remittances to its New York Office.

ISSUE:
Whether the margin fees were deductible from gross income either as a

1. (1) tax or
2. (2) ordinary and necessary business expense

RULING:

1. (1) No, it is not a tax. A tax is levied to provide revenue for government operations,
while the proceeds of the margin fee are applied to strengthen our country’s
international reserves. Thus the margin fee was imposed by the State in the
exercise of its police power ant not the power of taxation.

2. (2) No. ESSO has not shown that the remittance to the head office of part of its
profits was made in furtherance of its own trade or business. The petitioner merely
presumed that all corporate expenses are necessary and appropriate in the absence
of a showing that they are illegal or ultra vires. This is error. The public respondent is
correct when it asserts that the paramount rule is that claims for deductions are a
matter of legislative grace and do not turn on mere equitable considerations... The
taxpayer in every instance has the burden of justifying the allowance of any
deduction claimed.
PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY, GR No. L-36081, 1989-04-24
Facts:
Progressive Development Corporation, owner and operator of a public market known as the
"Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary
Injunction against respondent... on the ground that the supervision fee or license tax
imposed by the above-mentioned ordinances is in reality a tax on income which respondent
may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended
Petitioner, however, insists that the "supervision fee" collected from rentals, being a return
from capital invested in the construction of the Farmers Market, practically operates as a tax
on income, one of those expressly excepted from respondent's taxing authority, and... thus
beyond the latter's competence.
Issues:
The only issue to be resolved here is whether the tax imposed by respondent on gross
receipts of stall rentals is properly characterized as partaking of the nature of an income tax
or, alternatively, of a license fee.
Ruling:
The "Farmers' Market and Shopping Center" being a public market in the sense of a market
open to and inviting the, patronage of the general public, even though privately owned,
petitioner's operation thereof required a license issued by the respondent City, the
issuance... of which, applying the standards set forth above, was done principally in the
exercise of the respondent's police power
The operation of a privately owned market is, as correctly noted by the Solicitor General,...
equivalent to or quite the same as the operation of a government-owned market;
We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax... but rather a license tax or fee for
the regulation of the business in which the petitioner is engaged.
PHILIPPINE AIRLINES, INC. v. EDU

G.R. No. L- 41383, August 15, 1988

FACTS:

The Philippine Airlines (PAL) is a corporation engaged in the air transportation business
under a legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the
payment of taxes.

Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate)

issued a regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land
and Transportation and Traffic Code, requiring all tax exempt entities, among them PAL to
pay motor vehicle registration fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the
amounts imposed under Republic Act 4136 were paid. PAL thus paid, under protest,
registration fees of its motor vehicles. After paying under protest, PAL through counsel,
wrote a letter dated May 19,1971, to Land Transportation Commissioner Romeo Edu (Edu)
demanding a refund of the amounts paid. Edu denied the request for refund. Hence, PAL
filed a complaint against Edu and National Treasurer Ubaldo Carbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in
turn certified the case to the Supreme Court.

ISSUE:

Whether or not motor vehicle registration fees are considered as taxes.

RULING:

Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax. Such is the case of motor
vehicle registration fees. The motor vehicle registration fees are actually taxes intended for
additional revenues of the government even if one fifth or less of the amount collected is set
aside for the operating expenses of the agency administering the program.
Villegas vs Hiu Chiong Tsai Pao Ho

Nov. 10, 1978

Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those
employed in the diplomatic and consular missions of foreign countries, in technical
assistance programs of the government and another country, and members of religious
orders or congregations) to procure the requisite mayor’s permit so as to be employed or
engage in trade in the City of Manila. The permit fee is P50, and the penalty for the violation
of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or both.

Issue: Whether the ordinance imposes a regulatory fee or a tax.

Held: The ordinance’s purpose is clearly to raise money under the guise of regulation by
exacting P50 from aliens who have been cleared for employment. The amount is
unreasonable and excessive because it fails to consider difference in situation among aliens
required to pay it, i.e. being casual, permanent, part-time, rank-and-file or executive.

[ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being
applied only to aliens who are thus deprived of their rights to life, liberty and property and
therefore violates the due process and equal protection clauses of the Constitution. Further,
the ordinance does not lay down any criterion or standard to guide the Mayor in the
exercise of his discretion, thus conferring upon the mayor arbitrary and unrestricted powers.
]
Compania General de Tabacos vs City of Manila

June 29, 1963

Facts: Compania General de Tabacos de Filipinas (Tabacalera) paid the City of Manila the
fixed license fees prescribed by Ordinance 3358 for the years 1954 to 1957. In 1954, City
Ordinance 3634 and 3816 were passed; where the term “general merchandise” found
therein included all articles in Sections 123 to 148 of the Tax Code (thus, also liquor under
Sedctions 133 to 135). The Tabacalera paid its wholesaler’s and retailer’s taxes. In 1954, the
City Treasurer addressed a letter to an accounting firm, expressing the view that liquor
dealers paying the annual wholesale and retail fixed tax under Ordinance 3358 are not
subject to the wholesale aand retail deaklers’ taxes prescribed by City Ordinances 3634,
3301, and 3816. The Tabacalera, upon learning of said stopped including quarterly sworn
declaratons required by the latter ordinances, and in 1957, demanded refunde of the alleged
overpayment. The claim was disallowed.

Issue: Whether there is a distinction between Ordinance 3358 and Ordinances 3634, 3301
and 3816, to prevent refund to the company

Held: Yes. Generally, the term “tax” applies to all kinds of exactions which become public
funds. Legally, however, a license fee is a legal concept quite distinct from tax: the former is
imposed in the exercise of police power for purposes of regulation, while the latter is
imposed under the taxing power for the purpose of raising revenues. Ordinance 3358
prescribes municipal license fees for the privilege to engage in the business of selling liquor
or alcohol beverages; considering that the sale of intoxicating liquor is (potentially) harmful
to public health and morals, and must be subject to supervision or regulation by the State
and by cities and municipalities authorized to act in the premises. On the other hand,
Ordinances 3634, 3301 and 3816 imposed taxes on the sales of general merchandise,
wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila.
AMERICAN MAIL LINE, ET AL vs. CITY OF BASILAN, ET AL

G.R. No. L-12647 May 31, 1961

FACTS:

Appellees are foreign shipping companies licensed to do business in the Philippines, with
offices in Manila. Their vessels call at Basilan City and anchor in the bay or channel within its
territorial waters. As the city treasurer assessed and attempted to collect from them the
anchorage fees prescribed in the aforesaid amendatory ordinance, they filed the present
action for Declaratory Relief to have the courts determine its validity. Upon their petition the
lower court issued a writ of preliminary injunction restraining appellants from collecting or
attempting to collect from them the fees prescribed therein.

Appellant contended that, through its city council, it had authority to enact the questioned
ordinance in the exercise of either its revenue-raising power or of its police power. The
question to be resolved is whether the City of Basilan has the authority to enact Ordinance
180 and to collect the anchorage fees prescribed therein.

ISSUE:

Is the ordinance valid exercise of taxing power of the City of Basilan.

RULING:

Under paragraph (a) sec. 14, R.A. 288, it is clear that the City of Basilan may only levy and
collect taxes for general and special purposes in accordance with or as provided by law; in
other words, the city of Basilan was not granted a blanket power of taxation. The use of the
phrase "in accordance with law" — which, in our opinion, means the same as "provided by
law" — clearly discloses the legislative intent to limit the taxing power of the City.

It has been held that the power to regulate as an exercise of police power does not include
the power to impose fees for revenue purposes. Appellant city's own contention that the
questioned ordinance was enacted in the exercise of its power of taxation, makes it obvious
that the fees imposed are not merely regulatory.
OSMEÑA vs. ORBOS 220 SCRA 703

GR No. 99886, March 31, 1993

" To avoid the taint of unlawful delegation of the power to tax, there must be a standard
which implies that the legislature determines matter of principle and lays down fundamental
policy."

FACTS: Senator John Osmeña assails the constitutionality of paragraph 1c of PD 1956, as

amended by EO 137, empowering the Energy Regulatory Board (ERB) to approve the
increase of fuel prices or impose additional amounts on petroleum products which proceeds
shall accrue to the Oil Price Stabilization Fund (OPSF) established for the reimbursement to
ailing oil companies in the event of sudden price increases. The petitioner avers that the
collection on oil products establishments is an undue and invalid delegation of legislative
power to tax. Further, the petitioner points out that since a 'special fund' consists of monies
collected through the taxing power of a State, such amounts belong to the State, although
the use thereof is limited to the special purpose/objective for which it was created. It thus
appears that the challenge posed by the petitioner is premised primarily on the view that
the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the
taxation power of the State.

ISSUE: Is there an undue delegation of the legislative power of taxation?

HELD: None. 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 as 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."
With regard to the alleged undue delegation of legislative power, the Court finds that the
provision conferring the authority upon the ERB to impose additional amounts on petroleum
products provides a sufficient standard by which the authority must be exercised. In
addition to the general policy of the law to protect the local consumer by stabilizing and
subsidizing domestic pump rates, P.D. 1956 expressly authorizes the ERB to impose
additional amounts to augment the resources of the Fund.
Republic of the Philippines v Bacolod-Murcia GR No. L-19824, L-19825, L-19826
July 9, 1966

FACTS:
RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, the Institute
acquired the Insular Sugar Refinery for P3.07 million payable in installments from the
proceeds of the Sugar tax to be collected under RA 632. The operation of the refinery for
1954 to 1957 was disastrous as the Institute suffered tremendous losses. Contending that
the purchase of refinery with money from the Institute’s fund was not authorized under RA
632, and that the continued operation of the refinery is inimical to their interest, Bacolod-
Murcia Milling Co., Ma-ao Sugar Central, Talisay-Silay Milling Co. and the Central Azucarera
del Danao refused to continue with their contribution to said fund. The trial court found
them liable under RA 632. Hence, this petition.

ISSUE:
Are the milling companies liable?

RULING:
Yes. The special assessment or levy for the Philippine Sugar Institute Fund is not so much an
exercise of the power of
taxation, nor the imposition of a special assessment, but the exercise of police power for the
general welfare of the entire country. It is, therefore, an exercise of a sovereign power
which no private citizen may lawfully resist.
Section 2a of the charter authorizes Philsugin to acquire the refinery in question. The
financial loss resulting from the operation thereof is no means an index that the industry did
profit therefrom, as other gains of a different nature (such as experience) may have been
realized.
 G.R. No. 159796 July 17, 2007
ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS
NETWORK, INC. (ECN), petitioners
vs
DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (ERC), NATIONAL
POWER CORPORATION (NPC), POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT
GROUP (PSALM Corp.), STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY ELECTRIC
COMPANY INC. (PECO),respondents.
FACTS:
On June 8, 2001 Congress enacted RA 9136 or the Electric Power Industry Act of 2001.
Petitioners Romeo P. Gerochi and company assail the validity of Section 34 of the EPIRA Law
for being an undue delegation of the power of taxation. Section 34 provides for the
imposition of a “Universal Charge” to all electricity end users after a period of (1) one year
after the effectively of the EPIRA Law. The universal charge to be collected would serve as
payment for government debts, missionary electrification, equalization of taxes and
royalties applied to renewable energy and imported energy, environmental charge and for a
charge to account for all forms of cross subsidies for a period not exceeding three years. The
universal charge shall be collected by the ERC on a monthly basis from all end users and will
then be managed by the PSALM Corp. through the creation of a special trust fund.

ISSUE:
Whether or not there is an undue delegation of the power to tax on the part of the ERC

HELD:
No, the universal charge as provided for in section 34 is not a tax but an exaction of the
regulatory power (police power) of the state. The universal charge under section 34 is
incidental to the regulatory duties of the ERC, hence the provision assailed is not for
generation of revenue and therefore it cannot be considered as tax, but an execution of the
states police power thru regulation.

Moreover, the amount collected is not made certain by the ERC, but by the legislative
parameters provided for in the law (RA 9136) itself, it therefore cannot be understood as a
rule solely coming from the ERC. The ERC in this case is only a specialized administrative
agency which is tasked of executing a subordinate legislation issued by congress; which
before execution must pass both the completeness test and the sufficiency of standard test.
The court in appreciating Section 34 of RA 9136 in its entirety finds the said law and the
assailed portions free from any constitutional defect and thus deemed complete and
sufficient in form.
Product v. Fertiphil Corp.
G.R. No. 166006 March 14, 2008
REYES, R.T., J.

Lessons Applicable: Bet. private and public suit, easier to file public suit, Apply real party in
interest test for private suit and direct injury test for public suit, Validity test varies
depending on which inherent power

Laws Applicable:

FACTS:

 President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which
provided, among others, for the imposition of a capital recovery component (CRC) on
the domestic sale of all grades of fertilizers which resulted in having Fertiphil paying P
10/bag sold to the Fertilizer and Perticide Authority (FPA).
 FPA remits its collection to Far East Bank and Trust Company who applies to the
payment of corporate debts of Planters Products Inc. (PPI)
 After the Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Upon
return of democracy, Fertiphil demanded a refund but PPI refused. Fertiphil filed a
complaint for collection and damages against FPA and PPI with the RTC on the ground
that LOI No. 1465 is unjust, unreaonable oppressive, invalid and unlawful resulting to
denial of due process of law.
 FPA answered that it is a valid exercise of the police power of the state in ensuring the
stability of the fertilizing industry in the country and that Fertiphil did NOT sustain
damages since the burden imposed fell on the ultimate consumers.
 RTC and CA favored Fertiphil holding that it is an exercise of the power of taxation ad is
as such because it is NOT for public purpose as PPI is a private corporation.

ISSUE:
1. W/N Fertiphil has locus standi
2. W/N LOI No. 1465 is an invalid exercise of the power of taxation rather the police power

Held:
1. Yes. In private suits, locus standi requires a litigant to be a "real party in interest" or party
who stands to be benefited or injured by the judgment in the suit. In public suits, there is
the right of the ordinary citizen to petition the courts to be freed from unlawful government
intrusion and illegal official action subject to the direct injury test or where there must be
personal and substantial interest in the case such that he has sustained or will sustain direct
injury as a result. Being a mere procedural technicality, it has also been held that locus
standi may be waived in the public interest such as cases of transcendental importance or
with far-reaching implications whether private or public suit, Fertiphil has locus standi.

2. As a seller, it bore the ultimate burden of paying the levy which made its products more
expensive and harm its business. It is also of paramount public importance since it involves
the constitutionality of a tax law and use of taxes for public purpose.

3. Yes. Police power and the power of taxation are inherent powers of the state but distinct
and have different tests for validity. Police power is the power of the state to enact the
legislation that may interfere with personal liberty on property in order to promote general
welfare. While, the power of taxation is the power to levy taxes as to be used for public
purpose. The main purpose of police power is the regulation of a behavior or conduct, while
taxation is revenue generation. The lawful subjects and lawful means tests are used to
determine the validity of a law enacted under the police power. The power of taxation, on
the other hand, is circumscribed by inherent and constitutional limitations.

In this case, it is for purpose of revenue. But it is a robbery for the State to tax the citizen
and use the funds generation for a private purpose. Public purpose does NOT only pertain
to those purpose which are traditionally viewed as essentially governmental function such
as building roads and delivery of basic services, but also includes those purposes designed
to promote social justice. Thus, public money may now be used for the relocation of illegal
settlers, low-cost housing and urban or agrarian reform.
 G.R. No. 173863 September 15, 2010
CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES, INC.), Petitioner,
vs.
BASES CONVERSION DEVELOPMENT AUTHORITY and CLARK DEVELOPMENT
CORPORATION, Respondents
Facts:
On June 28, 2002, the Board of Directors of respondent Clark Development Corporation
(CDC) issued and approved Policy Guidelines on the Movement of Petroleum Fuel to and
from the Clark Special Economic Zone. In one of its provisions, it levied royalty fees to
suppliers delivering Coastal fuel from outside sources for Php0.50 per liter for those
delivering fuel to CSEZ locators not sanctioned by CDC and Php1.00 per litter for those
bringing-in petroleum fuel from outside sources. The policy guidelines were implemented
effective July 27, 2002.

The petitioner Chevron Philippines Inc (formerly Caltex Philippines Inc) who is a fuel supplier
to Nanox Philippines, a locator inside the CSEZ, received a Statement of Account from CDC
billing them to pay the royalty fees amounting to Php115,000 for its fuel sales from Coastal
depot to Nanox Philippines from August 1 to September 21, 2002.

Petitioner, contending that nothing in the law authorizes CDC to impose royalty fees based
on a per unit measurement of any commodity sold within the special economic zone,
protested against the CDC and Bases Conversion Development Authority (BCDA). They
alleged that the royalty fees imposed had no reasonable relation to the probably expenses
of regulation and that the imposition on a per unit measurement of fuel sales was for a
revenue generating purpose, thus, akin to a “tax”.

BCDA denied the protest. The Office of the President dismissed the appeal as well for lack of
merit.

Upon appeal, CA dismissed the case. CA held that in imposing the royalty fees, CDC was
exercising its right to regulate the flow of fuel into CSEZ under the vested exclusive right to
distribute fuel within CSEZ pursuant to its Joint Venture Agreement (JVA) with Subic Bay
Metropolitan Authority (SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI) dated April 11,
1996. The appellate court also found that royalty fees were assessed on fuel delivered, not
on the sale, by petitioner and that the basis of such imposition was petitioner’s delivery
receipts to Nanox Philippines. The fact that revenue is incidentally also obtained does not
make the imposition a tax as long as the primary purpose of such imposition is regulation.

When elevated in SC, petitioner argued that: 1) CDC has no power to impose fees on sale of
fuel inside CSEZ on the basis of income generating functions and its right to market and
distribute goods inside the CSEZ as this would amount to tax which they have no power to
impose, and that the imposed fee is not regulatory in nature but rather a revenue generating
measure; 2) even if the fees are regulatory in nature, it is unreasonable and are grossly in
excess of regulation costs.
Respondents contended that the purpose of royalty fees is to regulate the flow of fuel to
and from the CSEZ and revenue (if any) is just an incidental product. They viewed it as a valid
exercise of police power since it is aimed at promoting the general welfare of public; that
being the CSEZ administrator, they are responsible for the safe distribution of fuel products
inside the CSEZ.

Issue:
Whether the act of CDC in imposing royalty fees can be considered as valid exercise of the
police power.
Held:
Yes. SC held that CDC was within the limits of the police power of the State when it imposed
royalty fees.
In distinguishing tax and regulation as a form of police power, the determining factor is the
purpose of the implemented measure. If the purpose is primarily to raise revenue, then it
will be deemed a tax even though the measure results in some form of regulation. On the
other hand, if the purpose is primarily to regulate, then it is deemed a regulation and an
exercise of the police power of the state, even though incidentally, revenue is generated.

In this case, SC held that the subject royalty fee was imposed for regulatory purposes and
not for generation of income or profits. The Policy Guidelines was issued to ensure the
safety, security, and good condition of the petroleum fuel industry within the CSEZ. The
questioned royalty fees form part of the regulatory framework to ensure “free flow or
movement” of petroleum fuel to and from the CSEZ. The fact that respondents have the
exclusive right to distribute and market petroleum products within CSEZ pursuant to its JVA
with SBMA and CSBTI does not diminish the regulatory purpose of the royalty fee for fuel
products supplied by petitioner to its client at the CSEZ.

However, it was erroneous for petitioner to argue that such exclusive right of respondent
CDC to market and distribute fuel inside CSEZ is the sole basis of the royalty fees imposed
under the Policy Guidelines. Being the administrator of CSEZ, the responsibility of ensuring
the safe, efficient and orderly distribution of fuel products within the Zone falls on CDC.
Addressing specific concerns demanded by the nature of goods or products involved is
encompassed in the range of services which respondent CDC is expected to provide under
Sec. 2 of E.O. No. 80, in pursuance of its general power of supervision and control over the
movement of all supplies and equipment into the CSEZ.

There can be no doubt that the oil industry is greatly imbued with public interest as it vitally
affects the general welfare. Fuel is a highly combustible product which, if left unchecked,
poses a serious threat to life and property. Also, the reasonable relation between the royalty
fees imposed on a “per liter” basis and the regulation sought to be attained is that the
higher the volume of fuel entering CSEZ, the greater the extent and frequency of
supervision and inspection required to ensure safety, security, and order within the Zone.
Respondents submit that the increased administrative costs were triggered by security risks
that have recently emerged, such as terrorist strikes. The need for regulation is more evident
in the light of 9/11 tragedy considering that what is being moved from one location to
another are highly combustible fuel products that could cause loss of lives and damage to
properties.

As to the issue of reasonableness of the amount of the fees, SC held that no evidence was
adduced by the petitioner to show that the fees imposed are unreasonable. Administrative
issuances have the force and effect of law. They benefit from the same presumption of
validity and constitutionality enjoyed by statutes. These two precepts place a heavy burden
upon any party assailing governmental regulations. Petitioner’s plain allegations are simply
not enough to overcome the presumption of validity and reasonableness of the subject
imposition.

WHEREFORE, the petition is DENIED for lack of merit and the Decision of the Court of Appeals
dated November 30, 2005 in CA-G.R. SP No. 87117 is hereby AFFIRMED.
Petitioner: Angeles University Foundation

Respondents: City of Angeles, Juliet Quinsaat, in her capacity as Treasurer of Angeles City
and Engr. Donato N. Dizon, in his capacity as Acting Angeles City Building Official

Facts:

Petitioner Angeles University Foundation (AUF) is an educational institution established on

May 25, 1962 and was converted into a non-stock, non-profit education foundation under
the provisions of Republic Act (RA) No. 6055 on December 4, 1975.

On August 2005, petitioner filed with the Office of the City Building Official in the City of
Angeles Pampanga an application for a building permit for the construction of an 11-storey
building in its main Campus. A Building Permit Fee Assessment and an order of payment for
Locational Clearance Fees was issued by the said office.

Petitioner claimed, through a letter addressed to respondents City Treasurer and Acting City
Building Official, that it is exempted from the payment of the building permit and locational
clearance fees and cited legal opinions rendered by the Department of Justice (DOJ).

Respondents referred the matter to the Bureau of Local Government Finance (BLGF) of the
Department of Finance, which in turn endorsed the query to the DOJ. DOJ replied and
affirmed the claim of the petitioner.

Despite the petitioner’s plea, however, respondents refused to issue the building permit.
Petitioner then appealed the matter to the City Mayor but received no written response.
Consequently, petitioner paid under protest a total of P826,662.99 and the Building Permit
and other documents were issued afterwards.

Petitioner formally requested the respondents to refund the fees it paid under protest
through letters dated June 15, 2006 and August 7, 2006. But the respondents denied the
claim for refund.

On August 31, 2006, petitioner filed a Complaint before the trial court seeking for the refund
of P826,662.99 plus interest at a rate of 12% per annum, and for attorneys fee in the amount
of P300,000.00 and litigation expenses.

On September 21, 2007, the trial court rendered judgment in favor of the petitioner.
Respondents appeal to the CA which reversed the trial court’s decision. Petitioner filed a
motion for reconsideration but was denied.

So the petitioner filed a petition for review on certiorari before the Supreme Court.
Issue:

Whether or not the building permit fee is a tax from which petitioner is exempt.

Discussion:

The building permit fee is neither a tax nor a charge on property. Based on Sections 102, 103
and 104, the building permit fee is a regulatory imposition on certain activities the owner
may conduct either to build such structures or to repair, alter, renovate or demolish the
same. Since building permit fees are not charges on property, they are not impositions from
which petitioner is exempt.

As to petitioner’s argument that the building permit fees collected by respondents are in
reality taxes because the primary purpose is to raise revenues for the local government unit,
the same does not hold water.

A charge of a fixed sum which bears no relation at all to the cost of inspection and
regulation may be held to be a tax rather than an exercise of the police power. In this case,
the Secretary of Public Works and Highways who is mandated to prescribe and fix the
amount of fees and other charges that the Building Official shall collect in connection with
the performance of regulatory functions, has promulgated and issued the Implementing
Rules and Regulations which provide for the bases of assessment of such fees.

The court cited the case of CHEVRON PHILIPPINES, INC. VS. BASES CONVERSION
DEVELOPMENT AUTHORITY and explained the difference between tax and regulation:

IN DISTINGUISHING TAX AND REGULATION AS A FORM OF POLICE POWER, THE

DETERMINING FACTOR IS THE PURPOSE OF THE IMPLEMENTED MEASURE. IF THE
PURPOSE IS PRIMARILY TO RAISE REVENUE, THEN IT WILL BE DEEMED A TAX EVEN
THOUGH THE MEASURE RESULTS IN SOME FORM OF REGULATION. ON THE OTHER HAND,
IF THE PURPOSE IS PRIMARILY TO REGULATE, THEN IT IS DEEMED A REGULATION AND AN
EXERCISE OF THE POLICE POWER OF THE STATE, EVEN THOUGH INCIDENTALLY, REVENUE
IS GENERATED.

In GEROCHI V. DEPARTMENT OF ENERGY, the Court stated:

THE CONSERVATIVE AND PIVOTAL DISTINCTION BETWEEN THESE TWO (2) POWERS RESTS
IN THE PURPOSE FOR WHICH THE CHARGE IS MADE. IF GENERATION OF REVENUE IS THE
PRIMARY PURPOSE AND REGULATION IS MERELY INCIDENTAL, THE IMPOSITION IS A TAX;
BUT IF REGULATION IS THE PRIMARY PURPOSE, THE FACT THAT REVENUE IS INCIDENTALLY
RAISED DOES NOT MAKE THE IMPOSITION A TAX. The petition was denied and the decision of
the Court of Appeals was affirmed.
Ferrer vs Bautista

June 30, 2015

Facts:
 The City of Quezon passed two ordinances namely.
 The first one was the Socialized Housing Tax of QC allowing the imposition of special
assessment (1/2 of the assessed valued of land in excess of P100k)
 The second one was Ordinance No. SP-2235, S-2013 on Garbage Collection Fees
imposing fees depending on the amount of the land or floor area).
 Jose Ferrer, as a property in Quezon City questioned the validity of the city ordinances.
 According to Ferrer:
 The city has no power to impose the tax.
 The SHT violates the rule on equality because it burdens real property owners
with expenses to provide funds for the housing of informal settlers.
 The SHT is confiscatory or oppressive.
 Also, he assails the validity of the garbage fees imposition because:
 It violates the rule on double taxation.
 It violates the rule on equality because the fees are collected from only domestic
households and not from restaurants, food courts, fast food chains, and other
commercial dining places that spew garbage much more than residential property
owners.

Issue: WON the ordinances were valid.

Held: 1st ordinance: Socialized Housing Tax of Quezon City is valid.

Cities have the power to tax

It must be noted that local government units such as cities has the power to tax. The
collection for the socialized housing tax is valid. It must be noted that the collections were
made to accrue to the socialized housing programs and projects of the city.

The imposition was for a public purpose (exercise of power of taxation + police power)
In this case, there was both an exercise of the power to tax (primary) and police power
(incidental). Removing slum areas in Quezon City is not only beneficial to the
underprivileged and homeless constituents but advantageous to the real property owners
as well.
The situation will improve the value of the their property investments, fully enjoying the
same in view of an orderly, secure, and safe community, and will enhance the quality of life
of the poor, making them law-abiding constituents and better consumers of business
products.

There is no violation of the rule on equality

Note: There is a substantial distinction between: real property owner and an informal settler.
In fact, the Supreme Court said that the disparity is so obvious. It is inherent in the power to
tax that a State is free to select the subjects of taxation. Inequities which result from a
singling out of one particular class for taxation or exemption infringe no constitutional
limitation.

All these requisites are complied with: An ordinance based on reasonable classification does
not violate the constitutional guaranty of the equal protection of the law. The requirements
for a valid and reasonable classification are: (1) it must rest on substantial distinctions; (2) it
must be germane to the purpose of the law; (3) it must not be limited to existing conditions
only; and (4) it must apply equally to all members of the same class.

The ordinance is not oppressive or confiscatory

The ordinance is also not oppressive since the tax rate being imposed is consistent with the
UDHA (Urban Development and Housing Act of 1992). While the law authorizes LGUs to
collect SHT on properties with an assessed value of more than P50,000.00, the questioned
ordinance only covers properties with an assessed value exceeding P100,000.00. As well, the
ordinance provides for a tax credit equivalent to the total amount of the special assessment
paid by the property owner beginning in the sixth (6th) year of the effectivity of the
ordinance.
CIR vs. PLDT

Dec. 15, 2005

1. From 1992-1994, PLDT paid taxes amounting to more than 164 M pesos for
equipment, machineries, and spare parts it imported for its business and also paid
VAT amounting to more than 116 M pesos for similar importations.
2. It then sought a confirmatory ruling on its tax exemption privileges under S. 12, RA
7082- the law that granted its franchise.
3. BIR then responded by saying that the said company shall only be subjected to 3%
franchise tax on gross receipts “in lieu of all taxes”. Thus, it shall also be exempted
from VAT.
4. Armed by this ruling, PLDT claimed for tax refund amounting to more than 280 M
pesosesoses representing the compensating taxes, advance sales taxes, VAT and
other internal revenue taxes alleged to have been erroneously paid on its
importations.
5. Not having been acted upon by the BIR, it filed a petition for review before the CTA
which ruled in its favour but reduced the total amount to 223M+ pesoses. CTA
associate judge Saga dissented and said that the phrase in lieu of all taxes in the
aforementioned provision only covers direct taxes.
6. On appeal, the CA affirmed the CTA decision. Hence, this petition.

Issue: W/N the phrase “in lieu of all taxes” found in S. 12 of RA 7082 granting the tax
exemption to PLDT also covers indirect taxes and therefore exempts the company from
paying VAT and other indirect taxes.

Held:

The court started out by explaining the difference between direct and indirect taxes.

Direct taxes are those that are exacted from the very person who, it is intended or desired,
should pay them; they are impositions for which a taxpayer is directly liable on the
transaction or business he is engaged in.

On the other hand, indirect taxes are those that are demanded, in the first instance, from, or
are paid by, one person in the expectation and intention that he can shift the burden to
someone else.
It then went on by saying that VAT is an indirect tax- the amount of which may be shifted to
the buyer, transferee, or lessee of goods and is imposed on all taxpayers who import goods
unless under exempted transactions under S. 109 of the Revenue code.

It was also revealed that VAT on importation replaced advance sales tax paid by regular
importers. The court then explained the concepts of the following:

1. Advance sales tax- having attributes of indirect tax, laying the economic burden
on the purchaser;
2. Compensation tax- an excise tax to place, for tax purposes, persons purchasing
from merchants in the PH on a more or less equal basis withose who buy directly
from foreign countries.

It further ruled that the liability of indirect tax payment lies only with the seller who cannot
invoke the exemption privileges to avoid passing VAT to him by manufacturers or suppliers
of goods bought. Thus, it is important to determine if tax exemption includes indirect taxes.
Otherwise, the presumption is such exemption only includes direct taxes.

As a rule, exemption is the exception. Statutes granting it must be construed in strictissimi

juris (in the strictest letter of the law.) It must be interepreted strictly against the taxpayer
and liberally in favour of the taxing authority. The burden of justifying exemption lies on the
one claiming for the refund or exemption.

In this case, the phrase: “in lieu of all taxes” was immediately followed by: “on this franchise
or earnings thereof” which is considered as a limiting phrase.

The SC also used the maxim: Redendo singular singulis which means: take the words
distributively and apply the reference; each word or phrase must be given its proper
connection in order to give it proper force and effect rendering none of them useless or
superfluous.

Hence, the CTA and CA decisions’ practice of employing the literal meaning of the provision
is entirely fallacious. Tax exemption means a loss of revenue to the government and should
not rest on vague reference.

As for the refund of advance sales tax and compensating tax amounting to more than 94 M
pesos, it was granted by the SC since it was admitted by the BIR that VAT on importations
already replaced these taxes.

Thus, the petition was just partially granted.

ASIA INTERNATIONAL AUCTIONEERS v. GUILLERMO L. PARAYNO, GR No. 163445, 2007-12-18

Facts:
On June 3, 2003, then CIR Guillermo L. Parayno, Jr. issued Revenue Memorandum Circular (RMC)
No. 31-2003 setting the "Uniform Guidelines on the Taxation of Imported Motor Vehicles
through the Subic Free Port Zone and Other Freeport Zones that are Sold at Public Auction.
Petitioners Asia International Auctioneers, Inc. (AIAI) and Subic Bay Motors Corporation...
corporations
Philippine... with principal place of business within the SSEZ.
They are engaged in the importation of mainly secondhand or used motor vehicles and heavy...
transportation or construction equipment which they sell to the public through auction.
Petitioners filed a complaint before the RTC of Olongapo City, praying for the nullification of
RMC No. 31-2003 for being unconstitutional and an ultra vires act.
Respondents CIR, Regional Director and Revenue District Officer submitted their joint
"Opposition
Respondents CIR, BIR Regional Director and BIR
Revenue District Officer also filed their joint Motion to Dismiss on the grounds that "[t]he trial
court has no jurisdiction over the subject matter of the complaint"... the trial court... petitioners'
application for the issuance of a writ of preliminary injunction is hereby GRANTED
Consequently, respondents CIR,... Petitioners contend that jurisdiction over the case at bar
properly pertains to the regular courts as this is "an action to declare as unconstitutional, void
and against the provisions of [R.A. No.] 7227" the RMCs issued by the CIR
They explain that they "do not challenge... the rate, structure or figures of the imposed taxes,
rather they challenge the authority of the respondent Commissioner to impose and collect the
said taxes.
They claim that the challenge on the authority of the CIR to issue the RMCs does not fall within
the jurisdiction of the
Court of Tax Appeals (CTA).
Petitioners point out that the CA based its decision on Section 7 of R.A. No. 1125 that the CTA
"shall exercise exclusive appellate jurisdiction to review by appeal..." decisions of the CIR
They argue that in the instant case, there is no decision of the respondent CIR... on any disputed
assessment to speak of as what is being questioned is purely the authority of the CIR to impose
and collect value-added and excise taxes.
Having declared the court a quo without jurisdiction over the subject matter of the instant case,
any further disquisition would be obiter dictum.
Issues:
[W]hich Court- the regular courts of justice established under Batas Pambansa Blg. 129 or the
Court of Tax Appeals - is the proper court of jurisdiction to hear a case to declare Revenue
Memorandum Circulars unconstitutional... does the trial court have jurisdiction over the subject
matter of this case?
Ruling:
There is thus no reason to preclude the CA from ruling on this issue even if allegedly, the same
has not yet been resolved by the trial court.
R.A. No. 1125, as amended, states:
Sec. 7
The Court of Tax Appeals shall exercise exclusive appellate jurisdiction
Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,...
other matters arising under the National Internal Revenue Code or other... laws or part of law
administered by the Bureau of Internal Revenue
RMCs are considered administrative rulings which are issued from time to time by the CIR.
Pursuant to this, the CIR issued General Circular No. V-148 which stated that "bona fide and...
active members of duly organized gun clubs and accredited by the Provost Marshal General...
shall pay an initial fee of fifteen pesos and an annual fee of five pesos for each firearm held on
license except caliber .22 revolver or rifle."... filed an action... in the Court of First Instance (now
RTC) of Manila for the nullification of the circular and the refund of P5... the action was not an
appeal from a ruling of the CIR but merely an attempt to nullify General
Circular No. V-148, hence, not within the jurisdiction of the CTA.
[R.A.] No. 1125, section 7 of which provides that the [CTA] "shall exercise exclusive appellate
jurisdiction to review by appeal * * * decisions of the Collector of Internal Revenue in * * *
matters arising under the National Internal Revenue
Code or other law or part of law administered by the Bureau of Internal Revenue."
Leal then filed a petition for prohibition with the RTC of San Mateo, Rizal, seeking to prohibit
petitioner CIR from implementing the revenue orders.
CIR, through the OSG, filed a motion to dismiss on the ground of lack of jurisdiction.
"[t]he questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the
Commissioner implementing the Tax Code on the taxability of pawnshops.
The Court held that under
R.A. No. 1125 (An Act Creating the Court of Tax Appeals), as amended, such rulings of the CIR are
appealable to the CTA.
In the case at bar, the assailed revenue regulations and revenue memorandum circulars are
actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public
auction within the SSEZ to implement Section 12 of R.A. No. 7227 which provides that
"exportation or removal of goods from the territory of the [SSEZ] to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines."
In the case at bar, the assailed revenue regulations and revenue memorandum circulars are
actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public
auction within the SSEZ to implement Section 12 of R.A. No. 7227 which provides that
"exportation or removal of goods from the territory of the [SSEZ] to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines." They were issued pursuant... to the power
of the CIR under Section 4 of the National Internal Revenue Code,... The power to decide... other
matters arising under this Code or other laws or portions thereof administered by the Bureau of
Internal Revenue is... vested in the Commissioner, subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals.