G.R. No.

L-11433 December 26, 1958

CEBU PORTLAND CEMENT COMPANY, petitioner,

vs.
COURT OF INDUSTRIAL RELATIONS AND PHILIPPINE LAND-AIR-SEA LABOR UNION (PLASLU),respondents.

Government Corporate Counsel Ambrosio Padilla, First Assistant Government Corporate Counsel Simeon M.
Gopengco and Lorenzo R. Mosqueda for petitioner.
Francisco M. de los Reyes for respondent CIR.
Emilio Lumontad for respondent PLASLU.

LABRADOR, J.:

Appeal by certiorari from a decision rendered by the Court of Industrial Relations ordering the petitioner herein, to pay
the members of the Philippine Land-Air-Sea Labor Union (PLASLU) one month salary each, the same to correspond
to the years 1947, 1948, 1949 and 1950. The proceeding in which the appealed decision was rendered was started
by an incidental motion dated February 10, 1953, filed before the respondent court in a case decided by it on April 27,
1951, and entitled PLASLU, petitioner vs. Cebu Portland Cement Company, respondent, Case No. 241-V & V(1, 2, 3
& 4). The incidental motion alleged that during the years 1947, 1948, 1949 and 1950, the respondent obtained a net
profit of over two million pesos each year and in the years 1951 and 1952, one million pesos each year; that because
of such enormous profits the employees and laborers of the respondent should be given share in said profits, in the
form of a bonus equivalent to 12% of the net profits realized. It is to be remembered that by resolution of the
respondent company, numbered 197 and dated November 7, 1952, Christmas bonus was given to all the employees
of said respondent.

A motion to dismiss the "incidental motion" was denied; so the respondent answered claiming that the giving of bonus
is not an established policy and practice of the respondent but that the same is granted only when its finances
warrant; that the alleged profits made from 1947 to 1952 had already been spent, applied or earmarked to cover the
construction of its new projects, to purchase the necessary properties, plant equipment, etc., such, that the
respondent has current liabilities to the extent of P2,976,004.24 and that it also has a long-term obligation with the
Rehabilitation Finance Corporation in the amount of P6,899,762.09; that the resolution referred to in the motion, No.
197, was disapproved by the Cabinet. By way of special defense respondent alleged that payment of bonus is not a
contractual obligation, but a mere bounty which cannot be demanded by petitioner as a matter of right; that the grant
of bonus by the respondent will create injustice and discrimination against employees of other Government
corporations similarly situated; that if any payment is desired, especially in connection with resolution No. 197, the
appeal should be made to the Chief Executive.

The "incidental motion" was filed in Court of Industrial Relations Case No. 241-V, which was instituted as early as
December 28, 1949 and, as stated above, decided on April 27, 1951. The petition in Case No. 241-V presented
various demands, among which are an increase of salary by 100 percent; enforcement of the eight-hour labor law; a
pay of 100 percent for overtime work, or an additional 100 percent over salary for overtime work and for work done
during Sundays and holidays; permanency for all the members of the petitioner; vacation leave of 15 days and sick
leave of 15 days; free hospitalization and medical and dental services; double compensation to be awarded to
employees suffering from accident; minimum wage at P5 a day or a monthly salary of P150; recognition of the
PLASLU as the sole collective bargaining agency, etc. Note that no demand for participation in the profits or bonus
was made. In the decision the demands for the observance of the eight-hour labor law, a 25% increase for overtime
pay or for work done during on Sundays and holidays, a grant of 15 days vacation-and 15 days sick leave for every
year of continuous service, etc., were granted. Note also that no participation in profits or bonus was
given.lawphi1.net

On February 24, 1956, the original "incidental motion" was superseded by an "amended incidental motion." The
amendment consists in that instead of a share in the profits, it is demanded that respondent pay bonus each year,
from the years 1947 to 1952, together with back bonus differentials equivalent to one month salary each year for the
years 1953, 1954 and 1955. When the incidental motion was first filed in 1953 a motion to dismiss was presented.
Against the amended incidental motion, respondent also presented a motion to dismiss on the ground that as the
petition for bonus belongs to conditions of employment and/or affects rates of pay of employees, the matter does not
fall within the jurisdiction of the Court of Industrial Relations because the provisions of the Industrial Peace Act,
specifically Section 7 of Republic Act No. 875, reads as follows:lawphil.net

SEC. 7. Fixing Working Conditions by Court Order. — In order to prevent undue restriction of free enterprise
for capital and labor and to encourage the truly democratic method of regulating the relations between the
employer and employee by means of an agreement freely entered into in collective bargaining, no court of
the Philippines shall have the power to set wages, rates of pay, hours of employment, or conditions of
employment except as in this Act is otherwise provided and except as is provided in Republic Act Numbered
Six hundred two and Commonwealth Act Numbered Four hundred and forty-four as to hours of work.

Petitioner replied that the matter dealt with in the amended incidental motion is an incident of the main case flied
before the effectivity of Republic Act No. 875 and, therefore, it must be processed and terminated by the Court of
Industrial Relations, in accordance with the provisions of C. A. No. 103. In support of this answer petitioner cites
Section 27 of Republic Act No. 875. As the motion to dismiss was denied, respondent company filed an answer
practically containing the same defenses set forth in its answer to the original "incidental motion".

The Court of Industrial Relations held that the demand for profit-sharing in the original incidental motion or the
demand for Christmas bonus in the amended incidental motion was not included in the main case (CIR Case No.
241-V). It also found that when the original incidental motion was filed on February 10, 1953, there was no actual
industrial dispute involving the parties because the parties had abided by the decision of the court and only one issue
remained, which was the reinstatement of one employee named Carlos Flores. But the court reasoned that the
original demand for profit-sharing contained in the incidental motion of February, 1953 may be considered "as a
separate case involving the same parties for arbitration to prevent further industrial dispute." The court said that the
amendment demanding Christmas bonus instead of profit-sharing was submitted on February 24, 1956, after the
Industrial Peace Act had already been approved, but that, however, this demand for Christmas bonus should be
considered effective as of the date of the filing of the original incidental motion in February, 1953 and that the court,
therefore, had the jurisdiction to settle the demand in accordance with the provisions of C. A. No. 103.

Going now to the merits of the petition or incidental motion, the court finally concluded:

The absence of proof that there was a promise of any sort on the part of respondent to give christmas bonus
to its employees for the years 1947 to 1950 militate strongly against its grant for those years. Moreover, the
Court is not prepared to state that prewar wage pattern could be used as the same pattern after the war for
the reason that under the very nature of things, economic conditions then could not be the same or binding
conditions after the war.

It appears, however, that by consolidating the remaining cash profits for the years 1947, 1948, 1949 and
1950 — excluding those for 1951, 1953 and 1955 inasmuch as there was a grant of christmas bonus for
these years; and 1952, as it was withdrawn by petitioner — there would remain a sufficient amount that
could meet at least one year's liability for christmas bonus at the rate of one month salary of all the
employees; and considering that an outright denial of this demand might spark a general feeling of
discontent among respondent's employees which could prove demoralizing as to affect their efficiency or
even result in protracted disputes, the court, in the interest of justice and equity and its duty to prevent
further dispute between the parties herein hereby enters an award of christmas bonus on the basis of one
month salary for entire years covered by the claim (not for each year) in favor of the members of
petitioner.lawphil.net

There is no question that the original incidental motion as well as the amended incidental motion, the former calling
for a participation in the profits and the latter for a Christmas bonus, may not under any circumstances whatsoever be
considered as a continuation of the original case, CIR Case No. 241-V or an implementation of the decision
contained therein. This fact is recognized by the court below itself. As a matter of fact, the court considered that the
demand for profit-sharing as well as the demand for bonus is a separate case. Not being considered as a
continuation of the original case or an implementation of the decision rendered therein, the original incidental motion
should be considered as a new case for the express reason that the demand therein has no relation absolutely with
the demands contained in the petition originating the first case.lawphil.net Any party in the old case may not, under
the pretext that it is a continuation of the old case, bring forth by incidental motion in the same original case, any new
matter. We would venture further and say that even if the matter has some relation to the demands contained in the
original case, if the matter does not involve an execution of the decision, it would still be improper to permit its
introduction by mere motion; a new action or new petition must be instituted. Because petitioner in the original case is
the same movant in the case at bar and the respondent in the original case is also the respondent in the motions at
bar, is no excuse for bringing up new demands on the ground that they are a continuation of the original case. The
incidental motions, original and amended, should, therefore, be considered as new cases and the power of the Court
of Industrial Relations to take cognizance thereof should be governed by the law or laws in force at the time of their
presentation.

Similarly, the demand for Christmas bonus contained in the amended incidental motion may not be considered as a
mere amendment of the original incidental motion demanding share in the profits. A participation in the profits claimed
by employees is entirely distinct and different from a Christmas bonus. It was, therefore, error on the part of the Court
of Industrial Relations to consider the amended incidental motion demanding Christmas bonus as having been
presented in the year 1953, the time of the presentation of the original incidental motion.

With the above matter clearly defined, the issue which now presents itself is whether on February 24, 1956, the Court
of Industrial Relations had jurisdiction to consider or take cognizance of the petition for Christmas bonus. There is no
question, as the court below has found, that Christmas bonus is a condition of employment. With the passage of the
Industrial Peace Act, Republic Act No. 875, the Court of Industrial Relations has ceased to have jurisdiction over
conditions of employment, except when the same may be considered as causing an industrial dispute causing or
likely to cause a strike or lockout in accordance with the provisions of Section 7 of the Industrial Peace Act. Nowhere
in the records does it appear that when the demand for Christmas bonus was presented in February 24, 1956, said
demand for Christmas bonus was causing or likely to cause a strike or lockout. It is not the possibility or probability
that such demand for Christmas bonus may occasion an industrial dispute that authorizes the Court of Industrial
Relations to take jurisdiction. Besides, said Section 7 of the Industrial Peace Act requires that the industrial dispute
be submitted by the Secretary of Labor to the Industrial Court. It is this certification by the Secretary of Labor that
authorizes the Court of Industrial Relations to take cognizance of an industrial dispute, or a difference in wages or
conditions of labor. The law authorizes also any or both parties to submit an industrial dispute for arbitration by the
Court of Industrial Relations, but there is no such move or petition on the part of any or both of the parties in this
case. Nowhere does it appear from the amended incidental motion that an industrial dispute has arisen by reason of
the refusal of the petitioner Cebu Portland Cement Company to pay the Christmas bonus. The right to Christmas
bonus was being demanded on the ground that payment of the same has been the established policy and practice of
the company and as a supposed incident of the original case.

From the foregoing considerations, we hold that the Court of Industrial Relations had no jurisdiction over the demand
for bonus, and the order appealed from should be reversed and the amended incidental motion dismissed. Without
costs.

Paras, C. J., Bengzon, Padilla, Bautista Angelo, Concepcion, Reyes, J. B. L. and Endencia, JJ., concur.
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.5 Sixteen 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.

Teehankee, C.J., Narvasa, Gancayco and Griño-Aquino, JJ., concur.

G.R. No. L-18129 January 31, 1963

C. N. HODGES, petitioner-appellant,
vs.
THE MUNICIPAL BOARD OF THE CITY OF ILOILO, ET AL., respondents-appellants.

Leon P. Gellada and Norberto J. Posecion for petitioner-appellant.

Filemon R. Consolacion for respondents-appellants.

BAUTISTA ANGELO, J.:

On June 13, 1960, the Municipal Board of the City of Iloilo enacted Ordinance No. 33, series of
1960, pursuant to the provisions of Republic Act No. 2264, known as the Local Autonomy Act,
requiring any person, firm, association or corporation to pay a sales tax of 1/2 of 1% of the selling
price of any motor vehicle and prohibiting the registration of the sale of the motor vehicle in the
Motor Vehicles Office of the City of Iloilo unless the tax has been paid. It is expressly required
therein that the payment of the municipal tax shall be a requirement for registration and transfer of
ownership, the tax to be paid in the office of the city treasurer, and that the tax receipt shall be made
part of the documents to be presented to the Motor Vehicles Office..

C. N. Hodges, who was engaged in the business of buying and selling second-hand motor vehicles
in the City of Iloilo, is one of those affected by the enactment of the ordinance, and believing that the
same is invalid for having been passed in excess of the authority conferred by law upon the
municipal board, he filed on June 27, 1960 a petition for declaratory judgment with the Court of First
Instance of Iloilo praying that said ordinance be declared void ab initio, and that the City of Iloilo be
ordered to refund to him the amounts he was required to pay thereunder without prejudice to
determining its validity in an appropriate action.

The City of Iloilo, in its answer, justified the approval of the ordinance alleging that the same was
approved by virtue of the power and authority granted to it by Section 2 of Republic Act No. 2264,
known as the Local Autonomy Act.

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.
1äwphï1.ñët

A copy of the petition for declaratory judgment was furnished the Solicitor General in accordance
with Section 4, Rule 66, of the Rules of Court.

The case having been submitted under a stipulation of facts, the court a quo rendered decision on
December 8, 1960 holding that that part of the ordinance which requires the owner of a used motor
vehicle to pay a sales tax of 1/2 of 1% of the selling price is valid, but the portion thereof which
requires the payment of the tax as a condition precedent for the registration of the sale in the Motor
Vehicles Office is invalid for being repugnant to Section 2(h) of Republic Act 2264.

Both parties have appealed.

Section 2 of Republic Act No. 2264, known as the Local Autonomy Act pursuant to which the
ordinance in question was approved by the Municipal Board of the City of Iloilo, provides in part:

SEC. 2. Taxation.— Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal license taxes
or fees upon persons engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts by requiring them to secure licenses at
rates fixed by the municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to collect fees and
charges for services rendered by the city, municipality or municipal district; to regulate and
impose reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and otherwise to
levy for public purposes, just and uniform taxes, licenses or fees; Provided, That
municipalities and municipal districts shall, in no case, impose any percentage tax on sales
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: ....
It would appear that the City of Iloilo, thru its municipal board, is empowered (a) to impose municipal
licenses, taxes or fees upon any person engaged in any occupation or business, or exercising any
privilege, in the city; (b) to regulate and impose reasonable fees for services rendered in connection
with any business, profession or occupation conducted within the city; and (c) to levy for public
purposes just and uniform taxes, licenses or fees. It would also appear that municipalities and
municipal districts are prohibited from imposing any percentage tax on sales or other taxes in any
form on articles subject to specific tax, except gasoline, under the provisions of the National Internal
Revenue Code.

From the cursory analysis of the provisions above-stated we can readily draw the conclusion that the
City of Iloilo has the authority and power to approve the ordinance in question for it merely imposes
a percentage tax on the sale of a second-hand motor vehicle that may be carried out within the city
by any person, firm, association or corporation owning or dealing with it who may come within the
jurisdiction. Indeed, it cannot be disputed that a sales tax of 1/2 of 1% of the selling price of a
second-hand motor vehicle comes within the category of a just tax within the provision of Section 2
of Republic Act 2264. It is true that the tax in question is in the form of a percentage tax on the
proceeds of the sale of a second-hand motor vehicle which comes within the prohibition of the
section above adverted to; but the prohibition only refers to municipalities and municipal districts and
does not comprehend chartered cities as the City of Iloilo.

But the ordinance, besides imposing a percentage tax, also imposes an additional requirement. It
provides that the payment of the tax shall be a requirement for registration and transfer of ownership
and that unless the tax is paid the registration and transfer of ownership cannot be effected in the
Motor Vehicles Office of the City. The Court a quo considered this portion invalid reasoning as
follows: "Chartered cities are not authorized to establish any condition on the registration of Motor
vehicles. To require the payment of sales tax before the registration of the sale can be made in the
Motor Vehicles Office, is tantamount to imposing a tax for the registration of motor vehicles."

We disagree. The court a quo undoubtedly had in mind the provisions of Section 2(h) of Republic
Act No. 2264 which prohibits a chartered city from imposing a tax on the registration of motor
vehicles and the issuance of all kinds of licenses or permits for the driving thereof, which is one of
the exceptions constituting a restriction on the taxation power granted by said Act to a city,
municipality or municipal district. But the requirement of the ordinance cannot be considered a tax in
the light viewed by the court a quo for the same is merely a coercive measure to make the
enforcement of the contemplated sales tax more effective. Well-settled is the principle that taxes are
imposed for the support of the government in return for the general advantage and protection which
the government affords to taxpayers and their property (Union Refrigerator Transit Co. v. Com., 26
S. Ct. 36, 199 I [2nd] 160). Taxes are the lifeblood of the government. It is imperative that the power
to impose them to be clothed with the implied authority to devise ways and means to accomplish
their collection in the most effective manner. Without this implied power the end of government may
falter or fail.

It is a general and undisputed proposition of law that a municipal corporation possesses and
can exercise the following powers, and no others: First, those granted in express words;
second, those necessarily or fairly implied in or incident to the powers expressly granted;
third, those essential to the accomplishment of the declared objects and purposes of the
corporation not simply convenient, but indispensable. (Dillon, Municipal Corporations, 5th
Ed., Vol. I, p. 449; citing Cook Co. v. McCrea, 93 Ill. 236; Ottawa v. Carey, 108 U.S., 110)

Municipal corporations may exercise all powers in the fair intent and purpose of their creation
which are reasonably proper to give effect to the powers expressly granted, and in so doing
they gave the choice of the means adapted to the ends and are not confined to any one
mode of operation. (62 C.J.S., Section 117, citingSpahn v. Stewart, 103 S.W. 2d 651, 559,
268 Ky. 97; Riddle v. Ledbetter, 5 S.E., 2d 542, 216 N.C. 491)

If the power of municipalities are to be confined to those expressly granted by the law, in
many cases they will be denied even the power of self-preservation as well as of the means
necessary to accomplish the essential object of their creation. Hence in giving corporations
authority to carry out the powers expressly granted to them, it is understood that they are
also given the power to adopt such means as may be necessary for accomplishing their
ends (Sinco, Philippine Political Law, l0th ed., p 688, citing Smith v. New Bern, 16 Am. Rep.
766.)
We are therefore, of the opinion that the ordinance in question is valid it being a valid exercise of the
power of taxation granted to Iloilo City by Section 2 of Republic Act No. 2264.

WHEREFORE, the decision appealed from is modified by declaring Ordinance No. 22 of the City of
Iloilo valid even with regard to the portion which requires the payment of the tax as a condition
precedent for the registration of the sale in the Motor Vehicles Office of said city. No costs.

Bengzon, C.J., Labrador, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
Concepcion and Reyes, J.B.L., JJ., vote for affirmance.
Padilla, J., took no part.
G.R. No. L-4376 May 22, 1953

ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants,

vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY
MAYOR, all of the City of Manila, respondents-appellees.

Teotimo A. Roja for appellants.

City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees.

BAUTISTA ANGELO, J.:

This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the
Municipal Board of the City of Manila on March 24, 1950.

The Association of Customs Brokers, Inc., which is composed of all brokers and public service
operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said
association, also a public service operator of the trucks in said City, challenge the validity of said
ordinance 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, represented by the city fiscal, 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.

The issues having been joined, the Court of First Instance of Manila sustained the validity of the
ordinance and dismissed the petition. Hence this appeal.

The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority
conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the municipal board
the power "to tax motor and other vehicles operating within the City of Manila the provisions of any
existing law to the contrary notwithstanding." It is contended that this power is broad enough to
confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor
vehicles operating within the city limits.

In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the
Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the municipal
corporation to impose tax on motor vehicles operating in any highway in the Philippines. The
pertinent provisions are contained in section 70 (b) which provide in part:

No further fees than those fixed in this Act shall be exacted or demanded by any public
highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the
operation of any motor vehicle by the owner thereof: Provided, however, That nothing in this
Act shall be construed to exempt any motor vehicle from the payment of any lawful and
equitable insular, local or municipal property tax imposed thereupon. . . .

Note that under the above section no fees may be exacted or demanded for the operation of any
motor vehicle other than those therein provided, the only exception being that which refers to the
property tax which may be imposed by a municipal corporation. This provision is all-inclusive in that
sense that it applies to all motor vehicles. In this sense, this provision should be construed as limiting
the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When
section 18 of said Charter provides that the City of Manila can impose a tax on motor vehicles
operating within its limit, it can only refers to property tax as a different interpretation would make it
repugnant to the Motor Vehicle Law.

Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying a
Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in its section 1 it
provides that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds
of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended
exclusively for the repair, maintenance and improvement of its streets and bridges." Considering the
wording used in the ordinance in the light in the purpose for which the tax is created, can we
consider the tax thus imposed as property tax, as claimed by respondents?

While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities,
the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered
from the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a
tax is in its nature an excise, it does not become a property tax because it is proportioned in amount
to the value of the property used in connection with the occupation, privilege or act which is taxed.
Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a
tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a
privilege, or the engaging in an occupation, it will be considered an excise." (26 R. C. L., 35-36.) It
has also been held that

The character of the tax as a property tax or a license or occupation tax must be determined
by its incidents, and from the natural and legal effect of the language employed in the act or
ordinance, and not by the name by which it is described, or by the mode adopted in fixing its
amount. If it is clearly a property tax, it will be so regarded, even though nominally and in
form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons
on account of their business, it will be construed as a license or occupation tax, even though
it is graduated according to the property used in such business, or on the gross receipts of
the business. (37 C.J., 172)

The ordinance in question falls under the foregoing rules. While it refers to property tax and it is
fixed ad valorem yet we cannot reject the idea that it is merely levied on motor vehicles operating
within the City of Manila with the main purpose of raising funds to be expended exclusively for the
repair, maintenance and improvement of the streets and bridges in said city. This is precisely what
the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act,
municipal corporation already participate in the distribution of the proceeds that are raised for the
same purpose of repairing, maintaining and improving bridges and public highway (section 73 of the
Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees for
the same purpose. It is for this reason that we believe that the ordinance in question merely imposes
a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above
adverted to.

It is also our opinion that 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. The distinction is important if we note that the ordinance intends to burden with the tax
only those registered in the City of Manila as may be inferred from the word "operating" used therein.
The word "operating" denotes a connotation which is akin to a registration, for under the Motor
Vehicle Law no motor vehicle can be operated without previous payment of the registration fees.
There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a
temporary stay or for short errands, and it cannot be denied that they contribute in no small degree
to the deterioration of the streets and public highway. The fact that they are benefited by their use
they should also be made to share the corresponding burden. And yet such is not the case. This is
an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void.

Paras, C.J., Bengzon and Tuason, JJ., concur.

Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result.
G.R. Nos. L-28508-9 July 7, 1989

ESSO STANDARD EASTERN, INC., (formerly, Standard-Vacuum Oil Company), petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

Padilla Law Office for petitioner.

CRUZ, J.:

On appeal before us is the decision of the Court of Tax Appeals 1 denying petitioner's claims for
refund of overpaid income taxes of P102,246.00 for 1959 and P434,234.93 for 1960 in CTA Cases
No. 1251 and 1558 respectively.

In CTA Case No. 1251, petitioner 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. This claim was disallowed by the respondent Commissioner of Internal
Revenue on the ground that the expenses should be capitalized and might be written off as a loss
only when a "dry hole" should result. ESSO then filed an amended return where it asked for the
refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also
claimed as ordinary and necessary expenses in the same return was the amount of P340,822.04,
representing margin fees it had paid to the Central Bank on its profit remittances to its New York
head office.

On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed
deduction for the margin fees paid.

In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year 1960, in the
amount of P367,994.00, plus 18% interest thereon of P66,238.92 for the period from April 18,1961 to
April 18, 1964, for a total of P434,232.92. The deficiency arose from the disallowance of the margin
fees of Pl,226,647.72 paid by ESSO to the Central Bank on its profit remittances to its New York
head office.

ESSO settled this deficiency assessment on August 10, 1964, by applying the tax credit of
P221,033.00 representing its overpayment on its income tax for 1959 and paying under protest the
additional amount of P213,201.92. On August 13, 1964, it claimed the refund of P39,787.94 as
overpayment on the interest on its deficiency income tax. It argued that the 18% interest should have
been imposed not on the total deficiency of P367,944.00 but only on the amount of P146,961.00, the
difference between the total deficiency and its tax credit of P221,033.00.

This claim was denied by the CIR, who insisted on charging the 18% interest on the entire amount of
the deficiency tax. On May 4,1965, the CIR also denied the claims of ESSO for refund of the
overpayment of its 1959 and 1960 income taxes, holding that the margin fees paid to the Central
Bank could not be considered taxes or allowed as deductible business expenses.

ESSO appealed to the CTA and sought the refund of P102,246.00 for 1959, contending that the
margin fees were deductible from gross income either as a tax or as an ordinary and necessary
business expense. It also claimed an overpayment of its tax by P434,232.92 in 1960, for the same
reason. Additionally, ESSO argued that even if the amount paid as margin fees were not legally
deductible, there was still an overpayment by P39,787.94 for 1960, representing excess interest.

After trial, the CTA denied petitioner's claim for refund of P102,246.00 for 1959 and P434,234.92 for
1960 but sustained its claim for P39,787.94 as excess interest. This portion of the decision was
appealed by the CIR but was affirmed by this Court in Commissioner of Internal Revenue v.
ESSO, G.R. No. L-28502- 03, promulgated on April 18, 1989. ESSO for its part appealed the CTA
decision denying its claims for the refund of the margin fees P102,246.00 for 1959 and P434,234.92
for 1960. That is the issue now before us.

II
The first question we must settle is whether R.A. 2009, entitled An Act to Authorize the Central Bank
of the Philippines to Establish a Margin Over Banks' Selling Rates of Foreign Exchange, is a police
measure or a revenue measure. If it is a revenue measure, the margin fees paid by the petitioner to
the Central Bank on its profit remittances to its New York head office should be deductible from
ESSO's gross income under Sec. 30(c) of the National Internal Revenue Code. This provides that all
taxes paid or accrued during or within the taxable year and which are related to the taxpayer's trade,
business or profession are deductible from gross income.

The petitioner maintains that margin fees are taxes and cites the background and legislative history
of the Margin Fee Law showing that R.A. 2609 was nothing less than a revival of the 17% excise tax
on foreign exchange imposed by R.A. 601. This was a revenue measure formally proposed by
President Carlos P. Garcia to Congress as part of, and in order to balance, the budget for 1959-
1960. It was enacted by Congress as such and, significantly, properly originated in the House of
Representatives. During its two and a half years of existence, the measure was one of the major
sources of revenue used to finance the ordinary operating expenditures of the government. It was,
moreover, payable out of the General Fund.

On the claimed legislative intent, the Court of Tax Appeals, quoting established principles, pointed
out that —

We are not unmindful of the rule that opinions expressed in debates, actual proceedings of the
legislature, steps taken in the enactment of a law, or the history of the passage of the law through
the legislature, may be resorted to as an aid in the interpretation of a statute which is ambiguous or
of doubtful meaning. The courts may take into consideration the facts leading up to, coincident with,
and in any way connected with, the passage of the act, in order that they may properly interpret the
legislative intent. But it is also well-settled jurisprudence that only in extremely doubtful matters of
interpretation does the legislative history of an act of Congress become important. As a matter of
fact, there may be no resort to the legislative history of the enactment of a statute, the language of
which is plain and unambiguous, since such legislative history may only be resorted to for the
purpose of solving doubt, not for the purpose of creating it. [50 Am. Jur. 328.]

Apart from the above consideration, there are at least two cases where we have held that a margin
fee is not a tax but an exaction designed to curb the excessive demands upon our international
reserve.

In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, 2 the Court stated through Justice Jose P.
Bengzon:

A margin levy on foreign exchange is a form of exchange control or restriction

designed to discourage imports and encourage exports, and ultimately, 'curtail any
excessive demand upon the international reserve' in order to stabilize the currency.
Originally adopted to cope with balance of payment pressures, exchange restrictions
have come to serve various purposes, such as limiting non-essential imports,
protecting domestic industry and when combined with the use of multiple currency
rates providing a source of revenue to the government, and are in many developing
countries regarded as a more or less inevitable concomitant of their economic
development programs. The different measures of exchange control or restriction
cover different phases of foreign exchange transactions, i.e., in quantitative
restriction, the control is on the amount of foreign exchange allowable. In the case of
the margin levy, the immediate impact is on the rate of foreign exchange; in fact, its
main function is to control the exchange rate without changing the par value of the
peso as fixed in the Bretton Woods Agreement Act. For a member nation is not
supposed to alter its exchange rate (at par value) to correct a merely temporary
disequilibrium in its balance of payments. By its nature, the margin levy is part of the
rate of exchange as fixed by the government.

As to the contention that the margin levy is a tax on the purchase of foreign exchange and hence
should not form part of the exchange rate, suffice it to state that We have already held the contrary
for the reason that 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.

Earlier, in Chamber of Agriculture and Natural Resources of the Philippines v. Central Bank, 3 the
same idea was expressed, though in connection with a different levy, through Justice J.B.L. Reyes:
 Neither do we find merit in the argument that the 20% retention of exporter's foreign
exchange constitutes an export tax. A tax is a levy for the purpose of providing
revenue for government operations, while the proceeds of the 20% retention, as we
have seen, are applied to strengthen the Central Bank's international reserve.

We conclude then that the margin fee was imposed by the State in the exercise of its police power
and not the power of taxation.

Alternatively, ESSO prays that if margin fees are not taxes, they should nevertheless be considered
necessary and ordinary business expenses and therefore still deductible from its gross income. The
fees were paid for the remittance by ESSO as part of the profits to the head office in the Unites
States. Such remittance was an expenditure necessary and proper for the conduct of its corporate
affairs.

The applicable provision is Section 30(a) of the National Internal Revenue Code reading as follows:

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;
traveling expenses while away from home in the pursuit of a trade or business; and
rentals or other payments required to be made as a condition to the continued use or
possession, for the purpose of the trade or business, of property to which the
taxpayer has not taken or is not taking title or in which he has no equity.

(2) Expenses allowable to non-resident alien individuals and foreign corporations. —

In the case of a non-resident alien individual or a foreign corporation, the expenses
deductible are the necessary expenses paid or incurred in carrying on any business
or trade conducted within the Philippines exclusively.

In the case of Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal
Revenue, 4 the Court laid down the rules on the deductibility of business expenses, thus:

The principle is recognized that when a taxpayer claims a deduction, he must point to
some specific provision of the statute in which that deduction is authorized and must
be able to prove that he is entitled to the deduction which the law allows. As
previously adverted to, the law allowing expenses as deduction from gross income
for purposes of the income tax is Section 30(a) (1) of the National Internal Revenue
which allows a deduction of 'all the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or business.' An item of
expenditure, in order to be deductible under this section of the statute, must fall
squarely within its language.

We come, then, to the statutory test of deductibility where it is axiomatic that to be

deductible as a business expense, three conditions are imposed, namely: (1) the
expense must be ordinary and necessary, (2) it must be paid or incurred within the
taxable year, and (3) it must be paid or incurred in carrying on a trade or business. In
addition, not only must the taxpayer meet the business test, he must substantially
prove by evidence or records the deductions claimed under the law, otherwise, the
same will be disallowed. The mere allegation of the taxpayer that an item of expense
is ordinary and necessary does not justify its deduction.

While it is true that there is a number of decisions in the United States delving on the
interpretation of the terms 'ordinary and necessary' as used in the federal tax laws,
no adequate or satisfactory definition of those terms is possible. Similarly, this Court
has never attempted to define with precision the terms 'ordinary and necessary.'
There are however, certain guiding principles worthy of serious consideration in the
proper adjudication of conflicting claims. Ordinarily, an expense will be considered
'necessary' where the expenditure is appropriate and helpful in the development of
 the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal
in relation to the business of the taxpayer and the surrounding circumstances. The
term 'ordinary' does not require that the payments be habitual or normal in the sense
that the same taxpayer will have to make them often; the payment may be unique or
non-recurring to the particular taxpayer affected.

There is thus no hard and fast rule on the matter. The right to a deduction depends in
each case on the particular facts and the relation of the payment to the type of
business in which the taxpayer is engaged. The intention of the taxpayer often may
be the controlling fact in making the determination. Assuming that the expenditure is
ordinary and necessary in the operation of the taxpayer's business, the answer to the
question as to whether the expenditure is an allowable deduction as a business
expense must be determined from the nature of the expenditure itself, which in turn
depends on the extent and permanency of the work accomplished by the
expenditure.

In the light of the above explanation, we hold that the Court of Tax Appeals did not err when it held
on this issue as follows:

Considering the foregoing test of what constitutes an ordinary and necessary

deductible expense, it may be asked: Were the margin fees paid by petitioner on its
profit remittance to its Head Office in New York appropriate and helpful in the
taxpayer's business in the Philippines? Were the margin fees incurred for purposes
proper to the conduct of the affairs of petitioner's branch in the Philippines? Or were
the margin fees incurred for the purpose of realizing a profit or of minimizing a loss in
the Philippines? Obviously not. As stated in the Lopez case, the margin fees are not
expenses in connection with the production or earning of petitioner's incomes in the
Philippines. They were expenses incurred in the disposition of said incomes;
expenses for the remittance of funds after they have already been earned by
petitioner's branch in the Philippines for the disposal of its Head Office in New York
which is already another distinct and separate income taxpayer.

xxx

Since the margin fees in question were incurred for the remittance of funds to
petitioner's Head Office in New York, which is a separate and distinct income
taxpayer from the branch in the Philippines, for its disposal abroad, it can never be
said therefore that the margin fees were appropriate and helpful in the development
of petitioner's business in the Philippines exclusively or were incurred for purposes
proper to the conduct of the affairs of petitioner's branch in the Philippines exclusively
or for the purpose of realizing a profit or of minimizing a loss in the Philippines
exclusively. If at all, the margin fees were incurred for purposes proper to the conduct
of the corporate affairs of Standard Vacuum Oil Company in New York, but certainly
not in the Philippines.

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." 5

It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot
now claim this as an ordinary and necessary expense paid or incurred in carrying on its own trade or
business.

WHEREFORE, the decision of the Court of Tax Appeals denying the petitioner's claims for refund of
P102,246.00 for 1959 and P434,234.92 for 1960, is AFFIRMED, with costs against the petitioner.

SO ORDERED.

Narvasa (Chairman), Gancayco, Griño-Aquino and Medialdea, JJ., concur.

 THIRD DIVISION
[ G.R. No. 175651, September 14, 2016 ]
PILMICO-MAURI FOODS CORP., PETITIONER, VS. COMMISSIONER OF
INTERNAL REVENUE, RESPONDENT.

RESOLUTION
REYES, J.:
Before the Court is a petition for review on certiorari[1] under Rule 45 of the Rules of Court pursuant to Republic Act
(R.A.) No. 1125,[2] Section 19,[3] as amended by R.A. No. 9282,[4] Section 12.[5] The petition filed by Pilmico-Mauri
Foods Corp. (PMFC) against the Commissioner of Internal Revenue (CIR) assails the Decision [6] and Resolution[7]of
the Court of Appeals (CTA) en banc, dated August 29, 2006 and December 4, 2006, respectively, in C.T.A. EB No.
97.

Antecedents

The CTA aptly summed up the facts of the case as follows:

[PMFC] is a corporation, organized and existing under the laws of the Philippines, with principal place of business at
Aboitiz Corporate Center, Banilad, Cebu City.

The books of accounts of [PMFC] pertaining to 1996 were examined by the [CIR] thru Revenue Officer Eugenio D.
Maestrado of Revenue District No. 81 (Cebu City North District) for deficiency income, value-added [tax] (VAT) and
withholding tax liabilities.

As a result of the investigation, the following assessment notices were issued against [PMFC]:

(a) Assessment Notice No. 81-WT-13-96-98-11-126, dated November 26, 1998, demanding payment
for deficiency withholding taxes for the year 1996 in the sum of P384,925.05 (inclusive of interest
and other penalties);

(b) Assessment Notice No. 81-VAT-13-96-98-11-127, dated November 26, 1998, demanding payment
of deficiency value-added tax in the sum of P5,017,778.01 (inclusive of interest and other
penalties); [and]

(c) Assessment Notice No. 81-IT-13-96[-]98-11-128, dated November 26, 1998, demanding payment
of. deficiency income tax for the year 1996 in the sum of P4,359,046.96 (inclusive of interest and
other penalties).

The foregoing Assessment Notices were all received by [PMFC] on December 1, 1998. On December 29, 1998,
[PMFC] filed a protest letter against the aforementioned deficiency tax assessments through the Regional Director,
Revenue Region No. 13, Cebu City.

In a final decision of the [CIR] on the disputed assessments dated July 3, 2000, the deficiency tax liabilities of [PMFC]
were reduced from P9,761,750.02 to P3,020,259.30, broken down as follows:

a) Deficiency withholding tax from P384,925.05 to P197,780.67;

b) Deficiency value-added tax from P5,017,778.01 to P1,642,145.79; and
c) Deficiency Income Tax from P4,359,046.96 to P1,180,332.84.

xxxx

On the basis of the foregoing facts[, PMFC] filed its Petition for Review on August 9, 2000. In the "Joint Stipulation of
Facts" filed on March 7, 2001, the parties have agreed that the following are the issues to be resolved:

I. Whether or not [PMFC] is liable for the payment of deficiency income, value-added, expanded withholding, final
withholding and withholding tax (on compensation).

II. On the P1,180,382.84 deficiency income tax

A. Whether or not the P5,895,694.66 purchases of raw materials are unsupported[;]

B. Whether or not the cancelled invoices and expenses for taxes, repairs and freight are unsupported[;]

C. Whether or not commission, storage and trucking charges claimed are deductible[; and]

D. Whether or not the alleged deficiency income tax for the year 1996 was correctly computed.
xxxx

V. Whether or not [CIR's] decision on the 1996 internal revenue tax liabilities of [PMFC] is contrary to
law and the facts.
After trial on the merits, the [CTA] in Division rendered the assailed Decision affirming the assessments but in the
reduced amount of P2,804,920.36 (inclusive of surcharge and deficiency interest) representing [PMFC's] Income,
VAT and Withholding Tax deficiencies for the taxable year 1996 plus 20% delinquency interest per annum until fully
paid. The [CTA] in Division ruled as follows:

"However, [PMFC's] contention that the NIRC of 1977 did not impose substantiation requirements on deductions from
gross income is bereft of merit. Section 238 of the 1977 Tax Code [now Section 237 of the National Internal Revenue
Code of 1997] provides:

SEC. 238. Issuance of receipts or sales or commercial invoices. - All persons, subject to an internal revenue tax
shall for each sale or transfer of merchandise or for services rendered valued at P25.00 or more, issue receipts or
sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and
description of merchandise or nature of service: Provided, That in the case of sales, receipts or transfers in the
amount of P100.00 or more, or, regardless of amount, where the sale or transfer is made by persons subject to value-
added tax to other persons, also subject to value-added tax; or, where the receipt is issued to cover payment made
as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name,
business style, if any, and address of the purchaser, customer, or client. The original of each receipt or invoice
shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if engaged in
business or in the exercise of profession, shall keep and preserve the same in his place of business for a
period of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while
the duplicate shall be kept and preserved by the issuer, also in his place of business for a like period. x x x

From the foregoing provision of law, a person who is subject to an internal revenue tax shall issue receipts, sales or
commercial invoices, prepared at least in duplicate. The provision likewise imposed a responsibility upon the
purchaser to keep and preserve the original copy of the invoice or receipt for a period of three years from the close of
the taxable year in which such invoice or receipt was issued. The rationale behind the latter requirement is the duty of
the taxpayer to keep adequate records of each and every transaction entered into in the conduct of its business. So
that when their books of accounts are subjected to a tax audit examination, all entries therein, could be shown as
adequately supported and proven as legitimate business transactions. Hence, [PMFC's] claim that the NIRC of 1977
did not require substantiation requirements is erroneous.

In fact, in its effort to prove the above-mentioned purchases of raw materials, [PMFC] presented the following sales
invoices:

Exhibit Invoice No. Date Gross Amount 10% VAT Net Amount
Number
B-3 2072 04/18/96 P2,312,670.00 P210,242.73 P2,102,427.27

B-7,

B-11 2026 Undated 2,762,099.10 251,099.92 2,510,999.18

P5,074,769.10 P461,342.65 P4,613,426.45

The mere fact that [PMFC] submitted the foregoing sales invoices belies [its] claim that the NIRC of 1977 did not
require that deductions must be substantiated by adequate records.

From the total purchases of P5,893,694.64 which have been disallowed, it seems that a portion thereof amounting to
P1,280,268.19 (729,663.64 + 550,604.55) has no supporting sales invoices because of [PMFC's] failure to present
said invoices.

A scrutiny of the invoices supporting the remaining balance of P4,613,426.45 (P5,893,694.64 less P1,280,268.19)
revealed the following:

a) In Sales Invoice No. 2072 marked as Exhibit B-3, the name Pilmico Foods Corporation was erased
and on top of it the name [PMFC] was inserted but with a counter signature therein;
b) For undated Sales Invoice No. 2026, [PMFC] presented two exhibits marked as Exhibits B-7 and B-
11. Exhibit B-11 is the original sales invoice whereas Exhibit B-7 is a photocopy thereof. Both
exhibits contained the word Mauri which was inserted on top and between the words Pilmico and
Foods. The only difference is that in the original copy (Exhibit B-11), there was a counter signature
although the ink used was different from that used in the rest of the writings in the said invoice;
while in the photocopied invoice (Exhibit B-7), no such counter signature appeared. [PMFC] did not
explain why the said countersignature did not appear in the photocopied invoice considering it was
just a mere reproduction of the original copy.

The sales invoices contain alterations particularly in the name of the purchaser giving rise to serious doubts regarding
their authenticity and if they were really issued to [PMFC]. Exhibit B-11 does not even have any date indicated
therein, which is a clear violation of Section 238 of the NIRC of 1977 which required that the official receipts must
show the date of the transaction.

Furthermore, [PMFC] should have presented documentary evidence establishing that Pilmico Foods Corporation did
not claim the subject purchases as deduction from its gross income. After all, the records revealed that both [PMFC]
and its parent company, Pilmico Foods Corporation, have the same AVP Comptroller in the person of Mr. Eugenio
Gozon, who is in-charge of the financial records of both entities x x x.

Similarly, the official receipts presented by [PMFC] x x x, cannot be considered as valid proof of [PMFC's] claimed
deduction for raw materials purchases. The said receipts did not conform to the requirements provided for under
Section 238 of the NIRC of 1977, as amended. First the official receipts were not in the name of [PMFC] but in the
name of Golden Restaurant. And second, these receipts were issued by PFC and not the alleged seller, JTE.

Likewise, [PMFC's] allegations regarding the offsetting of accounts between [PMFC], PFC and JTE is untenable. The
following circumstances contradict [PMFC's] proposition: 1) the Credit Agreement itself does not provide for the
offsetting arrangement; 2) [PMFC] was not even a party to the credit agreement; and 3) the official receipts in
question pertained to the year 1996 whereas the Credit Agreement (Exhibit M) and the Real Estate Mortgage
Agreement (Exhibit N) submitted by [PMFC] to prove the fact of the offsetting of accounts, were both executed only in
1997.

Besides, in order to support its claim, [PMFC] should have presented the following vital documents, namely, 1)
Written Offsetting Agreement; 2) proof of payment by [PMFC] to Pilmico Foods Corporation; and 3) Financial
Statements for the year 1996 of Pilmico Foods Corporation to establish the fact that Pilmico Foods Corporation did
not deduct the amount of raw materials being claimed by [PMFC].

Considering that the official receipts and sales invoices presented by [PMFC] failed to comply with the requirements
of Section 238 of the NIRC of 1977, the disallowance by the [CIR] of the claimed deduction for raw materials is
proper.

[PMFC] filed a Motion for Partial Consideration on January 21, 2005 x x x but x x x [PMFC's] Motion for
Reconsideration was denied in a Resolution dated May 19, 2005 for lack of merit, x x x. [8] (Citation omitted, italics
ours and emphasis in the original)

Unperturbed, PMFC then filed a petition for review before the CTA en banc, which adopted the CTA First Division's
ruling and ratiocinations. Additionally, the CTA en banc declared that:

The language of [Section 238] of the 1977 NIRC, as amended, is clear. It requires that for each sale valued at
P100.00 or more, the name, business style and address of the purchaser, customer or client shall be indicated and
that the purchaser is required to keep and preserve the same in his place of business. The purpose of the law in
requiring the preservation by the purchaser of the official receipts or sales invoices for a period of three years is two-
fold: 1) to enable said purchaser to substantiate his claimed deductions from the gross income, and 2) to
enable the Bureau of Internal Revenue to verify the accuracy of the gross income of the seller from external sources
such as the customers of said seller. Hence, [PMFC's] argument that there was no substantiation requirement under
the 1977 NIRC is without basis.

Moreover, the Supreme Court had ruled that in claiming deductions for business expenses [,] it is not enough to
prove the business test but a claimant must substantially prove by evidence or records the deductions claimed under
the law, thus:

The principle is recognized that when a taxpayer claims a deduction, he must point to some specific provision of the
statute in which that deduction is authorized and must be able to prove that he is entitled to the deduction which the
law allows. As previously adverted to, the law allowing expenses as deduction from gross income for purposes of the
income tax is Section 30 (a) (l) of the National Internal Revenue which allows a deduction of "all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on any trade or business.["] An item of
expenditure, in order to be deductible under this section of the statute must fall squarely within its language.
We come, then, to the statutory test of deductibility where it is axiomatic that to be deductible as a business
expense, three conditions are imposed, namely: (1) the expense must be ordinary and necessary; (2) it must be paid
or incurred within the taxable year, and (3) it must be paid or incurred in carrying on a trade or business. In addition,
not only must the taxpayer meet the business test, he must substantially prove by evidence or records the
deductions claimed under the law, otherwise, the same will be disallowed. The mere allegation of the taxpayer
that an item of expense is ordinary and necessary does not justify its deduction. x x x

And in proving claimed deductions from gross income, the Supreme Court held that invoices and official receipts are
the best evidence to substantiate deductible business expenses. x x x

xxxx

The irregularities found on the official receipts and sales invoices submitted in evidence by [PMFC], i.e. not having
been issued in the name of [PMFC] as the purchaser and the fact that the same were not issued by the alleged seller
himself directly to the purchaser, rendered the same of no probative value.

Parenthetically, the "Cohan Rule" which according to [PMFC] was adopted by the Supreme Court in the case of
Visayan Cebu Terminal v. Collector, x x x, is not applicable because in both of these cases[,] there were natural
calamities that prevented the taxpayers therein to fully substantiate their claimed deductions. In the Visayan Cebu
Terminal case, there was a fire that destroyed some of the supporting documents for the claimed expenses. There is
no such circumstance in [PMFC's] case, hence, the ruling therein is not applicable. It is noteworthy that
notwithstanding the destruction of some of the supporting documents in the aforementioned Visayan Cebu
Terminalcase, the Supreme Court[,] in denying the appeal[,] issued the following caveat noting the violation of the
provision of the Tax Code committed by [PMFC] therein:

"It may not be amiss to note that the explanation to the effect that the supporting paper of some of those expenses
had been destroyed when the house of the treasurer was burned, can hardly be regarded as satisfactory, for
appellant's records are supposed to be kept in its offices, not in the residence of one of its officers." x x x

From the above-quoted portion of the Supreme Court's Decision, it is clear that compliance with the mandatory
record-keeping requirements of the National Internal Revenue Code should not be taken lightly. Raw materials are
indeed deductible provided they are duly supported by official receipts or sales invoices prepared and issued in
accordance with the invoicing requirements of the National Internal Revenue Code. x x x [PMFC] failed to show
compliance with the requirements of Section 238 of the 1977 NIRC as shown by the fact that the sales invoices
presented by [it] were not in its name but in the name of Pilmico Foods Corporation.

xxxx

In the Joint Stipulation of Facts filed on March 7, 2001, the parties have agreed that with respect to the deficiency
income tax assessment, the following are the issues to be resolved:

a. Whether or not the P5,895,694.66 purchases of raw materials are unsupported;

xxxx

Clearly, the issue of proper substantiation of the deduction from gross income pertaining to the purchases of raw
materials was properly raised even before [PMFC] began presenting its evidence. [PMFC] was aware that the [CIR]
issued the assessment from the standpoint of lack of supporting documents for the claimed deduction and the fact
that the assessments were not based on the deductibility of the cost of raw materials. There is no difference in the
basis of the assessment and the issue presented to the [CTA] in Division for resolution since both pertain to the issue
of proper supporting documents for ordinary and necessary business expenses. [9] (Citation omitted, italics ours and
emphasis in the original)

PMFC moved for reconsideration. Pending its resolution, the CIR issued Revenue Regulation (RR) No. 15-
2006,[10]the abatement program of which was availed by PMFC on October 27, 2006. Out of the total amount of
P2,804,920.36 assessed as income, value-added tax (VAT) and withholding tax deficiencies, plus surcharges and
deficiency interests, PMFC paid the CIR P1,101,539.63 as basic deficiency tax. The PMFC, thus, awaits the CIR's
approval of the abatement, which can render moot the resolution of the instant petition.[11]

Meanwhile, the CTA en banc denied the motion for reconsideration[12] of PMFC, in its Resolution[13] dated December
4, 2006.

Issues

In the instant petition, what is essentially being assailed is the CTA en banc's concurrence with the CTA First
Division's ruling, which affirmed but reduced the CIR's income deficiency tax assessment against PMFC. More
specifically, the following errors are ascribed to the CTA:

The Honorable CTA First Division deprived PMFC of due process of law and the CTA assumed an executive function
when it substituted a legal basis other than that stated in the assessment and pleading of the CIR, contrary to law.
 II

The decision of the Honorable CTA First Division must conform to the pleadings and the theory of the action under
which the case was tried. A judgment going outside the issues and purporting to adjudicate something on which the
parties were not heard is invalid. Since the legal basis cited by the CTA supporting the validity of the assessment was
never raised by the CIR, PMFC was deprived of its constitutional right to be apprised of the legal basis of the
assessment.

III

The nature of evidence required to prove an ordinary expense like raw materials is governed by Section 29[14] of the
1977 National Internal Revenue Code (NIRC) and not by Section 238 as found by the CTA. [15]

In support of the instant petition, PMFC claims that the deficiency income tax assessment issued against it was
anchored on Sect on 34(A)(l)(b)[16] of the 1997 NIRC. In disallowing the deduction of the purchase of raw materials
from PMFC's gross income, the CIR never m any reference to Section 238 of the 1977 NIRC relative to the
mandatory requirement of keeping records of official receipts, upon which the CTA had misplaced reliance. Had
substantiation requirements under Section 23 the 1977 NIRC been made an issue during the trial, PMFC could have
presented official receipts or invoices, or could have compelled its suppliers to issue the same. [17]

PMFC further argues that in determining the deductibility of the purchase of raw materials from gross income, Section
29 of the 1977 NIRC is the applicable provision. According to the said section, for the deduction to be allowed, the
expenses must be (a) both ordinary and necessary; (b) incurred in carrying on a trade or business; and (c) paid or
incurred within the taxable year. PMFC, thus, claims that prior to the promulgation of the 1997 NIRC, the law does not
require the production of official receipts to prove an expense.[18]

In its Comment,[19] the Office of the Solicitor General (OSG) counters that the arguments advanced by PMFC are
mere reiterations of those raised in the proceedings below. Further, PMFC was fully apprised of the assailed tax
assessments and had all the opportunities to prove its claims.[20]

The OSG also avers that in the Joint Stipulation of Facts filed before the CTA First Division on March 7, 2001, it was
stated that one of the issues for resolution was "whether or not the Php5,895,694.66 purchases of raw materials are
unsupported." Hence, PMFC was aware that the CIR issued the assessments due to lack of supporting documents
for the deductions claimed. Essentially then, even in the proceedings before the CIR, the primary issue has always
been the lack or inadequacy of supporting documents for ordinary and necessary business expenses. [21]

The OSG likewise points out that PMFC failed to satisfactorily discharge the burden of proving the propriety of the tax
deductions claimed. Further, there were discrepancies in the names of the sellers and purchasers i indicated in the
receipts casting doubts on their authenticity.[22]

Ruling of the Court

The Court affirms but modifies the herein assailed decision and resolution.

Preliminary matters

On December 19, 2006, PMFC filed before the Court a motion for extension of time to file a petition for review. [23] In
the said motion, PMFC informed the Court that it had availed of the CIR's tax abatement program, the details of which
were provided for in RR No. 15-2006. PMFC paid the CIR the amount of P1,101,539.63 as basic deficiency tax.
PMFC manifested that if the abatement application would be approved by the CIR, the instant petition filed before the
Court may be rendered superfluous.

According to Section 4 of RR No. 15-2006, after the taxpayer's payment of the assessed basic deficiency tax, the
docket of the case shall forwarded to the CIR, thru the Deputy Commissioner for Operations Group, for issuance of a
termination letter. However, as of this Resolution's writing, none of the parties have presented the said termination
letter. Hence, the Court cannot outrightly dismiss the instant petition on the ground of mootness.

On the procedural issues raised by PMFC

The first and second issues presented by PMFC are procedural in nature. They both pertain to the alleged omission
of due process of law by the CTA since in its rulings, it invoked Section 238 of the 1977 NIRC, while in the
proceedings below, the CIR's tax deficiency assessments issued against PMFC were instead anchored on Section 34
of the 1997 NIRC.

Due process was not violated.

In CIR v. Puregold Duty Free, Inc.,[24] the Court is emphatic that:

It is well settled that matters that were neither alleged in the pleadings nor raised during the proceedings below
cannot be ventilated for the first time on appeal and are barred by estoppel. To allow the contrary would constitute a
violation of the other party's right to due process, and is contrary to the principle of fair play. x x x
x x x Points of law, theories, issues, and arguments not brought to the attention of the trial court ought not to be
considered by a reviewing court, as these cannot be raised for the first time on appeal. To consider the alleged facts
and arguments belatedly raised would amount to trampling on the basic principles of fair play, justice, and due
process.[25] (Citations omitted)

In the case at bar, the CIR issued assessment notices against PMFC for deficiency income, VAT and withholding tax
for the year 1996. PMFC assailed the assessments before the Bureau of Internal Revenue and late before the CTA.

In the Joint Stipulation of Facts, dated March 7, 2001, filed before CTA First Division, the CIR and PMFC both agreed
that among the issues for resolution was "whether or not the P5,895,694.66 purchases of raw materials are
unsupported."[26] Estoppel, thus, operates against PMFC anent its argument that the issue of lack or inadequacy of
documents to justify the costs of purchase of raw materials as deductions from the gross income had not been
presented in the proceedings below, hence, barred for being belatedly raised only on appeal.

Further, in issuing the assessments, the CIR had stated the material facts and the law upon which they were based.
In the petition for review filed by PMFC before the CTA, it was the former's burden to properly invoke the applicable
legal provisions in pursuit of its goal to reduce its tax liabilities. The CTA, on the other hand, is not bound to rule
solely on the basis of the laws cited by the CIR. Were it otherwise, the tax court's appellate power of review shall be
rendered useless. An absurd situation would arise leaving the CTA with only two options, to wit: (a) affirming the
CIR's legal findings; or (b) altogether absolving the taxpayer from liability if the CIR relied on misplaced legal
provisions. The foregoing is not what the law intends.

To reiterate, PMFC was at the outset aware that the lack or inadequacy of supporting documents to justify the
deductions claimed from the gross income was among the issues raised for resolution before the CTA. With PMFC's
acquiescence to the Joint Stipulation of Facts filed before the CTA and thenceforth, the former's participation in the
proceedings with all opportunities it was afforded to ventilate its claims, the alleged deprivation of due process is
bereft of basis.

On the applicability of Section 29 of the 1977 NIRC

The third issue raised by PMFC is substantive in nature. At its core is the alleged application of Section 29 of the
1977 NIRC as regards the deductibility from the gross income of the cost of raw materials purchased by PMFC.

It bears noting that while the CIR issued the assessments on the basis of Section 34 of the 1997 NIRC, the CTA and
PMFC are in agreement that the 1977 NIRC finds application.

However, while the CTA ruled on the basis of Section 238 of the 1977 NIRC, PMFC now insists that Section 29 of the
same code should be applied instead. Citing Atlas Consolidated Mining and Development Corporation v.
CIR,[27]PMFC argues that Section 29 imposes less stringent requirements and the presentation of official receipts as
evidence of the claimed deductions dispensable. PMFC further posits that the mandatory nature of the submission of
official receipts as proof is a mere innovation in the 19 NIRC, which cannot be applied retroactively. [28]

PMFC's argument fails.

The Court finds that the alleged differences between the requirements of Section 29 of the 1977 NIRC invoked by
PMFC, on one hand, and Section 238 relied upon by the CTA, on the other, are more imagined than real.

In CIR v. Pilipinas Shell Petroleum Corporation,[29] the Count enunciated that:

It is a rule in statutory construction that every part of the statute must be interpreted with reference to the context, i.e.,
that every part of the statute must be considered together with the other parts, and kept subservient to the general
intent of the whole enactment. The law must not be read in truncated parts, its provisions must be read in relation to
the whole law. The particular words, clauses and phrases should not be studied as detached and isolated expression,
but the whole and every part of the statute must be considered in fixing the meaning of any of its parts and in order to
produce a harmonious whole.[30] (Citations omitted)

The law, thus, intends for Sections 29 and 238 of the 1977 NIRC to be read together, and not for one provision to be
accorded preference over the other.

It is undisputed that among the evidence adduced by PMFC on it behalf are the official receipts of alleged purchases
of raw materials. Thus, the CTA cannot be faulted for making references to the same, and for applying Section 238 of
the 1977 NIRC in rendering its judgment. Required or not, the official receipts were submitted by PMFC as evidence.
Inevitably, the said receipts were subjected to scrutiny, and the CTA exhaustively explained why it had found them
wanting.

PMFC cites Atlas[31] to contend that the statutory test, as provided in Section 29 of the 1977 NIRC, is sufficient to
allow the deductibility of a business expense from the gross income. As long as the expense is: (a) both ordinary and
necessary; (b) incurred in carrying a business or trade; and (c) paid or incurred within the taxable year, then, it shall
be allowed as a deduction from the gross income.[32]

Let it, however, be noted that in Atlas, the Court likewise declared that:
In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the
deductions claimed under the law, otherwise, the same will be disallowed. The mere allegation of the taxpayer that an
item of expense is ordinary and necessary does not justify its deduction. [33] (Citation omitted and italics ours)

It is, thus, clear that Section 29 of the 1977 NIRC does not exempt the taxpayer from substantiating claims for
deductions. While official receipts are not the only pieces of evidence which can prove deductible expenses, if
presented, they shall be subjected to examination. PMFC submitted official receipts as among its evidence, and the
CTA doubted their veracity. PMFC was, however, unable to persuasively explain and prove through other documents
the discrepancies in the said receipts. Consequently, the CTA disallowed the deductions claimed, and in its ruling,
invoked Section 238 of the 1977 NIRC considering that official receipts are matters provided for in the said section.

Conclusion

The Court recognizes that the CTA, which by the very nature of its function is dedicated exclusively to the
consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be
overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed
on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part
of the tax court. In the absence of any clear and convincing proof to the contrary, the Court must presume that the
CTA rendered a decision which is valid in every respect.[34]

Further, revenue laws are not intended to be liberally construed. Taxes are the lifeblood of the government and in
Holmes' memorable metaphor, the price we pay for civilization; hence, laws relative thereto must be faithfully and
strictly implemented.[35] While the 1977 NIRC required substantiation requirements for claimed deductions to be
allowed, PMFC insists on leniency, which is not warranted under the circumstances.

Lastly, the Court notes too that PMFC's tax liabilities have been me than substantially reduced to P2,804,920.36 from
the CIR's initial assessment of P9,761,750.02.[36]

In precis, the affirmation of the herein assailed decision and resolution is in order.

However, the Court finds it proper to modify the herein assail decision and resolution to conform to the interest rates
prescribed in Nacar v. Gallery Frames, et al.[37] The total amount of P2,804,920.36 to be paid PMFC to the CIR shall
be subject to an interest of six percent (6%) per annum to be computed from the finality of this Resolution until full
payment.

WHEREFORE, the instant petition is DENIED. The Decision dated August 29, 2006 and Resolution dated December
4, 2006 of the Court of Tax Appeals en banc in C.T.A. EB No. 97 are AFFIRMED. However, MODIFICATION thereof,
the legal interest of six percent (6%) per annum reckoned from the finality of this Resolution until full satisfaction, is
here imposed upon the amount of P2,804,920.36 to be paid by Pilmico-Mauri Foods Corporation to the
Commissioner of Internal Revenue.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta, Perez, and Jardeleza, JJ., concur.

 THIRD DIVISION
[ G.R. No. 212825, December 07, 2015 ]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. NEXT MOBILE,
INC. (FORMERLY NEXTEL COMMUNICATIONS PHILS., INC.), RESPONDENT.

DECISION
VELASCO JR., J.:
This is a Petition for Review under Rule 45 of the Rules of Court seeking to reverse and set aside the Decision of the
Court of Tax Appeals En Banc affirming the earlier decision of its First Division in CTA Case No. 7965, cancelling and
withdrawing petitioner's formal letter of demand and assessment notices to respondent for having been issued
beyond the prescriptive period provided by law.

The Facts

On April 15, 2002, respondent filed with the Bureau of Internal Revenue (BIR) its Annual Income Tax Return (ITR) for
taxable year ending December 31, 2001. Respondent also filed its Monthly Remittance Returns of Final Income
Taxes Withheld (BIR Form No. 1601-F), its Monthly Remittance Returns of Expanded Withholding Tax (BIR Form No.
1501-E) and its Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form No. 1601-C) for
year ending December 31, 2001.

On September 25, 2003, respondent received a copy of the Letter of Authority dated September 8, 2003 signed by
Regional Director Nestor S. Valeroso authorizing Revenue Officer Nenita L. Crespo of Revenue District Office 43 to
examine respondent's books of accounts and other accounting records for income and withholding taxes for the
period covering January 1, 2001 to December 31, 2001.

Ma. Lida Sarmiento (Sarmiento), respondent's Director of Finance, subsequently executed several waivers of the
statute of limitations to extend the prescriptive period of assessment for taxes due in taxable year ending December
31, 2001 (Waivers), the details of which are summarized as follows:
Extended Date of Date of
Waiver Date of Execution BIR Signatory
Prescription Acknowledgment
Revenue District
First Waiver March 30, 2005 August 26, 2004 August 30, 2004
Officer
Revenue District
Second Waiver June 30, 2005 October 22, 2004 October 22, 2004
Officer
September 30, Revenue District
Third Waiver January 12,2005 January 18, 2005
2005 Officer
September 30, Revenue District
Fourth Waiver None May 3, 2005
2005 Officer
Revenue District
Fifth Waiver October 31, 2005 March 17, 2005 May 3, 2005
Officer
On September 26, 2005, respondent received from the BIR a Preliminary Assessment Notice dated September 16,
2005 to which it filed a Reply.

On October 25, 2005, respondent received a Formal Letter of Demand (FLD) and Assessment Notices/Demand No.
43-734 both dated October 17, 2005 from the BIR, demanding payment of deficiency income tax, final withholding tax
(FWT), expanded withholding tax (EWT), increments for late remittance of taxes withheld, and compromise penalty
for failure to file returns/late filing/late remittance of taxes withheld, in the total amount of P313,339,610.42 for the
taxable year ending December 31, 2001.

On November 23, 2005, respondent filed its protest against the FLD and requested the reinvestigation of the
assessments. On July 28, 2009, respondent received a letter from the BIR denying its protest. Thus, on August 27,
2009, respondent filed a Petition for Review before the CTA docketed as CTA Case No. 7965.

Ruling of the CTA Former First Division

On December 11, 2012, the former First Division of the CTA (CTA First Division) rendered a Decision granting
respondent's Petition for Review and declared the FLD dated October 17, 2005 and Assessment Notices/Demand
No. 43-734 dated October 17, 2005 cancelled and withdrawn for being issued beyond the three-year prescriptive
period provided by law.

It was held that based on the date of filing of respondent's Annual ITR as well as the dates of filing of its monthly BIR
Form Nos. 1601-F, 1601-E and 1601-C, it is clear that the adverted FLD and the Final Assessment Notices both
dated October 17, 2005 were issued beyond the three-year prescriptive period provided under Section 203 ot the
1997 National Internal Revenue Code (NIRC), as amended.

The tax court also rejected petitioner's claim that this case falls under the exception as to the three-year prescriptive
period for assessment and that the 10-year prescriptive period should apply on the ground of filing a false or
fraudulent return. Under Section 222(a) of the 1997 NIRC, as amended, in case a taxpayer filed a false or fraudulent
return, the Commissioner of Internal Revenue (CIR) may assess a taxpayer for deficiency tax within ten (10) years
after the discovery of the falsity or the fraud. The tax court explained that petitioner failed to substantiate its allegation
by clear and convincing proof that respondent filed a false or fraudulent return.

Furthermore, the CTA First Division held that the Waivers executed by Sarmiento did not validly extend the three-
year prescriptive period to assess respondent for deficiency income tax, FWT, EWT, increments for late remittance of
tax withheld and compromise penalty, for, as found, the Waivers were not properly executed according to the
procedure in Revenue Memorandum Order No. 20-90 (RMO 20-90)[1] and Revenue Delegation Authority Order No.
05-01 (RDAO 05-01).[2]

The tax court declared that, in this case, the Waivers have no binding effect on respondent for the following reasons:

First, Sarmiento signed the Waivers without any notarized written authority from respondent's Board of Directors.
Petitioner's witness explicitly admitted that he did not require Sarmiento to present any notarized written authority
from the Board of Directors of respondent, authorizing her to sign the Waivers. Petitioner's witness also confirmed
that Revenue District Officer Raul Vicente L. Recto (RDO Recto) accepted the Waivers as submitted.

Second, even assuming that Sarmiento had the necessary board authority, the Waivers are still invalid as the
respective dates of their acceptance by RDO Recto are not indicated therein.

Third, records of this case reveal additional irregularities in the subject Waivers:
(1) The fact of receipt by respondent of its copy of the Second Waiver was not indicated on the
face of the original Second Waiver;

(2) Respondent received its copy of the First and the Third Waivers on the same day, May 23,
2005; and

(3) Respondent received its copy of the Fourth and the Fifth Waivers on the same day, May 13,
2005.
Finally, the CTA held that estoppel does not apply in questioning the validity of a waiver of the statute of limitations. It
stated that the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and
RDAO 05-01.

Petitioner's Motion for Reconsideration was denied on March 14, 2013.

Petitioner filed a Petition for Review before the CTA En Banc.

On May 28, 2014, the CTA En Banc rendered a Decision denying the Petition for Review and affirmed that of the
former CTA First Division.

It held that the five (5) Waivers of the statute of limitations were not valid and binding; thus, the three-year period of
limitation within which to assess deficiency taxes was not extended. It also held that the records belie the allegation
that respondent filed false and fraudulent tax returns; thus, the extension of the period of limitation from three (3) to
ten (10) years does not apply.

Issue

Petitioner has filed the instant petition on the issue of whether or not the CIR's right to assess respondent's deficiency
taxes had already prescribed.

Our Ruling

The petition has merit.

Section 203[3] of the 1997 NIRC mandates the BIR to assess internal revenue taxes within three years from the last
day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later.
Hence, an assessment notice issued after the three-year prescriptive period is not valid and effective. Exceptions to
this rule are provided under Section 222[4] of the NIRC.

Section 222(b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written
agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO 20-90
issued on April 4, 1990 and RDAO 05-01[5] issued on August 2, 2001 provide the procedure for the proper execution
of a waiver. RMO 20-90 reads:
April 4, 1990
REVENUE MEMORANDUM ORDER NO. 20-90
Subject: Proper Execution of the Waiver of the Statute of Limitations under the National Internal Revenue
Code
To: All Internal Revenue Officers and Others Concerned

Pursuant to Section 223 of the Tax Code, internal revenue taxes may be assessed or collected after the ordinary
prescriptive period, if before its expiration, both the Commissioner and the taxpayer have agreed in writing to its
assessment and/or collection after said period. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon. This written agreement between the
Commissioner and the taxpayer is the so-called Waiver of the Statute of Limitations. In the execution of said waiver,
the following procedures should be followed:

1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concerned but there
should be no deviation from such form. The phrase "but not after ______ 19____" should be filled up. This indicates
the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription.
The period agreed upon shall constitute the time within which to effect the assessment/collection of the tax in addition
to the ordinary prescriptive period.

2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials.

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue .or the revenue official
authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed
to the waiver. The date of such acceptance by the Bureau should be indicated. Both the date of execution by the
taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before
the lapse of the period agreed upon in case a subsequent agreement is executed.

3. The following revenue officials are authorized to sign the waiver:

xxxx

4. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the case, the
second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the
taxpayer of his/her file copy shall be indicated in the original copy.

5. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this Order
resulting in prescription of the right to assess/collect shall be administratively dealt with.

This Revenue Memorandum Order shall take effect immediately.

(SGD.)JOSEU. ONG
Commissioner of Internal Revenue
The Court has consistently held that a waiver of the statute of limitations must faithfully comply with the provisions of
RMO No. 20-90 and RDAO 05-01 in order to be valid and binding.

In Philippine Journalists, Inc. v. Commissioner of Internal Revenue [6] the Court declared the waiver executed by
petitioner therein invalid because: (1) it did not specify a definite agreed date between the BIR and petitioner within
which the former may assess and collect revenue taxes; (2) it was signed only by a revenue district officer, not the
Commissioner; (3) there was no date of acceptance; and (4) petitioner was not furnished a copy of the waiver.

Philippine Journalists tells us that since a waiver of the statute of limitations is a derogation of the taxpayer's right to
security against prolonged and unscrupulous investigations, waivers of this kind must be carefully and strictly
construed. Philippine Journalists also clarifies that a waiver of the statute of limitations is not a waiver of the right to
invoke the defense of prescription but rather an agreement between the taxpayer and the BIR that the period to issue
an assessment and collect the taxes due is extended to a date certain. It is not a unilateral act by the taxpayer of the
BIR but is a bilateral agreement between two parties.

In Commissioner of Internal Revenue v. FMF Development Corporation [7] the Court found the waiver in question
defective because: (1) it was not proved that respondent therein was furnished a copy of the BIR-accepted waiver; (2)
the waiver was signed by a revenue district officer instead of the Commissioner as mandated by the NIRC and RMO
20-90 considering that the case involved an amount of more than P1,000,000.00, and the period to assess was not
yet about to prescribe; and (3) it did not contain the date of acceptance by the CIR. The Court explained that the date
of acceptance by the CIR is a requisite necessary to determine whether the waiver was validly accepted before the
expiration of the original period.[8]

In CIR v. Kudos Metal Corporation,[9] the waivers executed by Kudos were found ineffective to extend the period to
assess or collect taxes because: (1) the accountant who executed the waivers had no notarized written board
authority to sign the waivers in behalf of respondent corporation; (2) there was no date of acceptance indicated on the
waivers; and (3) the fact of receipt by respondent of its file copy was not indicated in the original copies of the
waivers.

The Court rejected the CIR's argument that since it was the one who asked for additional time, Kudos should be
considered estopped from raising the defense of prescription. The Court held that the BIR cannot hide behind the
doctrine of estoppel to cover its failure to comply with its RMO 20-90 and RDAO 05-01. Having caused the defects in
the waivers, the Court held that the BIR must bear the consequence. [10] Hence, the BIR assessments were found to
be issued beyond the three-year period and declared void.[11] Further, the Court stressed that there is compliance
with RMO 20-90 only after the taxpayer receives a copy of the waiver accepted by the BIR, viz:
The flaw in the appellate court's reasoning stems from its assumption that the waiver is a unilateral act of the
taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioner's
comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not
assented. There is compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy of the
waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only to give
notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement. [12]
The deficiencies of the Waivers in this case are the same as the defects of the waiver in Kudos. In the instant case,
the CTA found the Waivers because of the following flaws: (1) they were executed without a notarized board
authority; (2) the dates of acceptance by the BIR were not indicated therein; and (3) the fact of receipt by respondent
of its copy of the Second Waiver was not indicated on the face of the original Second Waiver.

To be sure, both parties in this case are at fault.

Here, respondent, through Sarmiento, executed five Waivers in favor of petitioner. However, her authority to sign
these Waivers was not presented upon their submission to the BIR. In fact, later on, her authority to sign was
questioned by respondent itself, the very same entity that caused her to sign such in the first place. Thus, it is clear
that respondent violated RMO No. 20-90 which states that in case of a corporate taxpayer, the waiver must be signed
by its responsible officials[13] and RDAO 01-05 which requires the presentation of a written and notarized authority to
the BIR.[14]

Similarly, the BIR violated its own rules and was careless in performing its functions with respect to these Waivers. It
is very clear that under RDAO 05-01 it is the duty of the authorized revenue official to ensure that the waiver is duly
accomplished and signed by the taxpayer or his authorized representative before affixing his signature to
signify acceptance of the same. It also instructs that in case the authority is delegated by the taxpayer to a
representative, the concerned revenue official shall see to it that such delegation is in writing and duly
notarized. Furthermore, it mandates that the waiver should not be accepted by the concerned BIR office and
official unless duly notarized.[15]

Vis-a-vis the five Waivers it received from respondent, the BIR has failed, for five times, to perform its duties in
relation thereto: to verify Ms. Sarmiento's authority to execute them, demand the presentation of a notarized
document evidencing the same, refuse acceptance of the Waivers when no such document was presented, affix the
dates of its acceptance on each waiver, and indicate on the Second Waiver the date of respondent's receipt thereof.

Both parties knew the infirmities of the Waivers yet they continued dealing with each other on the strength of these
documents without bothering to rectify these infirmities. In fact, in its Letter Protest to the BIR, respondent did not
even question the validity of the Waivers or call attention to their alleged defects.

In this case, respondent, after deliberately executing defective waivers, raised the very same deficiencies it caused to
avoid the tax liability determined by the BIR during the extended assessment period. It must be remembered that by
virtue of these Waivers, respondent was given the opportunity to gather and submit documents to substantiate its
claims before the CIR during investigation. It was able to postpone the payment of taxes, as well as contest and
negotiate the assessment against it. Yet, after enjoying these benefits, respondent challenged the validity of the
Waivers when the consequences thereof were not in its favor. In other words, respondent's act of impugning these
Waivers after benefiting therefrom and allowing petitioner to rely on the same is an act of bad faith.

On the other hand, the stringent requirements in RMO 20-90 and RDAO 05-01 are in place precisely because the
BIR put them there. Yet, instead of strictly enforcing its provisions, the BIR defied the mandates of its very own
issuances. Verily, if the BIR was truly determined to validly assess and collect taxes from respondent after the
prescriptive period, it should have been prudent enough to make sure that all the requirements for the effectivity of
the Waivers were followed not only by its revenue officers but also by respondent. The BIR stood to lose millions of
pesos in case the Waivers were declared void, as they eventually were by the CTA, but it appears that it was too
negligent to even comply with its most basic requirements.

The BIR's negligence in this case is so gross that it amounts to malice and bad faith. Without doubt, the BIR knew
that waivers should conform strictly to RMO 20-90 and RDAO 05-01 in order to be valid. In fact, the mandatory nature
of the requirements, as ruled by this Court, has been recognized by the BIR itself in its issuances such as Revenue
Memorandum Circular No. 6-2005,[16] among others. Nevertheless, the BIR allowed respondent to submit, and it duly
received, five defective Waivers when it was its duty to exact compliance with RMO 20-90 and RDAO 05-01 and
follow the procedure dictated therein. It even openly admitted that it did not require respondent to present any
notarized authority to sign the questioned Waivers.[17] The BIR failed to demand respondent to follow the
requirements for the validity of the Waivers when it had the duty to do so, most especially because it had the highest
interest at stake. If it was serious in collecting taxes, the BIR should have meticulously complied with the foregoing
orders, leaving no stone unturned.

The general rule is that when a waiver does not comply with the requisites for its validity specified under RMO No.
20-90 and RDAO 01-05, it is invalid and ineffective to extend the prescriptive period to assess taxes. However, due to
its peculiar circumstances, We shall treat this case as an exception to this rule and find the Waivers valid for the
reasons discussed below.

First, the parties in this case are in pari delicto or "in equal fault." In pari delicto connotes that the two parties to a
controversy are equally culpable or guilty and they shall have no action against each other. However, although the
parties are in pari delicto, the Court may interfere and grant relief at the suit of one of them, where public policy
requires its intervention, even though the result may be that a benefit will be derived by one party who is in equal guilt
with the other.[18]

Here, to uphold the validity of the Waivers would be consistent with the public policy embodied in the principle that
taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need.[19] Taxes are
the nation's lifeblood through which government agencies continue to operate and which the State discharges its
functions for the welfare of its constituents.[20] As between the parties, it would be more equitable if petitioner's lapses
were allowed to pass and consequently uphold the Waivers in order to support this principle and public policy.
Second, the Court has repeatedly pronounced that parties must come to court with clean hands. [21] Parties who do
not come to court with clean hands cannot be allowed to benefit from their own wrongdoing. [22] Following the
foregoing principle, respondent should not be allowed to benefit from the flaws in its own Waivers and successfully
insist on their invalidity in order to evade its responsibility to pay taxes.

Third, respondent is estopped from questioning the validity of its Waivers. While it is true that the Court has
repeatedly held that the doctrine of estoppel must be sparingly applied as an exception to the statute of limitations for
assessment of taxes, the Court finds that the application of the doctrine is justified in this case. Verily, the application
of estoppel in this case would promote the administration of the law, prevent injustice and avert the accomplishment
of a wrong and undue advantage. Respondent executed five Waivers and delivered them to petitioner, one after the
other. It allowed petitioner to rely on them and did not raise any objection against their validity until petitioner
assessed taxes and penalties against it. Moreover, the application of estoppel is necessary to prevent the undue
injury that the government would suffer because of the cancellation of petitioner's assessment of respondent's tax
liabilities.

Finally, the Court cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the one hand, after
voluntarily executing waivers, insisted on their invalidity by raising the very same defects it caused. On the other
hand, the BIR miserably failed to exact from respondent compliance with its rules. The BIR's negligence in the
performance of its duties was so gross that it amounted to malice and bad faith. Moreover, the BIR was so lax such
that it seemed that it consented to the mistakes in the Waivers. Such a situation is dangerous and open to abuse by
unscrupulous taxpayers who intend to escape their responsibility to pay taxes by mere expedient of hiding behind
technicalities.

It is true that petitioner was also at fault here because it was careless in complying with the requirements of RMO No.
20-90 and RDAO 01-05. Nevertheless, petitioner's negligence may be addressed by enforcing the provisions
imposing administrative liabilities upon the officers responsible for these errors. [23] The BIR's right to assess and
collect taxes should not be jeopardized merely because of the mistakes and lapses of its officers, especially in cases
like this where the taxpayer is obviously in bad faith. [24]

As regards petitioner's claim that the 10-year period of limitation within which to assess deficiency taxes provided in
Section 222(a) of the 1997 NIRC is applicable in this case as respondent allegedly filed false and fraudulent returns,
there is no reason to disturb the tax court's findings that records failed to establish, even by prima facie evidence,
that respondent Next Mobile filed false and fraudulent returns on the ground of substantial underdeclaration
of income in respondent Next Mobile's Annual ITR for taxable year ending December 31, 2001.[25]

While the Court rules that the subject Waivers are valid, We, however, refer back to the tax court the determination of
the merits of respondent's petition seeking the nullification of the BIR Formal Letter of Demand and Assessment
Notices/Demand No. 43-734.

WHEREFORE, premises considered, the Court resolves to GRANT the petition. The Decision of the Court of Tax
Appeals En Banc dated May 28, 2014 in CTA EB Case No. 1001 is hereby REVERSED and SET ASIDE.
Accordingly, let this case be remanded to the Court of Tax Appeals for further proceedings in order to determine and
rule on the merits of respondent's petition seeking the nullification of the BIR Formal Letter of Demand and
Assessment Notices/Demand No. 43-734, both dated October 17, 2005.

SO ORDERED.

Peralta, Villarama, Jr., Perez,* and Reyes, JJ., concur.

 FIRST DIVISION
[ G.R. No. 212920, September 16, 2015 ]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. NIPPON EXPRESS
(PHILS.) CORPORATION, RESPONDENT.

DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari[1] are the Decision[2] dated December 18, 2013 and the
Resolution[3]dated June 10, 2014 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 924, which affirmed the
Resolution[4]dated July 31, 2012 of the CTA Third Division (CTA Division) in CTA Case No. 6967, granting
respondent Nippon Express (Phils.) Corporation's (Nippon) motion to withdraw petition for review [5] (motion to
withdraw).

The Facts

Nippon is a domestic corporation duly organized and existing under Philippine laws which is primarily engaged in the
business of freight forwarding, namely, in the international and domestic air and sea freight and cargo forwarding,
hauling, carrying, handling, distributing, loading, and unloading general cargoes and all classes of goods, wares, and
merchandise, and the operation of container depots, warehousing, storage, hauling, and packing facilities. [6] It is a
Value-Added Tax (VAT) registered entity with Tax Identification No. VAT Registration No. 004-669-434-000.[7] As
such, it filed its quarterly VAT returns for the year 2002 on April 25, 2002, July 25, 2002, October 25, 2002, and
January 27, 2003, respectively.[8] It maintained that during the said period it incurred input VAT attributable to its zero-
rated sales in the amount of P28,405,167.60, from which only P3,760,660.74 was applied as tax credit, thus,
reflecting refundable excess input VAT in the amount of P24,644,506.86. [9]

On April 22, 2004, Nippon filed an administrative claim for refund[10] of its unutilized input VAT in the amount of
P24,644,506.86 for the year 2002 before the Bureau of Internal Revenue (BIR). [11] A day later, or on April 23, 2004, it
filed a judicial claim for tax refund, by way of petition for review, [12] before the CTA, docketed as CTA Case No.
6967.[13]

For its part, petitioner the Commissioner of Internal Revenue (CIR) asserted, inter alia, that the amounts being
claimed by Nippon as unutilized input VAT were not properly documented, hence, should be denied.[14]

Proceedings Before the CTA Division

In a Decision[15] dated August 10, 2011, the CTA Division partially granted Nippon's claim for tax refund, and thereby
ordered the CIR to issue a tax credit certificate in the reduced amount of P2,614,296.84, representing its unutilized
input VAT which was attributable to its zero-rated sales.[16] It found that while Nippon timely filed its administrative and
judicial claims within the two (2)-year prescriptive period,[17] it, however, failed to show that the recipients of its
services - which, in this case, were mostly Philippine Economic Zone Authority registered enterprises - were non-
residents "doing business outside the Philippines." Accordingly, it concluded that Nippon's purported sales therefrom
could not qualify as zero-rated sales, hence, the reduction in the amount of tax credit certificate claimed. [18]

Before its receipt of the August 10, 2011 Decision, or on August 12, 2011, Nippon filed a motion to
withdraw,[19]considering that the BIR, acting on its administrative claim, already issued a tax credit certificate in the
amount of P21,675,128.91 on July 27, 2011 (July 27, 2011 Tax Credit Certificate).

Separately, the CIR moved for reconsideration[20] of the August 10, 2011 Decision and filed its
comment/opposition[21] to Nippon's motion to withdraw, claiming that: (a) the CTA Division had already resolved the
factual issue pertaining to Nippon's entitlement to a tax credit certificate, which, after trial, was proven to be only in
the amount of P2,614,296.84; (b) the issuance of the July 27, 2011 Tax Credit Certificate was bereft of factual and
legal bases, and prejudicial to the interest of the government; and (c) Nippon's motion to withdraw was "tantamount to
[a] withdrawal and abandonment of its [mjotion for [reconsideration also filed in this case." [22]

Thereafter, Nippon, which maintained that it only had notice of the August 10, 2011 Decision on August 16,
2011,[23]likewise sought for reconsideration,[24] praying that the CTA Division set aside its August 10, 2011 Decision
and render judgment ordering the CIR to issue a tax credit certificate in the full amount of P24,644,506.86, or in the
alternative, grant its motion to withdraw.[25]

In a Resolution dated July 31, 2012,[26] the CTA Division granted Nippon's motion to withdraw and, thus, considered
the case closed and terminated.[27] It found that pursuant to Revenue Memorandum Circular No. 49-03 (RMC No.
49-03) dated August 15, 2003, Nippon correctly availed of the proper remedy notwithstanding the promulgation of
the August 10, 2011 Decision. It added that in approving the withdrawal of Nippon's petition for review, it exercised its
discretionary authority under Section 3, Rule 50 of the Rules of Court after due consideration of the reasons proffered
by Nippon, namely: (a) that the parties had already arrived at a reasonable settlement of the issues; (b) further legal
and related costs would be avoided; and (c) the court's time and resources would be saved.[28]

Aggrieved, the CIR elevated[29] its case to the CTA En Banc.

The CTA En Banc Ruling

In a Decision[30] dated December 18, 2013, the CTA En Banc affirmed the July 31, 2012 Resolution of the CTA
Division granting Nippon's motion to withdraw.[31] It debunked the CIR's assertions that Nippon failed to comply with
the requirements set forth in RMC No. 49-03 - i.e., that Nippon failed to notify the BIR that it agreed with its findings
and to file the necessary motion before the CTA Division prior to the promulgation of its Decision -noting that RMC
No. 49-03 did not expressly require a taxpayer to inform the BIR of its assent nor prescribe a definite period for filing
a motion to withdraw. It also observed that the CIR did not deny the existence and issuance of the July 27, 2011 Tax
Credit Certificate. In this regard, the same may be taken judicial notice of, and the need for its formal offer dispensed
with.[32]

The CIR moved for partial reconsideration[33] which was, however, denied by the CTA En Banc in a
Resolution[34]dated June 10, 2014; hence, this petition.

The Issue Before the Court

The core issue in this case is whether the CTA properly granted Nippon's motion to withdraw.

The Court's Ruling

The petition is meritorious.

A perusal of the Revised Rules of the Court of Tax Appeals [35] (RRCTA) reveals the lack of provisions governing the
procedure for the withdrawal of pending appeals before the CTA. Hence, pursuant to Section 3, Rule 1 of the
RRCTA, the Rules of Court shall suppletorily apply:
Sec. 3. Applicability of the Rules of Court. - The Rules of Court in the Philippines shall apply suppletorily to these
Rules.
Rule 50 of the Rules of Court - an adjunct rule to the appellate procedure in the CA under Rules 42, 43, 44, and 46 of
the Rules of Court which are equally adopted in the RRCTA[36] - states that when the case is deemed submitted for
resolution, withdrawal of appeals made after the filing of the appellee's brief may still be allowed in the discretion of
the court:
RULE 50
DISMISSAL OF APPEAL

xxxx

Section 3. Withdrawal of appeal. — An appeal may be withdrawn as of right at any time before the filing of the
appellee's brief. Thereafter, the withdrawal may be allowed in the discretion of the court. (Emphasis supplied)
Impelled by the BIR's supervening issuance of the July 27, 2011 Tax Credit Certificate, Nippon filed a motion to
withdraw the case, proffering that:
Having arrived at a reasonable settlement of the issues with the [CIR]/BIR, and to avoid incurring further legal and
related costs, not to mention the time and resources of [the CTA], [Nippon] most respectfully moves for the
withdrawal of its Petition for Review.[37]
Finding the aforementioned grounds to be justified, the CTA Division allowed the withdrawal of Nippon's appeal
thereby ordering the case closed and terminated, notwithstanding the fact that the said motion was filed after the
promulgation of its August 10, 2011 Decision.

While it is true that the CTA Division has the prerogative to grant a motion to withdraw under the authority of the
foregoing legal provisions, the attendant circumstances in this case should have incited it to act otherwise.

First, it should be pointed out that the August 10, 2011 Decision was rendered by the CTA Division after a full-blown
hearing in which the parties had already ventilated their claims. Thus, the findings contained therein were the results
of an exhaustive study of the pleadings and a judicious evaluation of the evidence submitted by the parties, as well as
the report of the commissioned certified public accountant. In Reyes v. Commission on Elections,[38] the Court only
noted, and did not grant, a motion to withdraw the petition filed after it had already acted on said petition, ratiocinating
in the following wise:
It may well be in order to remind petitioner that jurisdiction, once acquired, is not lost upon the instance of the parties,
but continues until the case is terminated. When petitioner filed her Petition for Certiorari jurisdiction vested in the
Court and, in fact, the Court exercised such jurisdiction when it acted on the petition. Such jurisdiction cannot be lost
by the unilateral withdrawal of the petition by petitioner.[39]
The primary reason, however, that militates against the granting of the motion to withdraw is the fact that the CTA
Division, in its August 10, 2011 Decision, had already determined that Nippon was only entitled to refund the reduced
amount of P2,614,296.84 since it failed to prove that the recipients of its services were non-residents "doing business
outside the Philippines"; hence, Nippon's purported sales therefrom could not qualify as zero-rated sales,
necessitating the reduction in the amount of refund claimed. Markedly different from this is the BIR's determination
that Nippon should receive P21,675,128.91 as per the July 27, 2011 Tax Credit Certificate, which is, in
all, P19,060,832.07 larger than the amount found due by the CTA Division. Therefore, as aptly pointed out by
Associate Justice Teresita J. Leonardo-De Castro during the deliberations on this case, the massive discrepancy
alone between the administrative and judicial determinations of the amount to be refunded to Nippon should have
already raised a red flag to the CTA Division. Clearly, the interest of the government, and, more significantly, the
public, will be greatly prejudiced by the erroneous grant of refund - at a substantial amount at that - in favor of Nippon.
Hence, under these circumstances, the CTA Division should not have granted the motion to withdraw.

In this relation, it deserves mentioning that the CIR is not estopped from assailing the validity of the July 27, 2011 Tax
Credit Certificate which was issued by her subordinates in the BIR. In matters of taxation, the government cannot be
estopped by the mistakes, errors or omissions of its agents for upon it depends the ability of the government to serve
the people for whose benefit taxes are collected.[40]

Finally, the Court has observed that based on the records, Nippon's administrative claim for the first taxable quarter of
2002 which closed on March 31, 2002 was already time-barred[41] for being filed on April 22, 2004, or beyond the two
(2)-year prescriptive period pursuant to Section 112(A)[42] of the National Internal Revenue Code of 1997. Although
prescription was not raised as an issue, it is well-settled that if the pleadings or the evidence on record show that the
claim is barred by prescription, the Court may motu proprio order its dismissal on said ground.[43]

All told, the CTA committed a reversible error in granting Nippon's motion to withdraw. The August 10, 2011 Decision
of the CTA Division should therefore be reinstated, without prejudice, however, to the right of either party to appeal
the same in accordance with the RRCTA.

WHEREFORE, the petition is GRANTED. The Decision dated December 18, 2013 and the Resolution dated June 10,
2014 of the Court of Tax Appeals En Banc in CTA EB Case No. 924 are hereby SET ASIDE. The Decision dated
August 10, 2011 of the Court of Tax Appeals Third Division in CTA Case No. 6967 is REINSTATED, without
prejudice, however, to the right of either party to appeal the same in accordance with the Revised Rules of the Court
of Tax Appeals.

SO ORDERED.

Sereno, C. J., (Chairperson), Leonardo-De Castro, Bersamin, and Perez, JJ., concur.
G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,

vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for a
re-examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a
case where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund
of registration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from
the payment of taxes. The pertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the grantee
shall pay to the National Government during the life of this franchise a tax of two per
cent of the gross revenue or gross earning derived by the grantee from its operations
under this franchise. Such tax shall be due and payable quarterly and shall be in lieu
of all taxes of any kind, nature or description, levied, established or collected by any
municipal, provincial or national automobiles, Provided, that if, after the audit of the
accounts of the grantee by the Commissioner of Internal Revenue, a deficiency tax is
shown to be due, the deficiency tax shall be payable within the ten days from the
receipt of the assessment. The grantee shall pay the tax on its real property in
conformity with existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring
all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless
the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest,
the amount of P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not come
within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint against
Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with
the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862.
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity
as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action.
In support of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit
Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees
imposed as an incident of the exercise of the police power of the state. They contended that while
Act 4271 exempts PAL from the payment of any tax except two per cent on its gross revenue or
earnings, it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle
registration fees. The resolution of the motion to dismiss was deferred by the Court until after trial on
the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by
the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus
Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified the
case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL
and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at
bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8
of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks
of "registration fees." The term is repeated four times in the body thereof. Equally so,
mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts
with a categorical statement "No fees shall be charged." (lbid.,Subsection H) The
conclusion is difficult to resist therefore that the Motor Vehicle Act requires the
payment not of a tax but of a registration fee under the police power. Hence the
incipient, of the section relied upon by defendant-appellee under the Back Pay Law,
It is not held liable for a tax but for a registration fee. It therefore cannot make use of
a backpay certificate to meet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be
dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition
of additional tax on privately-owned passenger automobiles, motorcycles and
scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30,
1969.) A special science fund was thereby created and its title expressly sets forth
that a tax on privately-owned passenger automobiles, motorcycles and scooters was
imposed. The rates thereof were provided for in its Section 3 which clearly specifies
the" Philippine tax."(Cooley to be paid as distinguished from the registration fee
under the Motor Vehicle Act. There cannot be any clearer expression therefore of the
legislative will, even on the assumption that the earlier legislation could by
subdivision the point be susceptible of the interpretation that a tax rather than a fee
was levied. What is thus most apparent is that where the legislative body relies on its
authority to tax it expressly so states, and where it is enacting a regulatory measure,
it is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand,
held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the name
but the object of the charge determines whether it is a tax or a fee. Geveia speaking,
taxes are for revenue, whereas fees are exceptional. for purposes of regulation and
inspection and are for that reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection. Hence, a charge fixed by statute for
the service to be person,-When by an officer, where the charge has no relation to the
value of the services performed and where the amount collected eventually finds its
way into the treasury of the branch of the government whose officer or officers
collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p.
110.)
 From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portion—about 5 per centum—of the total
collections from motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office, the law itself provides that
all such money shall accrue to the funds for the construction and maintenance of
public roads, streets and bridges. It is thus obvious that the fees are not collected for
regulatory purposes, that is to say, as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, for their express
object is to provide revenue with which the Government is to discharge one of its
principal functions—the construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as
taxes, for it provides that "no other taxes or fees than those prescribed in this Act
shall be imposed," thus implying that the charges therein imposed—though called
fees—are of the category of taxes. The provision is contained in section 70, of
subsection (b), of the law, as amended by section 17 of Republic Act 587, which
reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act
shall be imposed for the registration or operation or on the ownership
of any motor vehicle, or for the exercise of the profession of
chauffeur, by any municipal corporation, the provisions of any city
charter to the contrary notwithstanding: Provided, however, That any
provincial board, city or municipal council or board, or other
competent authority may exact and collect such reasonable and
equitable toll fees for the use of such bridges and ferries, within their
respective jurisdiction, as may be authorized and approved by the
Secretary of Public Works and Communications, and also for the use
of such public roads, as may be authorized by the President of the
Philippines upon the recommendation of the Secretary of Public
Works and Communications, but in none of these cases, shall any toll
fee." be charged or collected until and unless the approved schedule
of tolls shall have been posted levied, in a conspicuous place at such
toll station. (at pp. 213-214)

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law
(Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,
110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.—Twenty per centum of the money

collected under the provisions of this Act shall accrue to the road and bridge funds of
the different provinces and chartered cities in proportion to the centum shall during
the next previous year and the remaining eighty per centum shall be deposited in the
Philippine Treasury to create a special fund for the construction and maintenance of
national and provincial roads and bridges. as well as the streets and bridges in the
chartered cities to be alloted by the Secretary of Public Works and Communications
for projects recommended by the Director of Public Works in the different provinces
and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions of

this Act shall be deposited in a special trust account in the National Treasury to
constitute the Highway Special Fund, which shall be apportioned and expended in
accordance with the provisions of the" Philippine Highway Act of 1935. "Provided,
however, That the amount necessary to maintain and equip the Land Transportation
Commission but not to exceed twenty per cent of the total collection during one year,
 shall be set aside for the purpose. (As amended by RA 64-67, approved August 6,
1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction
and maintenance of highways and to a much lesser degree, pay for the operating expenses of the
administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising
from the use of the term "fees," which appears to have been favored by the legislature to distinguish
fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.—No original registration of motor

vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to
the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motor
vehicle (Sec. 59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation,
As stated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of
taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation
(Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license
fees. Isabela such case, the fees may properly be regarded as taxes even though
they also serve as an instrument of regulation. If the purpose is primarily revenue, or
if revenue is at least one of the real and substantial purposes, then the exaction is
properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta
98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs.
4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of
1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali,
Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591-
593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil.
148).

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 (Umali, Id.) Such is the case of motor vehicle
registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The same provision appears as Section 591-593). in the Land
Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as the law
refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or
fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax,
Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership
of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to
impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an
"additional" tax," where the law could have referred to an original tax and not one in addition to the
tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act
41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition
in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as
the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of
registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal
to be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like the
motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of
the Land Transportation Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for
rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular
traffic exploded in number and motor vehicles became absolute necessities without which modem
life as we know it would stand still, Congress found the registration of vehicles a very convenient
way of raising much needed revenues. Without changing the earlier deputy. of registration payments
as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant
to the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of
government even if one fifth or less of the amount collected is set aside for the operating expenses
of the agency administering the program.

May the respondent administrative agency be required to refund the amounts stated in the complaint
of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to what
payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448
dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislative
franchises similar to that invoked by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July
11, 1985), this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
Communications of the Philippines, Inc., was subject to both the franchise tax and
income tax. In 1964, however, petitioner's franchise was amended by Republic Act
No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%)
of all gross receipts was provided as "in lieu of any and all taxes of any kind, nature,
or description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national from which taxes the grantee is hereby expressly
exempted." The issue raised to this Court now is the validity of the respondent court's
decision which ruled that the exemption under Republic Act No. 41-42). was
repealed by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the contrary

notwithstanding, all corporate taxpayers not specifically exempt under
Sections 24 (c) (1) of this Code shall pay the rates provided in this
section. All corporations, agencies, or instrumentalities owned or
controlled by the government, including the Government Service
Insurance System and the Social Security System but excluding
educational institutions, shall pay such rate of tax upon their taxable
net income as are imposed by this section upon associations or
corporations engaged in a similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the
law intended all corporate taxpayers to pay income tax as provided by the statute.
There can be no doubt as to the power of Congress to repeal the earlier exemption it
granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of
the Constitution as amended in 1973 expressly provide that no franchise shall be
granted to any individual, firm, or corporation except under the condition that it shall
be subject to amendment, alteration, or repeal by the legislature when the public
interest so requires. There is no question as to the public interest involved. The
country needs increased revenues. The repealing clause is clear and unambiguous.
There is a listing of entities entitled to tax exemption. The petitioner is not covered by
the provision. Considering the foregoing, the Court Resolved to DENY the petition for
lack of merit. The decision of the respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay to
the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.)
 (a) The basic corporate income tax based on the grantee's annual net
taxable income computed in accordance with the provisions of the
Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues.
derived by the grantees from all specific. without distinction as to
transport or nontransport corporations; provided that with respect to
international airtransport service, only the gross passengers, mail,
and freight revenues. from its outgoing flights shall be subject to this
law.

The tax paid by the grantee under either of the above alternatives shall be in lieu of
all other taxes, duties, royalties, registration, license and other fees and charges of
any kind, nature or description imposed, levied, established, assessed, or collected
by any municipal, city, provincial, or national authority or government, agency, now or
in the future, including but not limited to the following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and
transfer of airtransport equipment, motor vehicles, and all other personal or real
property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law.
PAL is now exempt from the payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees
paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is
enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing of the
petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Cortes, Griño Aquino and Medialdea, JJ., concur.
G.R. No. 184145 December 11, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
DASH ENGINEERING PHILIPPINES, INC., Respondent.

DECISION

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure, assailing the July 17, 2008 Decision1 and the August 12, 2008 Resolution2 of the
Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243)
entitled "Commissioner of Internal Revenue v. Dash Engineering Philippines, inc."

The Facts

Respondent Dash Engineering Philippines, Inc. (DEPJ) is a corporation duly registered with the
Securities and Exchange Commission, authorized to do business in the Philippines and listed with
the Philippine Economic Zone Authority as an ecozone IT export enterprise.3 It is also a VAT-
registered entity engaged in the export sales of computer-aided engineering and design.4

Respondent filed its monthly and quarterly value-added tax (VAT) returns for the period from
January 1, 2003 to June 30, 2003.5 On August 9, 2004, it filed a claim for tax credit or refund in the
amount of P 2,149,684.88 representing unutilized input VAT attributable to its zero-rated
sales.6 Because petitioner Commissioner of Internal Revenue (CIR) failed to act upon the said claim,
respondent was compelled to file a petition for review with the CTA on May 5, 2005.7

On October 4, 2007, the Second Division of the CTA rendered its Decision8 partially granting
respondent’s claim for refund or issuance of a tax credit certificate in the reduced amount of P
1,147,683.78. On the matter of the timeliness of the filing of the judicial claim, the Tax Court found
that respondent’s claims for refund for the first and second quarters of 2003 were filed within the
two-year prescriptive period which is counted from the date of filing of the return and payment of the
tax due. Because DEPI filed its amended quarterly VAT returns for the first and second quarters of
2003 on July 24, 2004, it had until July 24, 2006 to file its judicial claim. As such, its filing of a petition
for review with the CTA on April 26, 20059 was within the prescriptive period.10 Petitioner moved for
reconsideration but the same was denied in a Resolution dated January 3, 2008.11

Aggrieved, petitioner elevated the case to the CTA En Banc, where it argued that respondent failed
to show that (1) its purchases of goods and services were made in the course of its trade and
business, (2) the said purchases were properly supported by VAT invoices and/or official receipts
and other documents, and (3) that the claimed input VAT payments were directly attributable to its
zero-rated sales. Petitioner also averred that the petition for review was filed out of time.12

The CTA En Banc in its Decision,13 dated July 17, 2008, upheld the decision of the CTA Second
Division, ruling that the judicial claim was filed on time because the use of the word "may" in Section
112(D) (now subparagraph C) of the National Internal Revenue Code (NIRC) indicates that judicial
recourse within thirty (30) days after the lapse of the 120-day period is only directory and permissive
and not mandatory and jurisdictional, as long as the petition was filed within the two-year prescriptive
period. The Tax Court further reiterated that the two-year prescriptive period applies to both the
administrative and judicial claims. Petitioner’s motion for reconsideration was denied in the August
12, 2008 Resolution of the CTA.14

Hence, this petition.

The Issues

Petitioner raises the following grounds for the allowance of the petition:

The Court of Tax Appeals En Banc erred in holding that respondent’s judicial claim for refund
was filed within the prescriptive period provided under the Tax Code.
II

The Court of Tax Appeals En Banc erred in partially granting respondent’s claim for refund
despite the failure of the latter to substantiate its claim by sufficient documentary proof.15

The Court’s Ruling

As to the first issue, petitioner argues that the judicial claim was filed out of time because respondent
failed to comply with the 30-day period referred to in Section 112(D) (now subparagraph C) of the
NIRC, citing the case of Commissioner of Internal Revenue v. Aichi16 where the Court categorically
held that compliance with the prescribed periods in Section 112 is mandatory and jurisdictional.
Respondent filed its administrative claim for refund on August 9, 2004. The 120-day period within
which the CIR should act on the claim expired on December 7, 2004 without any action on the part
of petitioner. Thus, respondent only had 30 days from the lapse of the said period, or until January 6,
2005, to file a petition for review with the CTA. The petition, however, was filed only on May 5,
2005.17 Petitioner further posits that the 30-day period within which to file an appeal with the CTA is
jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA of its
jurisdiction to entertain the same.18

Conversely, respondent DEPI asserts that its petition was seasonably filed before the CTA in
keeping with the two-year prescriptive period provided for in Sections 204(c) and 229 of the
NIRC.19 DEPI interprets Section 112, in relation to Section 229, to mean that the 120-day period is
the time given to the CIR to decide the case. The taxpayer, on the other hand, has the option of
either appealing to the CTA the denial by the CIR of the claim for refund within thirty (30) days from
receipt of such denial and within the two-year prescriptive period, or appealing an unacted claim to
the CTA anytime after the expiration of the 120-day period given to the CIR to resolve the
administrative claim for as long as the judicial claim is made within the two-year prescriptive
period.20 Following respondent’s reasoning, its filing of the judicial claim on April 26, 2005 was filed
on time because it was made after the lapse of the 120-day period and within the two-year period
referred to in Section 229.

The petition is meritorious.

Sec. 229 is inapplicable; two-year period in

Sec. 112 refers only to administrative claims

Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The
Commissioner may –

xxx

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit
for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties
shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit
or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be considered as a written claim for credit or refund.

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessively 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 filed after the expiration of two (2) years from
the date of payment of the tax or penalty regardless of any supervening cause that may arise
after payment xxx. (Emphases supplied)
This Court has previously made a pronouncement as to the inapplicability of Section 229 of the
NIRC to claims for excess input VAT. In the recently decided case of Commissioner of Internal
Revenue v. San Roque Power Corporation,21 the Court made a lengthy disquisition on the nature of
excess input VAT, clarifying that "input VAT is not ‘excessively’ collected as understood under
Section 229 because at the time the input VAT is collected the amount paid is correct and
proper."22 Hence, respondent cannot advance its position by referring to Section 229 because
Section 112 is the more specific and appropriate provision of law for claims for excess input VAT.

Section 112(A) also provides for a two-year period for filing a claim for refund, to wit:

Sec. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. – Any VATregistered person, whose sales are zero-
rated or effectively zerorated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax

xxx

As explained in San Roque, however, the two-year prescriptive period referred to in Section 112(A)
applies only to the filing of administrative claims with the CIR and not to the filing of judicial claims
with the CTA. In other words, for as long as the administrative claim is filed with the CIR within the
two-year prescriptive period, the 30-day period given to the taxpayer to file a judicial claim with the
CTA need not fall in the same two-year period.

At any rate, respondent’s compliance with the two-year prescriptive period under Section 112(A) is
not an issue. What is being questioned in this case is DEPI’s failure to observe the requisite 120+30-
day period as mandated by Section 112(C) of the NIRC.

120+30 day period under Sec. 112 is mandatory and jurisdictional

Section 112(D) (now subparagraph C) of the NIRC provides that:

Sec. 112. Refunds or Tax Credits of Input Tax

xxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with
the Court of Tax Appeals. (emphasis supplied)

Petitioner is entirely correct in its assertion that compliance with the periods provided for in the
abovequoted provision is indeed mandatory and jurisdictional, as affirmed in this Court’s ruling
in San Roque, where the Court En Banc settled the controversy surrounding the application of the
120+30-day period provided for in Section 112 of the NIRC and reiterated the Aichi doctrine that the
120+30-day period is mandatory and jurisdictional. Nonetheless, the Court took into account the
issuance by the Bureau of Internal Revenue (BIR) of BIR Ruling No. DA-489-03 which misled
taxpayers by explicity stating that taxpayers may file a petition for review with the CTA even before
the expiration of the 120-day period given to the CIR to decide the administrative claim for refund.
Even though observance of the periods in Section 112 is compulsory and failure to do so will deprive
the CTA of jurisdiction to hear the case, such a strict application will be made from the effectivity of
the Tax Reform Act of 1997 on January 1, 1998 until the present, except for the period from
December 10, 2003 (the issuance of the erroneous BIR ruling) to October 6, 2010 (the promulgation
of Aichi), during which taxpayers need not wait for the lapse of the 120+30- day period before filing
their judicial claim for refund.
The case at bench, however, does not involve the issue of premature filing of the petition for review
with the CTA. Rather, this petition seeks the denial of DEPI’s claim for refund for having been filed
late or after the expiration of the 30-day period from the denial by the CIR or failure of the CIR to
make a decision within 120 days from the submission of the documents in support of respondent’s
administrative claim.

In San Roque, one of the respondents similarly filed its petition for review with the CTA well after the
120+30-day period. In denying the taxpayer’s claim for refund, this Court explained that:

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late
filing. Philex did not file any petition with the CTA within the 120-day period. Philex did not
1âwph i1

also file any petition with the CTA within 30 days after the expiration of the 120-day period.
Philex filed its judicial claim long after the expiration of the 120-day period, in fact 426 days
after the lapse of the 120-day period. In any event, whether governed by jurisprudence before,
during or after the Atlas case, Philex’s judicial claim will have to be rejected because of late filing.
Whether the two-year prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to
the input VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was
indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law,
"deemed a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day
period to file its judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a
denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA
from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege,
not a constitutional right. The exercise of such statutory privilege requires strict compliance
with the conditions attached by the statute for its exercise. Philex failed to comply with the
statutory conditions and must thus bear the consequences.23 (Emphases supplied)

Therefore, in accordance with San Roque, respondent's judicial claim for refund must be denied for
having been filed late. Although respondent filed its administrative claim with the BIR on August 9,
2004 before the expiration of the two-year period in Section l 12(A), it undoubtedly failed to comply
with the 120+ 30-day period in Section l l 2(D) (now subparagraph C) which requires that upon the
inaction of the CIR for 120 days after the submission of the documents in support of the claim, the
taxpayer has to file its judicial claim within 30 days after the lapse of the said period. The 120 days
granted to the CIR to decide the case ended on December 7, 2004. Thus, DEPI had 30 days
therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI
only sought judicial relief on May 5, 2005 when it belatedly filed its petition to the CT A, despite
having had ample time to file the same, almost four months after the period allowed by law. As a
consequence of DEPI's late filing, the CTA did not properly acquire jurisdiction over the claim.

The Court has held time and again that taxes are the lifeblood of the government and, consequently,
tax laws must be faithfully and strictly implemented as they are not intended to be liberally
construed.24 Hence, We are left with no other recourse but to deny respondent's judicial claim for
refund for non-compliance with the provisions of Section 112 of the NIRC.

WHEREFORE, the petition is GRANTED. The July 17, 2008 Decision and the August 12, 2008
Resolution of the CTA En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) are
hereby REVERSED and SET ASIDE. Respondent DEPI's judicial claim for refund or tax credit
through its petition for review before the CTA is DENIED.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice
G.R. No. 169234 October 2, 2013

CAMP JOHN HAY DEVELOPMENT CORPORATION, Petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, REPRESENTED BY ITS CHAIRMAN HON.
CESAR S. GUTIERREZ, ADELINA A. TABANGIN, IN HER CAPACITY AS CHAIRMAN OF THE
BOARD OF TAX (ASSESSMENT) APPEALS OF BAGUIO CITY, AND HON. ESTRELLA B.
TANO, IN HER CAPACITY AS THE CITY ASSESSOR OF THE CITY OF BAGUIO, Respondents.

DECISION

PEREZ, J.:

A claim for tax exemption, whether full or partial, does not deal with the authority of local assessor to
assess real property tax. Such claim questions the correctness of the assessment and compliance
with the Q applicable provisions of Republic Act (RA) No. 7160 or the Local Government Code
(LGC) of 1991, particularly as to requirement of payment under protest, is mandatory.

Before the Court is a Petition for Review on Certiorari seeking tore verse and set aside the 27 July
2005 Decision1of the Court of Tax Appeals(CTA) En Banc in C.T.A. E.B. No. 48 which affirmed the
Resolutions dated 23 May 2003 and 8 September 2004 issued by the Central Board of Assessment
Appeals (CBAA) in CBAA Case No. L-37 remanding the case to the Local Board of Assessment
Appeals (LBAA) of Baguio City for further proceedings.

The facts

The factual antecedents of the case as found by the CTA En Banc areas follows:

In a letter dated 21 March 2002, respondent City Assessor of Baguio City notified petitioner Camp
John Hay Development Corporation about the issuance against it of thirty-six (36) Owner’s Copy of
Assessment of Real Property (ARP), with ARP Nos. 01-07040-008887 to 01-07040-008922covering
various buildings of petitioner and two (2) parcels of land owned by the Bases Conversion
Development Authority (BCDA) in the John Hay Special Economic Zone (JHSEZ), Baguio City,
which were leased out to petitioner.

In response, petitioner questioned the assessments in a letter dated 3April 2002 for lack of legal
basis due to the City Assessor’s failure to identify the specific properties and its corresponding
assessed values. The City Assessor replied in a letter dated 11 April 2002 that the subject ARPs
(with an additional ARP on another building bringing the total number of ARPs to thirty-seven [37])
against the buildings of petitioner located within the JHSEZ were issued on the basis of the
approved building permits obtained from the City Engineer’s Office of Baguio City and pursuant to
Sections 201 to 206 of RA No. 7160 or the LGC of 1991.

Consequently, on 23 May 2002, petitioner filed with the Board of Tax Assessment Appeals (BTAA)
of Baguio City an appeal under Section 2262 of the LGC of 1991 challenging the validity and
propriety of the issuances of the City Assessor. The appeal was docketed as Tax Appeal Case No.
2002-003. Petitioner claimed that there was no legal basis for the issuance of the assessments
because it was allegedly exempted from paying taxes, national and local, including real property
taxes, pursuant to RA No. 7227, otherwise known as the Bases Conversion and Development Act of
1992.3

The Ruling of the BTAA

In a Resolution dated 12 July 2002,4 the BTAA cited Section 7,5 Rule V of the Rules of Procedure
Before the LBAA, and enjoined petitioner to first comply therewith, particularly as to the payment
under protest of the subject real property taxes before the hearing of its appeal. Subsequently, the
BTAA dismissed petitioner’s Motion for Reconsideration in the 20 September 2002 Resolution 6 for
lack of merit.

Aggrieved, petitioner elevated the case before the CBAA through a Memorandum on Appeal
docketed as CBAA Case No. L-37.

The Ruling of the CBAA

The CBAA denied petitioner’s appeal in a Resolution dated 23 May 2003,7 set aside the BTAA’s
order of deferment of hearing, and remanded the case to the LBAA of Baguio City for further
proceedings subject to a full and up-to-date payment of the realty taxes on subject properties as
assessed by the respondent City Assessor of Baguio City, either in cash or in bond.

Citing various cases it previously decided,8 the CBAA explained that the deferment of hearings by
the LBAA was merely in compliance with the mandate of the law. The governing provision in this
case is Section 231, not Section 226, of RA No. 7160 which provides that "appeal on assessments
of real property made under the provisions of this Code shall, in no case, suspend the collection of
the corresponding realty taxes on the property involved as assessed by the provincial or city
assessor, without prejudice to subsequent adjustment depending upon the final outcome of the
appeal." In addition, as to the issue raised pertaining to the propriety of the subject assessments
issued against petitioner, allegedly claimed to be a tax-exemptentity, the CBAA expressed that it has
yet to acquire jurisdiction over it since the same has not been resolved by the LBAA.

On 8 September 2004, the CBAA denied petitioner’s Motion for Reconsideration for lack of merit.9

Undaunted by the pronouncements in the abovementioned Resolutions, petitioner appealed to the

CTA En Banc by filing a Petition for Review under Section 11 of RA No. 1125, as amended by
Section 9 of RA No. 9282, on 24 November 2004, docketed as C.T.A. EB No. 48, and raised the
following issues for its consideration: (1) whether or not respondent City Assessor of the City of
Baguio has legal basis to issue against petitioner the subject assessments with serial nos. 01-
07040-008887 to 01-07040-008922for real property taxation of the buildings of the petitioner, a tax-
exemptentity, or land owned by the BCDA under lease to the petitioner; and (2)whether or not the
CBAA, in its Resolutions dated 23 May 2003 and 8September 2004, has legal basis to order the
remand of the case to the LBAA of Baguio City for further proceedings subject to a full and up-to-
date payment, in cash or bond, of the realty taxes on the subject properties as assessed by the City
Assessor of the City of Baguio.10

The Ruling of the CTA En Banc

In the assailed Decision dated 27 July 2005,11 the CTA En Banc found that petitioner has indeed
failed to comply with Section 252 of RA No. 7160or the LGC of 1991. Hence, it dismissed the
petition and affirmed the subject Resolutions of the CBAA which remanded the case to the LBAA for
further proceedings subject to compliance with said Section, in relation to Section 7, Rule V of the
Rules of Procedure before the LBAA.

Moreover, adopting the CBAA’s position, the court a quo ruled that it could not resolve the issue on
whether petitioner is liable to pay real property tax or whether it is indeed a tax-exempt entity
considering that the LBAA has not decided the case on the merits. To do otherwise would not only
be procedurally wrong but legally wrong. It therefore concluded that before a protest may be
entertained, the tax should have been paid first without prejudice to subsequent adjustment
depending upon the final outcome of the appeal and that the tax or portion thereof paid under
protest, shall be held in trust by the treasurer concerned.

Consequently, this Petition for Review wherein petitioner on the ground of lack of legal basis seeks
to set aside the 27 July 2005 Decision, and to nullify the assessments of real property tax issued
against it by respondent City Assessor of Baguio City.12

The Issue

The Issue before the Court is whether or not respondent CTA En Banc erred in dismissing for lack of
merit the petition in C.T.A. EB No. 48, and accordingly affirmed the order of the CBAA to remand the
case to the LBAA of Baguio City for further proceedings subject to a full and up-to-date payment of
realty taxes, either in cash or in bond, on the subject properties assessed by the City Assessor of
Baguio City.

In support of the present petition, petitioner posits the following grounds: (a) Section 225 (should be
Section 252) of RA No. 7160 or the LGC of 1991 does not apply when the person assessed is a tax-
exemptentity; and (b) Under the doctrine of operative fact, petitioner is not liable for the payment of
the real property taxes subject of this petition.13

Our Ruling
The Court finds the petition unmeritorious and therefore rules against petitioner.

Section 252 of RA No. 7160, also known as the LGC of 199114, categorically provides:

SEC. 252. Payment Under Protest. – (a) No protest shall be entertained unless the taxpayer first
pays the tax. There shall be annotated on the tax receipts the words "paid under protest." The
protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city
treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who
shall decide the protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paid under protest, shall beheld in trust by the treasurer
concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed
in subparagraph (a), the tax payer may avail of the remedies as provided for in Chapter 3,
Title Two, Book II of this Code. (Emphasis and underlining supplied)

Relevant thereto, the remedies referred to under Chapter 3, Title Two, Book II of RA No. 7160 or the
LGC of 1991 are those provided for under Sections 226 to 231. Significant provisions pertaining to
the procedural and substantive aspects of appeal before the LBAA and CBAA, including its effect on
the payment of real property taxes, follow:

SEC. 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in the
property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice
of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax declarations and
such affidavits or documents submitted in support of the appeal.

SEC. 229. Action by the Local Board of Assessment Appeals. – (a)The Board shall decide the
appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board,
after hearing, shall render its decision based on substantial evidence or such relevant evidence on
record as a reasonable mind might accept as adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the powers to summon
witnesses, administer oaths, conduct ocular inspection, take depositions, and issue
subpoena and subpoena duces tecum. The proceedings of the Board shall be conducted
solely for the purpose of ascertaining the facts without necessarily adhering to technical rules
applicable in judicial proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person having
legal interest therein and the provincial or city assessor with a copy 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 owner of the property or the person having legal interest therein
of such fact using the form prescribed for the purpose. The owner of the property or the
person having legal interest therein or the assessor who is not satisfied with the decision of
the Board may, within thirty (30) days after receipt of the decision of said Board, appeal to
the Central Board of Assessment Appeals, as here in provided. The decision of the Central
Board shall be final and executory.

SEC. 231. Effect of Appeal on the Payment of Real Property Tax. – Appeal on assessments of real
property made under the provisions of this Code shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal.
(Emphasis supplied)

The above-quoted provisions of RA No. 7160 or the LGC of 1991,clearly sets forth the administrative
remedies available to a taxpayer or real property owner who does not agree with the assessment of
the real property tax sought to be collected.
The language of the law is clear. No interpretation is needed. The elementary rule in statutory
construction is that if a statute is clear, plain and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation. Verba legis non est recedendum. From the
words of a statute there should be no departure.15

To begin with, Section 252 emphatically directs that the taxpayer/real property owner questioning the
assessment should first pay the tax due before his protest can be entertained. As a matter of fact,
the words "paid under protest" shall be annotated on the tax receipts. Consequently, only after such
payment has been made by the taxpayer may he file a protest in writing (within thirty (30) days from
said payment of tax) to the provincial, city, or municipal treasurer, who shall decide the protest within
sixty (60)days from its receipt. In no case is the local treasurer obliged to entertain the protest unless
the tax due has been paid.

Secondly, within the period prescribed by law, any owner or person having legal interest in the
property not satisfied with the action of the provincial, city, or municipal assessor in the assessment
of his property may file an appeal with the LBAA of the province or city concerned, as provided in
Section 226 of RA No. 7160 or the LGC of 1991. Thereafter, within thirty (30) days from receipt, he
may elevate, by filing a notice of appeal, the adverse decision of the LBAA with the CBAA, which
exercises exclusive jurisdiction to hear and decide all appeals from the decisions, orders, and
resolutions of the Local Boards involving contested assessments of real properties, claims for tax
refund and/or tax credits, or overpayments of taxes.16

Significantly, in Dr. Olivares v. Mayor Marquez,17 this Court had the occasion to extensively discuss
the subject provisions of RA No. 7160 or the LGC of 1991, in relation to the impropriety of the direct
recourse before the courts on issue of the correctness of assessment of real estate taxes. The
pertinent articulations follow:

x x x A perusal of the petition before the RTC plainly shows that what is actually being assailed is the
correctness of the assessments made by the local assessor of Parañaque on petitioners’ properties.
The allegations in the said petition purportedly questioning the assessor’s authority to assess and
collect the taxes were obviously made in order to justify the filing of the petition with the RTC. In fact,
there is nothing in the said petition that supports their claim regarding the assessor’s alleged lack of
authority. What petitioners raise are the following:

(1) some of the taxes being collected have already prescribed and may no longer be
collected as provided in Section 194 of the Local Government Code of 1991; (2) some
properties have been doubly taxed/assessed; (3) some properties being taxed are no longer
existent;

(4)some properties are exempt from taxation as they are being used exclusively for
educational purposes; and (5) some errors are made in the assessment and collection of
taxes due on petitioners’ properties, and that respondents committed grave abuse of
discretion in making the "improper, excessive and unlawful the collection of taxes against the
petitioners."

Moreover, these arguments essentially involve questions of fact. Hence, the petition should have
been brought, at the very first instance, to the LBAA.

Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack
of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to
a later adjustment pending the outcome of the appeal.

Even assuming that the assessor’s authority is indeed an issue, it must be pointed out that in order
for the court a quo to resolve the petition, the issues of the correctness of the tax assessment and
collection must also necessarily be dealt with.

xxxx

In the present case, the authority of the assessor is not being questioned. Despite petitioners’
protestations, the petition filed before the court a quo primarily involves the correctness of the
assessments, which are questions of fact, that are not allowed in a petition for certiorari, prohibition
and mandamus. The court a quo is therefore precluded from entertaining the petition, and it
appropriately dismissed the petition.18 (Emphasis and underlining supplied)

By analogy, the rationale of the mandatory compliance with the requirement of "payment under
protest" similarly provided under Section 64of the Real Property Tax Code (RPTC)19 was earlier
emphasized in Meralcov. Barlis,20wherein the Court held:

We find the petitioner’s arguments to be without merit. The trial court has no jurisdiction to entertain
a Petition for Prohibition absent petitioner’s payment under protest, of the tax assessed as required
by Sec.64 of the RPTC. Payment of the tax assessed under protest, is a condition sine qua non
before the trial court could assume jurisdiction over the petition and failure to do so, the RTC has no
jurisdiction to entertain it.

The restriction upon the power of courts to impeach tax assessment without a prior payment, under
protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation
and as such their collection cannot be curtailed by injunction or any like action; otherwise, the state
or, in this case, the local government unit, shall be crippled in dispensing the needed services to the
people, and its machinery gravely disabled.

xxxx

There is no merit in petitioner’s argument that the trial court could take cognizance of the petition as
it only questions the validity of the issuance of the warrants of garnishment on its bank deposits and
not the tax assessment. Petitioner MERALCO in filing the Petition for Prohibition before the RTC
was in truth assailing the validity of the tax assessment and collection. To resolve the petition, it
would not only be the question of validity of the warrants of garnishments that would have to be
tackled, but in addition the issues of tax assessment and collection would necessarily have to be
dealt with too. As the warrants of garnishment were issued to collect back taxes from petitioner, the
petition for prohibition would be for no other reason than to forestall the collection of back taxes on
the basis of tax assessment arguments. This, petitioner cannot do without first resorting to the
proper administrative remedies, or as previously discussed, by paying under protest the tax
assessed, to allow the court to assume jurisdiction over the petition.

xxxx

It cannot be gainsaid that petitioner should have addressed its arguments to respondent at the first
opportunity - upon receipt of the3 September 1986 notices of assessment signed by Municipal
Treasurer Norberto A. San Mateo. Thereafter, it should have availed of the proper administrative
remedies in protesting an erroneous tax assessment, i.e., to question the correctness of the
assessments before the Local Board of Assessment Appeals (LBAA), and later, invoke the appellate
jurisdiction of the Central Board of Assessment Appeals(CBAA).

Under the doctrine of primacy of administrative remedies, an error in the assessment must be
administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack
of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to
a later adjustment pending the outcome of the appeal. The failure to appeal within the statutory
period shall render the assessment final and unappealable.

Petitioner having failed to exhaust the administrative remedies available to it, the assessment
attained finality and collection would be in order. (Emphasis and underscoring supplied)

From the foregoing jurisprudential pronouncements, it is clear that the requirement of "payment
under protest" is a condition sine qua non before a protest or an appeal questioning the correctness
of an assessment of real property tax may be entertained.

Moreover, a claim for exemption from payment of real property taxes does not actually question the
assessor’s authority to assess and collect such taxes, but pertains to the reasonableness or
correctness of the assessment by the local assessor, a question of fact which should be resolved, at
the very first instance, by the LBAA. This may be inferred from Section 206 of RA No. 7160 or the
LGC of 1991which states that:

SEC. 206. Proof of Exemption of Real Property from Taxation. – Every person by or for whom real
property is declared, who shall claim tax exemption for such property under this Title shall file with
the provincial, city or municipal assessor within thirty (30) days from the date of the declaration of
real property sufficient documentary evidence in support of such claim including corporate charters,
title of ownership, articles of incorporation, bylaws, contracts, affidavits, certifications and mortgage
deeds, and similar documents.

If the required evidence is not submitted within the period herein prescribed, the property shall be
listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt,
the same shall be dropped from the assessment roll. (Emphasis supplied)

In other words, by providing that real property not declared and proved as tax-exempt shall be
included in the assessment roll, the above-quoted provision implies that the local assessor has the
authority to assess the property for realty taxes, and any subsequent claim for exemption shall be
allowed only when sufficient proof has been adduced supporting the claim.21

Therefore, if the property being taxed has not been dropped from the assessment roll, taxes must be
paid under protest if the exemption from taxation is insisted upon.

In the case at bench, records reveal that when petitioner received the letter dated 21 March 2002
issued by respondent City Assessor, including copies of ARPs (with ARP Nos. 01-07040-008887 to
01-07040-008922) attached thereto, it filed its protest through a letter dated 3 April 2002seeking
clarification as to the legal basis of said assessments, without payment of the assessed real property
taxes. Afterwards, respondent City Assessor replied thereto in a letter dated 11 April 2002 which
explained the legal basis of the subject assessments and even included an additional ARP against
another real property of petitioner. Subsequently, petitioner then filed before the BTAA its appeal
questioning the validity and propriety of the subject ARPs.

Clearly from the foregoing factual backdrop, petitioner considered the11 April 2002 letter as the
"action" referred to in Section 226 which speaks of the local assessor’s act of denying the protest
filed pursuant to Section252. However, applying the above-cited jurisprudence in the present case, it
is evident that petitioner’s failure to comply with the mandatory requirement of payment under
protest in accordance with Section 252 of the LGC of 1991 was fatal to its appeal. Notwithstanding
such failure to comply therewith, the BTAA elected not to immediately dismiss the case but instead
took cognizance of petitioner’s appeal subject to the condition that payment of the real property tax
should first be made before proceeding with the hearing of its appeal, as provided for under Section
7, Rule V of the Rules of Procedure Before the LBAA. Hence, the BTAA simply recognized the
importance of the requirement of "payment under protest" before an appeal may be entertained,
pursuant to Section 252, and in relation with Section231 of the same Code as to non-suspension of
collection of the realty tax pending appeal.

Notably, in its feeble attempt to justify non-compliance with the provision of Section 252, petitioner
contends that the requirement of paying the tax under protest is not applicable when the person
being assessed is a tax-exempt entity, and thus could not be deemed a "taxpayer" within the
meaning of the law. In support thereto, petitioner alleges that it is exempted from paying taxes,
including real property taxes, since it is entitled to the tax incentives and exemptions under the
provisions of RA No. 7227 and Presidential Proclamation No. 420, Series of 1994,22 as stated in and
confirmed by the lease agreement it entered into with the BCDA.23

This Court is not persuaded.

First, Section 206 of RA No. 7160 or the LGC of 1991, as quoted earlier, categorically provides that
every person by or for whom real property is declared, who shall claim exemption from payment of
real property taxes imposed against said property, shall file with the provincial, city or municipal
assessor sufficient documentary evidence in support of such claim. Clearly, the burden of proving
exemption from local taxation is upon whom the subject real property is declared; thus, said person
shall be considered by law as the taxpayer thereof. Failure to do so, said property shall be listed as
taxable in the assessment roll.

In the present case, records show that respondent City Assessor of Baguio City notified petitioner, in
the letters dated 21 March 200224 and 11April 2002,25 about the subject ARPs covering various
buildings owned by petitioner and parcels of land (leased out to petitioner) all located within the
JHSEZ, Baguio City. The subject letters expressed that the assessments were based on the
approved building permits obtained from the City Engineer’s Office of Baguio City and pursuant to
Sections 201 to 206 of RA No. 7160 or the LGC of 1991 which pertains to whom the subject real
properties were declared.
Noticeably, these factual allegations were neither contested nor denied by petitioner. As a matter of
fact, it expressly admitted ownership of the various buildings subject of the assessment and
thereafter focused on the argument of its exemption under RA No. 7227. But petitioner did not
present any documentary evidence to establish that the subject properties being tax exempt have
already been dropped from the assessment roll, in accordance with Section 206. Consequently, the
City Assessor acted in accordance with her mandate and in the regular performance of her official
function when the subject ARPs were issued against petitioner herein, being the owner of the
buildings, and therefore considered as the person with the obligation to shoulder tax liability thereof,
if any, as contemplated by law.

It is an accepted principle in taxation that taxes are paid by the person obliged to declare the same
for taxation purposes. As discussed above, the duty to declare the true value of real property for
taxation purposes is imposed upon the owner, or administrator, or their duly authorized
representatives. They are thus considered the taxpayers. Hence, when these persons fail or refuse
to make a declaration of the true value of their real property within the prescribed period, the
provincial or city assessor shall declare the property in the name of the defaulting owner and assess
the property for taxation. In this wise, the taxpayer assumes the character of a defaulting owner, or
defaulting administrator, or defaulting authorized representative, liable to pay back taxes. For that
reason, since petitioner herein is the declared owner of the subject buildings being assessed for real
property tax, it is therefore presumed to be the person with the obligation to shoulder the burden of
paying the subject tax in the present case; and accordingly, in questioning the reasonableness or
correctness of the assessment of real property tax, petitioner is mandated by law to comply with the
requirement of payment under protest of the tax assessed, particularly Section 252 of RA No. 7160
or the LGC of 1991.

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the
exception. The law does not look with favor on tax exemptions and the entity that would seek to be
thus privileged must justify it by words too plain to be mistaken and too categorical to be
misinterpreted.26 Thus applying the rule of strict construction of laws granting tax exemptions, and
the rule that doubts should be resolved in favor of provincial corporations, this Court holds that
petitioner is considered a taxable entity in this case.

Second, considering that petitioner is deemed a taxpayer within the meaning of law, the issue on
whether or not it is entitled to exemption from paying taxes, national and local, including real
property taxes, is a matter which would be better resolved, at the very instance, before the LBAA, for
the following grounds: (a) petitioner’s reliance on its entitlement for exemption under the provisions
of RA No. 7227 and Presidential Proclamation No. 420, was allegedly confirmed by Section
18,27 Article XVI of the Lease Agreement dated 19 October 1996 it entered with the BCDA. However,
it appears from the records that said Lease Agreement has yet to be presented nor formally offered
before any administrative or judicial body for scrutiny; (b) the subject provision of the Lease
Agreement declared a condition that in order to be allegedly exempted from the payment of taxes,
petitioner should have first paid and remitted 5% of the gross income earned by it within ninety (90)
days from the close of the calendar year through the JPDC. Unfortunately, petitioner has neither
established nor presented any evidence to show that it has indeed paid and remitted 5% of said
gross income tax; (c) the right to appeal is a privilege of statutory origin, meaning a right granted
only by the law, and not a constitutional right, natural or inherent. Therefore, it follows that petitioner
may avail of such opportunity only upon strict compliance with the procedures and rules prescribed
by the law itself, i.e. RA No. 7160 or the LGC of 1991; and (d) at any rate, petitioner’s position of
exemption is weakened by its own admission and recognition of this Court’s previous ruling that the
tax incentives granted in RA No. 7227 are exclusive only to the Subic Special Economic and Free
Port Zone; and thus, the extension of the same to the JHSEZ (as provided in the second sentence of
Section 3 of Presidential Proclamation No. 420)28 finds no support therein and therefore declared null
and void and of no legal force and effect.29 Hence, petitioner needs more than mere arguments
and/or allegations contained in its pleadings to establish and prove its exemption, making prior
proceedings before the LBAA a necessity.

With the above-enumerated reasons, it is obvious that in order for a complete determination of
petitioner’s alleged exemption from payment of real property tax under RA No. 7160 or the LGC of
1991, there are factual issues needed to be confirmed. Hence, being a question of fact, petitioner
cannot do without first resorting to the proper administrative remedies, or as previously discussed,
by paying under protest the tax assessed in compliance with Section 252 thereof.

Accordingly, the CBAA and the CTA En Banc correctly ruled that real property taxes should first be
paid before any protest thereon may be considered. It is without a doubt that such requirement of
"payment under protest" is a condition sine qua non before an appeal may be entertained. Thus,
remanding the case to the LBAA for further proceedings subject to a full and up-to-date payment,
either in cash or surety, of realty tax on the subject properties was proper.

To reiterate, the restriction upon the power of courts to impeach tax assessment without a prior
payment, under protest, of the taxes assessed is consistent with the doctrine that taxes are the
lifeblood of the nation and as such their collection cannot be curtailed by injunction or any like action;
otherwise, the state or, in this case, the local government unit, shall be crippled in dispensing the
needed services to the people, and its machinery gravely disabled.30 The right of local government
units to collect taxes due must always be upheld to avoid severe erosion. This consideration is
consistent with the State policy to guarantee the autonomy of local governments and the objective of
RA No. 7160 or the LGC of 1991 that they enjoy genuine and meaningful local autonomy to
empower them to achieve their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals.31

All told, We go back to what was at the outset stated, that is, that a claim for tax exemption, whether
full or partial, does not question the authority of local assessor to assess real property tax, but
merely raises a question of the reasonableness or correctness of such assessment, which requires
compliance with Section 252 of the LGC of 1991. Such argument which may involve a question of
fact should be resolved at the first instance by the LBAA.

The CTA En Bane was correct in dismissing the petition in C.T.A. EB No. 48, and affirming the
CBAA's position that it cannot delve on the issue of petitioner's alleged non-taxability on the ground
of exemption since the LBAA has not decided the case on the merits. This is in compliance with the
procedural steps prescribed in the law.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Tax Appeals En
Bane in C.T.A. EB No. 48 is AFFIRMED. The case is remanded to the Local Board of Assessment
Appeals of Baguio City for further proceedings. No costs.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice
G.R. No. L-16619 June 29, 1963

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee,

vs.
CITY OF MANILA, ET AL., defendants-appellants.

Ponce Enrile, Siguion Reyna, Montecillo and Belo for plaintiff-appellee.

City Fiscal Hermogenes Concepcion, Jr. and Assistant City Fiscal M. T. Reyes for defendants-
appellants.

DIZON, J.:

Appeal from the decision of the Court of First Instance of Manila ordering the City Treasurer of
Manila to refund the sum of P15,280.00 to Compania General de Tabacos de Filipinas.

Appellee Compania General de Tabacos de Filipinas — hereinafter referred to simply as Tabacalera

— filed this action in the Court of First Instance of Manila to recover from appellants, City of Manila
and its Treasurer, Marcelino Sarmiento — also hereinafter referred to as the City — the sum of
P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period
from the third quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634,
3301, and 3816.

Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the
fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a
wholesale and retail dealer of general merchandise, it also paid the sales taxes required by
Ordinances Nos. 3634, 3301, and 3816. 1äwphï1.ñët

In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the third
quarter of 1954 to the second quarter of 1957, inclusive, Tabacalera included its liquor sales of the
same period, and it is not denied that of the taxes it paid on all its sales of general merchandise, the
sum of P15,280.00 subject to the action represents the tax corresponding to the liquor sales
aforesaid.

Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it
should pay the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes
imposed by Ordinances Nos. 3634, 3301, and 3816; and since it already paid the license fees
aforesaid, the sales taxes paid by it — amounting to the sum of P15,208.00 — under the three
ordinances mentioned heretofore is an overpayment made by mistake, and therefore refundable.

The City, on the other hand, contends that, for the permit issued to it granting proper authority to
"conduct or engage in the sale of alcoholic beverages, or liquors" Tabacalera is subject to pay
the license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed by
Ordinances Nos. 3634, 3301, and 3816; that, even assuming that Tabacalera is not subject to the
payment of the sales taxes prescribed by the said three ordinances as regards itsliquor sales, it is
not entitled to the refund demanded for the following reasons:.

(a) The said amount was paid by the plaintiff voluntarily and without protest;

(b) If at all the alleged overpayment was made by mistake, such mistake was one of law and
arose from the plaintiff's neglect of duty; .

(c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it
and passed to the consumers; and

(d) The said amount had been already expended by the defendant City for public
improvements and essential services of the City government, the benefits of which are
enjoyed, and being enjoyed by the plaintiff.

It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail liquor license
fees under Ordinance No. 3358. In 1954, City Ordinance No. 3634, amending City Ordinance No.
3420, and City Ordinance No. 3816, amending City Ordinance No. 3301 were passed. By reason
thereof, the City Treasurer issued the regulations marked Exhibit A, according to which, the term
"general merchandise as used in said ordinances, includes all articles referred to in Chapter 1,
Sections 123 to 148 of the National Internal Revenue Code. Of these, Sections 133-135
included liquor among the taxable articles. Pursuant to said regulations, Tabacalera included its
sales of liquor in its sworn quarterly declaration submitted to the City Treasurer beginning from the
third quarter of 1954 to the second quarter of 1957, with a total value of P722,501.09 and
correspondingly paid a wholesaler's tax amounting to P13,688.00 and a retailer's tax amounting to
P1,520.00, or a total of P15,208.00 — the amount sought to be recovered.

It appears that in the year 1954, the City, through its treasurer, addressed a letter to Messrs. Sycip,
Gorres, Velayo and Co., an accounting firm, expressing the view that liquor dealers paying the
annual wholesale and retail fixed tax under City Ordinance No. 3358 are not subject to the wholesale
and retail dealers' taxes prescribed by City Ordinances Nos. 3634, 3301, and 3816. Upon learning of
said opinion, appellee stopped including its sales of liquor in its quarterly sworn declarations
submitted in accordance with the aforesaid City Ordinances Nos. 3634, 3301, and 3816, and on
December 3, 1957, it addressed a letter to the City Treasurer demanding refund of the alleged
overpayment. As the claim was disallowed, the present action was instituted.

The term "tax" applies — generally speaking — to all kinds of exactions which become public funds.
The term is often loosely used to include levies for revenue as well as levies for regulatory purposes.
Thus license fees are commonly called taxes. Legally speaking, however, 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
(MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26).

Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage
in the business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board
of Manila pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating
liquors, whether imported or locally manufactured. (Section 18 [p], Republic Act 409, as amended).
The license fees imposed by it are essentially for purposes of regulation, and are justified,
considering that the sale of intoxicating liquor is, potentially at least, 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. (MacQuillin, supra, p. 445.)

On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales
of general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal
Board of Manila by virtue of its power to tax dealers for the sale of such merchandise. (Section 10
[o], Republic Act No. 409, as amended.).

Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor.
Aside from this, we have held in City of Manila vs. Inter-Island Gas Service, Inc., G.R. No. L-8799,
August 31, 1956, that the word "merchandise" refers to all subjects of commerce and traffic;
whatever is usually bought and sold in trade or market; goods or wares bought and sold for gain;
commodities or goods to trade; and commercial commodities in general.

That Tabacalera is being subjected to double taxation is more apparent than real. As already stated
what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale
of liquor, a calling in which — it is obvious — not anyone or anybody may freely engage, considering
that the sale of liquor indiscriminately may endanger public health and morals. On the other hand,
what the three ordinances mentioned heretofore impose is a tax for revenue purposes based on the
sales made of the same article or merchandise. It is already settled in this connection that both a
license fee and a tax may be imposed on the same business or occupation, or for selling the same
article, this not being in violation of the rule against double taxation (Bentley Gray Dry Goods Co. vs.
City of Tampa, 137 Fla. 641, 188 So. 758; MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p.
83). This is precisely the case with the ordinances involved in the case at bar.

Appellee's contention that the City is repudiating its previous view — expressed by its Treasurer in a
letter addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 — that a liquor dealer who pays the
annual license fee under Ordinance No. 3358 is exempted from the wholesalers and retailers taxes
under the other three ordinances mentioned heretofore is of no consequence. The government is not
bound by the errors or mistakes committed by its officers, specially on matters of law.

Having arrived at the above conclusion, we deem it unnecessary to consider the other legal points
raised by the City.
WHEREFORE, the decision appealed from is reversed, with the result that this case should be, as it
is hereby dismissed, with costs.

Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Paredes, Regala and Makalintal, JJ.,
concur.
Bengzon, C.J. and Concepcion, J., took no part.
G.R. No. 197117 April 10, 2013

FIRST LEPANTO TAISHO INSURANCE CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

MENDOZA, J.:

Before the Court is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure filed by First Lepanto Taisho Corporation, now FLT Prime Insurance Corporation
(petitioner), assailing the March l, 2011 Decision2 and the May 27, 2011 Resolution3 of the Court of
Tax Appeals (CTA) En Bane, in CTA E.B. No. 563, which affirmed the May 21, 2009 Decision of the
CTA-Second Division.

The Facts:

Petitioner is a non-lire insurance corporation and considered as a "Large Taxpayer under Revenue
Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 effective 1994."4 After
submitting its corporate income tax return for taxable year ending December 31, 1997, petitioner
received a Letter of Authority, dated October 30, 1998, from respondent Commissioner of Internal
Revenue (CIR) to allow it to examine their books of account and other accounting records for 1997
and other unverified prior years.

On December 29, 1999, CIR issued internal revenue tax assessments for deficiency income,
withholding, expanded withholding, final withholding, value-added, and documentary stamp taxes for
taxable year 1997.

On February 24, 2000, petitioner protested the said tax assessments.

During the pendency of the case, particularly on February 15, 2008, petitioner filed its Motion for
Partial Withdrawal of Petition for Review of Assessment Notice Nos. ST-INC-97-0220-99; ST-VAT-
97-0222-99 and ST-DST-97-0217-00, in view of the tax amnesty program it had availed. The CTA
Second Division granted the said motion in a Resolution,5 dated March 31, 2008.

Consequently, on May 21, 2009, the CTA Second Division partially granted the petition.6 It directed
petitioner to pay CIR a reduced tax liability of ₱1,994,390.86. The dispositive portion reads:

WHEREFORE, in view of the foregoing considerations, the instant Petition for Review is hereby
PARTIALLY GRANTED. Accordingly, petitioner is hereby ORDERED TO PAY deficiency withholding
tax on compensation, expanded withholding tax and final tax in the reduced amount of
₱1,994,390.86, computed as follows:

Basic Surcharges Interest Total

Tax

Deficiency ₱774,200.55 ₱193,550.14 ₱312.227.34 ₱1,279,978.03

Withholding

Tax on

Compensation

ST-WC-97-0221-99
 Deficiency 132,724.02 33,181.01 53,526.27 219,431.30

Expanded

Withholding

Tax ST-EWT-97-
0218-99

Deficiency 299,391.84 74,847.96 120,741.73 494,981.53

Final

Withholding

Tax ST-FT-97-0219-
99

TOTALS ₱1,206,316.41 ₱301,579.11 ₱486,495.34 ₱1,994,390.86

Petitioner’s Motion for Partial Reconsideration7 was likewise denied by the CTA Second Division in
its October 29, 2009 Resolution.8

Unsatisfied, petitioner filed a Petition for Review before the CTA En Banc.9

On March 1, 2011, the CTA En Banc affirmed the decision of the CTA Second Division.10

Petitioner contended that it was not liable to pay Withholding Tax on Compensation on the
₱500,000.00 Director’s Bonus to their directors, specifically, Rodolfo Bausa, Voltaire Gonzales,
Felipe Yap, and Catalino Macaraig, Jr., because they were not employees and the amount was
already subjected to Expanded Withholding Tax. The CTA En Banc, however, ruled that Section 5 of
Revenue Regulation No. 12-86 expressly identified a director to be an employee.

As to transportation, subsistence and lodging, and representation expenses, the expenses would not
be subject to withholding tax only if the same were reimbursement for actual expenses of the
company. In the present case, the CTA En Banc declared that petitioner failed to prove that they
were so.

As to deficiency expanded withholding taxes on compensation, petitioner failed to substantiate that

the commissions earned totaling ₱905,428.36, came from reinsurance activities and should not be
subject to withholding tax. Petitioner likewise failed to prove its direct loss expense, occupancy cost
and service/contractors and purchases.

As to deficiency final withholding taxes, "petitioner failed to present proof of remittance to establish
that it had remitted the final tax on dividends paid as well as the payments for services rendered by
the Malaysian entity."11

As to the imposition of delinquency interest under Section 249 (c) (3) of the 1997 National Internal
Revenue Code (NIRC), records reveal that petitioner failed to pay the deficiency taxes within thirty
(30) days from receipt of the demand letter, thus, delinquency interest accrued from such non-
payment.

Petitioner moved for partial reconsideration, but the CTA En Banc denied the same in its May 27,
2011 Resolution.12

Hence, this petition.13

The principal issue in this case is whether the CTA En Banc erred in holding petitioner liable for:

a. deficiency withholding taxes on compensation on directors’ bonuses under Assessment No. ST-
WC-97-0021-99;

b. deficiency expanded withholding taxes on transportation, subsistence and lodging, and

representation expense; commission expense; direct loss expense; occupancy cost; and
service/contractor and purchases under Assessment No. ST-EWT-97-0218-99;

c. deficiency final withholding taxes on payment of dividends and computerization expenses to

foreign entities under Assessment No. ST-FT-97-0219-99; and

d. delinquency interest under Section 249 (c) (3) of the NIRC.

The Court finds no merit in the petition.

For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulation
No. 12-86,14 to wit:

An individual, performing services for a corporation, whether as an officer and director or merely as a
director whose duties are confined to attendance at and participation in the meetings of the Board of
Directors, is an employee.

The non-inclusion of the names of some of petitioner’s directors in the company’s Alpha List does
not ipso facto create a presumption that they are not employees of the corporation, because the
imposition of withholding tax on compensation hinges upon the nature of work performed by such
individuals in the company. Moreover, contrary to petitioner’s attestations, Revenue Regulation No.
2-98,15 specifically, Section 2.57.2. A (9) thereof,16 cannot be applied to this case as the latter is a
later regulation while the accounting books examined were for taxable year 1997.

As to the deficiency withholding tax assessment on transportation, subsistence and lodging, and
representation expense, commission expense, direct loss expense, occupancy cost,
service/contractor and purchases, the Court finds no cogent reason to deviate from the findings of
the CTA En Banc. As correctly observed by the CTA Second Division and the CTA En Banc,
petitioner was not able to sufficiently establish that the transportation expenses reflected in their
books were reimbursement from actual transportation expenses incurred by its employees in
connection with their duties as the only document presented was a Schedule of Transportation

Expenses without pertinent supporting documents. Without said documents, such as but not limited
to, receipts, transportation-related vouchers and/or invoices, there is no way of ascertaining whether
the amounts reflected in the schedule of expenses were disbursed for transportation.

With regard to commission expense, no additional documentary evidence, like the reinsurance
agreements contracts, was presented to support petitioner’s allegation that the expenditure
originated from reinsurance activities that gave rise to reinsurance commissions, not subject to
withholding tax. As to occupancy costs, records reveal that petitioner failed to compute the correct
total occupancy cost that should be subjected to withholding tax, hence, petitioner is liable for the
deficiency.

As to service/contractors and purchases, petitioner contends that both parties already stipulated that
it correctly withheld the taxes due. Thus, petitioner is of the belief that it is no longer required to
present evidence to prove the correct payment of taxes withheld. As correctly ruled by the CTA
Second Division and En Bane, however, stipulations cannot defeat the right of the State to collect
the correct taxes due on an individual or juridical person because taxes are the lifeblood of our
nation so its collection should be actively pursued without unnecessary impediment.

As to the deficiency final withholding tax assessments for payments of dividends and
computerization expenses incurred by petitioner to foreign entities, particularly Matsui Marine & Fire
Insurance Co. Ltd. (Matsui),17 the Court agrees with CIR that petitioner failed to present evidence to
show the supposed remittance to Matsui.

The Court likewise holds the imposition of delinquency interest under Section 249 (c) (3) of the 1997
NIRC to be proper, because failure to pay the deficiency tax assessed within the time prescribed for
its payment justifies the imposition of interest at the rate of twenty percent (20%) per annum, which
interest shall be assessed and collected from the date prescribed for its payment until full payment is
made.

It is worthy to note that tax revenue statutes are not generally intended to be liberally
construed.18 Moreover, the CTA being a highly specialized court particularly created for the purpose
of reviewing tax and customs cases, it is settled that its findings and conclusions are accorded great
respect and are generally upheld by this Court, unless there is a clear showing of a reversible error
or an improvident exercise of authority.19 Absent such errors, the challenged decision should be
maintained.

WHEREFORE, the petition is DENIED. The March 1, 2011 Decision and the May 27, 2011
Resolution of the Court of Tax Appeals En Bane, in CTA E.B. No. 563, are AFFIRMED.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice
G.R. No. 187485 February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SAN ROQUE POWER CORPORATION, Respondent.

X----------------------------X

G.R. No. 196113

TAGANITO MINING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

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

G.R. No. 197156

PHILEX MINING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

CARPIO, J.:

The Cases

G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as
well as the Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA
EB) in CTA EB No. 408. The CTA EB affirmed the 29 November 2007 Amended Decision 4 as well as
the 11 July 2008 Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second
Division) in CTA Case No. 6647. The CTA Second Division ordered the Commissioner of Internal
Revenue (Commissioner) to refund or issue a tax credit for P483,797,599.65 to San Roque Power
Corporation (San Roque) for unutilized input value-added tax (VAT) on purchases of capital goods
and services for the taxable year 2001.

G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010
as well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its
Decision, the CTA EB reversed the 8 January 2010 Decision9 as well as the 7 April 2010
Resolution10of the CTA Second Division and granted the CIR’s petition for review in CTA Case No.
7574. The CTA EB dismissed, for having been prematurely filed, Taganito Mining Corporation’s
(Taganito) judicial claim for P8,365,664.38 tax refund or credit.

G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010
as well as the Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The
CTA EB affirmed the 20 July 2009 Decision as well as the 10 November 2009 Resolution of the CTA
Second Division in CTA Case No. 7687. The CTA Second Division denied, due to prescription,
Philex Mining Corporation’s (Philex) judicial claim for P23,956,732.44 tax refund or credit.

On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No. 197156 with
G.R. No. 196113, which were pending in the same Division, and with G.R. No. 187485, which was
assigned to the Court En Banc. The Second Division also resolved to refer G.R. Nos. 197156 and
196113 to the Court En Banc, where G.R. No. 187485, the lower-numbered case, was assigned.

G.R. No. 187485

CIR v. San Roque Power Corporation

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act
upon and approve claims for refund or tax credit, with office at the Bureau of Internal Revenue
("BIR") National Office Building, Diliman, Quezon City.

[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of
the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was
incorporated in October 1997 to design, construct, erect, assemble, own, commission and operate
power-generating plants and related facilities pursuant to and under contract with the Government of
the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any
governmentowned or controlled corporation, or other entity engaged in the development, supply, or
distribution of energy.

As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It
is likewise registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage
in the design, construction, erection, assembly, as well as to own, commission, and operate electric
power-generating plants and related activities, for which it was issued Certificate of Registration No.
97-356 on February 11, 1998.

On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the
National Power Corporation ("NPC") to develop hydro-potential of the Lower Agno River and
generate additional power and energy for the Luzon Power Grid, by building the San Roque Multi-
Purpose Project located in San Manuel, Pangasinan. The PPA provides, among others, that [San
Roque] shall be responsible for the design, construction, installation, completion, testing and
commissioning of the Power Station and shall operate and maintain the same, subject to NPC
instructions. During the cooperation period of twenty-five (25) years commencing from the
completion date of the Power Station, NPC will take and pay for all electricity available from the
Power Station.

On the construction and development of the San Roque Multi- Purpose Project which comprises of
the dam, spillway and power plant, [San Roque] allegedly incurred, excess input VAT in the amount
of ₱559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the
same year. [San Roque] duly filed with the BIR separate claims for refund, in the total amount of
₱559,709,337.54, representing unutilized input taxes as declared in its VAT returns for taxable year
2001.

However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001
since it increased its unutilized input VAT to the amount of ₱560,200,283.14. Consequently, [San
Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate
amount of ₱560,200,283.14.

[CIR’s] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with
the Court [of Tax Appeals] in Division on April 10, 2003.

Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division initially denied San Roque’s claim. In its Decision16 dated 8 March 2006, it
cited the following as bases for the denial of San Roque’s claim: lack of recorded zero-rated or
effectively zero-rated sales; failure to submit documents specifically identifying the purchased
goods/services related to the claimed input VAT which were included in its Property, Plant and
Equipment account; and failure to prove that the related construction costs were capitalized in its
books of account and subjected to depreciation.

The CTA Second Division required San Roque to show that it complied with the following
requirements of Section 112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax refund or
credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a VAT-
registered entity; (2) its input taxes claimed were paid on capital goods duly supported by VAT
invoices and/or official receipts; (3) it did not offset or apply the claimed input VAT payments on
capital goods against any output VAT liability; and (4) its claim for refund was filed within the two-
year prescriptive period both in the administrative and judicial levels.
The CTA Second Division found that San Roque complied with the first, third, and fourth
requirements, thus:

The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint
Stipulation of Facts, Records, p. 157). It was also established that the instant claim of
₱560,200,823.14 is already net of the ₱11,509.09 output tax declared by [San Roque] in its
amended VAT return for the first quarter of 2001. Moreover, the entire amount of ₱560,200,823.14
was deducted by [San Roque] from the total available input tax reflected in its amended VAT returns
for the last two quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1).
This means that the claimed input taxes of ₱560,200,823.14 did not form part of the excess input
taxes of ₱83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the
succeeding quarters. Further, [San Roque’s] claim for refund/tax credit certificate of excess input
VAT was filed within the two-year prescriptive period reckoned from the dates of filing of the
corresponding quarterly VAT returns.

For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25,
2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and
N"). These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O").
On the other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001,
October 10, 2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth
quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended
claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for
Review was filed on April 10, 2003. Counting from the respective dates when [San Roque] originally
filed its VAT returns for the first, second, third and fourth quarters of 2001, the administrative claims
for refund (original and amended) and the Petition for Review fall within the two-year prescriptive
period.18

San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November
2007 Amended Decision,19 the CTA Second Division found legal basis to partially grant San Roque’s
claim. The CTA Second Division ordered the Commissioner to refund or issue a tax credit in favor of
San Roque in the amount of ₱483,797,599.65, which represents San Roque’s unutilized input VAT
on its purchases of capital goods and services for the taxable year 2001. The CTA based the
adjustment in the amount on the findings of the independent certified public accountant. The
following reasons were cited for the disallowed claims: erroneous computation; failure to ascertain
whether the related purchases are in the nature of capital goods; and the purchases pertain to
capital goods. Moreover, the reduction of claims was based on the following: the difference between
San Roque’s claim and that appearing on its books; the official receipts covering the claimed input
VAT on purchases of local services are not within the period of the claim; and the amount of VAT
cannot be determined from the submitted official receipts and invoices. The CTA Second Division
denied San Roque’s claim for refund or tax credit of its unutilized input VAT attributable to its zero-
rated or effectively zero-rated sales because San Roque had no record of such sales for the four
quarters of 2001.

The dispositive portion of the CTA Second Division’s 29 November 2007 Amended Decision reads:

WHEREFORE, [San Roque’s] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY
GRANTED and this Court’s Decision promulgated on March 8, 2006 in the instant case is hereby
MODIFIED.

Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX
CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty
Three Million Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty
Five Centavos (₱483,797,599.65) representing unutilized input VAT on purchases of capital goods
and services for the taxable year 2001.

SO ORDERED.20

The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA
Second Division issued a Resolution dated 11 July 2008 which denied the CIR’s motion for lack of
merit.

The Court of Tax Appeals’ Ruling: En Banc

The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San
Roque’s claim for refund or tax credit in its entirety as well as for the setting aside of the 29
November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.

The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision and
resolution.

The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue
Memorandum Circular No. 49-03,22 as its bases for ruling that San Roque’s judicial claim was not
prematurely filed. The pertinent portions of the Decision state:

More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:

It is true that Section 112(D) of the abovementioned provision applies to the present case.
However, what the petitioner failed to consider is Section 112(A) of the same provision. The
respondent is also covered by the two (2) year prescriptive period. We have repeatedly held that the
claim for refund with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed
within the two-year period.

Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue that the two-year prescriptive period for filing a
claim for input tax is reckoned from the date of the filing of the quarterly VAT return and payment of
the tax due. If the said period is about to expire but the BIR has not yet acted on the
application for refund, the taxpayer may interpose a petition for review with this Court within
the two year period.

In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now
Commissioner) takes time in deciding the claim, and the period of two years is about to end, the suit
or proceeding must be started in the Court of Tax Appeals before the end of the two-year period
without awaiting the decision of the Collector.

Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs.
The Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the
taxpayer need not wait indefinitely for a decision or ruling which may or may not be
forthcoming and which he has no legal right to expect. It is disheartening enough to a taxpayer
to keep him waiting for an indefinite period of time for a ruling or decision of the Collector (now
Commissioner) of Internal Revenue on his claim for refund. It would make matters more
exasperating for the taxpayer if we were to close the doors of the courts of justice for such a relief
until after the Collector (now Commissioner) of Internal Revenue, would have, at his personal
convenience, given his go signal.

This Court ruled in several cases that once the petition is filed, the Court has already acquired
jurisdiction over the claims and the Court is not bound to wait indefinitely for no reason for whatever
action respondent (herein petitioner) may take. At stake are claims for refund and unlike
disputed assessments, no decision of respondent (herein petitioner) is required before one
can go to this Court. (Emphasis supplied and citations omitted)

Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03
dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the
Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR and that
taxpayers need not wait for the lapse of the subject 120-day period, to wit:

In response to [the] request of selected taxpayers for adoption of procedures in handling refund
cases that are aligned to the statutory requirements that refund cases should be elevated to the
Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC
No. 42-2003 are hereby amended and new provisions are added thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to
wit:

I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals
involving a claim for refund/TCC that is pending at the administrative agency (Bureau of
Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the
case separately. While the case is pending in the tax court and at the same time is still under
process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons
from the tax court, shall request from the head of the investigating/processing office for the docket
containing certified true copies of all the documents pertinent to the claim. The docket shall be
presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by
the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall
continue processing the refund/TCC case until such time that a final decision has been reached by
either the CTA or the administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency,
the latter shall cease from processing the claim. On the other hand, if the administrative agency
is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the
findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the
CTA.23 (Emphasis supplied)

G.R. No. 196113

Taganito Mining Corporation v. CIR

The Facts

The CTA Second Division’s narration of the pertinent facts is as follows:

Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by
virtue of the laws of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa
St., Lega[s]pi Village, Makati City. It is duly registered with the Securities and Exchange Commission
with Certificate of Registration No. 138682 issued on March 4, 1987 with the following primary
purpose:

To carry on the business, for itself and for others, of mining lode and/or placer mining, developing,
exploiting, extracting, milling, concentrating, converting, smelting, treating, refining, preparing for
market, manufacturing, buying, selling, exchanging, shipping, transporting, and otherwise producing
and dealing in nickel, chromite, cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone,
and all kinds of ores, metals and their by-products and which by-products thereof of every kind and
description and by whatsoever process the same can be or may hereafter be produced, and
generally and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in
lands, mines, and mineral rights and claims and to conduct all business appertaining thereto, to
purchase, locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights,
concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other
properties whatsoever which this corporation may from time to time find to be to its advantage to
mine lands, and to explore, work, exercise, develop or turn to account the same, and to acquire,
develop and utilize water rights in such manner as may be authorized or permitted by law; to
purchase, hire, make, construct or otherwise, acquire, provide, maintain, equip, alter, erect, improve,
repair, manage, work and operate private roads, barges, vessels, aircraft and vehicles, private
telegraph and telephone lines, and other communication media, as may be needed by the
corporation for its own purpose, and to purchase, import, construct, machine, fabricate, or otherwise
acquire, and maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses,
waterworks, aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric
lights and power plants and compressed air plants, chemical works of all kinds, concentrators,
smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories, dwelling
houses, stores, hotels or other buildings, engines, machinery, spare parts, tools, implements and
other works, conveniences and properties of any description in connection with or which may be
directly or indirectly conducive to any of the objects of the corporation, and to contribute to, subsidize
or otherwise aid or take part in any operations;

and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN
8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as an
exporter of beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration No. EP-
88-306.

Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with
authority to exercise the functions of the said office, including inter alia, the power to decide refunds
of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code (NIRC) or other laws administered by
Bureau of Internal Revenue (BIR) under Section 4 of the NIRC. He holds office at the BIR National
Office Building, Diliman, Quezon City.

[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1,
2005 to December 31, 2005. For easy reference, a summary of the filing dates of the original and
amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is as follows:

Exhibit(s) Quarter Nature of Mode of filing Filing Date

the Return
L to L-4 1st Original Electronic April 15, 2005
M to M-3 Amended Electronic July 20, 2005
N to N-4 Amended Electronic October 18, 2006
Q to Q-3 2nd Original Electronic July 20, 2005
R to R-4 Amended Electronic October 18, 2006
U to U-4 3rd Original Electronic October 19, 2005
V to V-4 Amended Electronic October 18, 2006
Y to Y-4 4th Original Electronic January 20, 2006
Z to Z-4 Amended Electronic October 18, 2006

As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated sales
amounting to P1,446,854,034.68; input VAT on its domestic purchases and importations of goods
(other than capital goods) and services amounting to P2,314,730.43; and input VAT on its domestic
purchases and importations of capital goods amounting to P6,050,933.95, the details of which are
summarized as follows:

Period Zero-Rated Sales Input VAT on Input VAT on Total Input VAT
Covered Domestic Domestic
Purchases and Purchases and
Importations Importations
of Goods and of Capital
Services Goods
01/01/05 - P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
03/31/05
04/01/05 - 64,677,530.78 204,364.17 5,811,130.73 6,015,494.90
06/30/05
07/01/05 - 480,784,287.30 144,887.67 - 144,887.67
09/30/05
10/01/05 - 350,212,345.02 473,598.03 - 473,598.03
12/31/05
TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38

On November 14, 2006, [Taganito] filed with [the CIR], through BIR’s Large Taxpayers Audit and
Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of
its supposed input VAT amounting to ₱8,365,664.38 for the period covering January 1, 2004 to
December 31, 2004. On the same date, [Taganito] likewise filed an Application for Tax
Credits/Refunds for the period covering January 1, 2005 to December 31, 2005 for the same
amount.

On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR],
to correct the period of the above claim for tax credit/refund in the said amount of ₱8,365,664.38 as
actually referring to the period covering January 1, 2005 to December 31, 2005.
As the statutory period within which to file a claim for refund for said input VAT is about to lapse
without action on the part of the [CIR], [Taganito] filed the instant Petition for Review on February 17,
2007.

In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:

4. [Taganito’s] alleged claim for refund is subject to administrative investigation/examination

by the Bureau of Internal Revenue (BIR);

5. The amount of ₱8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT
on domestic purchases of goods and services and on importation of capital goods for the
period January 1, 2005 to December 31, 2005 is not properly documented;

6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D)
and 229 of the National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive
period for claiming tax refund/credit;

7. Proof of compliance with the prescribed checklist of requirements to be submitted

involving claim for VAT refund pursuant to Revenue Memorandum Order No. 53-
98, otherwise there would be no sufficient compliance with the filing of administrative
claim for refund, the administrative claim thereof being mere proforma, which is a
condition sine qua non prior to the filing of judicial claim in accordance with the
provision of Section 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as
amended, requires the submission of complete documents in support of the application
filed with the BIR before the 120-day audit period shall apply, and before the taxpayer
could avail of judicial remedies as provided for in the law. Hence, [Taganito’s] failure to
submit proof of compliance with the above-stated requirements warrants immediate
dismissal of the petition for review.

8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in
Sections 110 and 113 of the 1997 Tax Code, as amended, in relation to provisions of
Revenue Regulations No. 7-95.

9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to
refund, and failure to sustain the burden is fatal to the claim for refund/credit (Asiatic
Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila
Jockey Club, Inc., 98 Phil. 670);

10. Claims for refund are construed strictly against the claimant for the same partake the
nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31
SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs.
Commissioner of Internal Revenue, 124 SCRA 1211).

SPECIAL AND AFFIRMATIVE DEFENSES

11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure
on the part of [Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which
provides, thus:

Section 112. Refunds or Tax Credits of Input Tax. –

xxx xxx xxx

(D) Period within which refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In cases of full or partial denial for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty dayperiod, appeal the decision or the unacted claim
with the Court of Tax Appeals. (Emphasis supplied.)
12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue
on November 14, 2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously
the 120 days given to the Commissioner to decide on the claim has not yet lapsed when the petition
was filed. The petition was prematurely filed, hence it must be dismissed for lack of jurisdiction.

During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving
its supposed entitlement to the refund in the amount of ₱8,365,664.38, representing input taxes for
the period covering January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not
to present evidence. Thus, in the Resolution promulgated on January 22, 2009, this case was
submitted for decision as of such date, considering [Taganito’s] "Memorandum" filed on January 19,
2009 and [the CIR’s] "Memorandum" filed on December 19, 2008.24

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division partially granted Taganito’s claim. In its Decision25 dated 8 January 2010,
the CTA Second Division found that Taganito complied with the requirements of Section 112(A) of
RA 8424, as amended, to be entitled to a tax refund or credit of input VAT attributable to zero-rated
or effectively zero-rated sales.26

The pertinent portions of the CTA Second Division’s Decision read:

Finally, records show that [Taganito’s] administrative claim filed on November 14, 2006, which was
amended on November 29, 2006, and the Petition for Review filed with this Court on February 14,
2007 are well within the two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005,
September 30, 2005, and December 31, 2005, respectively, the close of each taxable quarter
covering the period January 1, 2005 to December 31, 2005.

In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of
₱8,249,883.33 representing unutilized input VAT for the four taxable quarters of 2005.

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, [the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of
EIGHT MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY THREE
PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33) representing its unutilized input taxes
attributable to zero-rated sales from January 1, 2005 to December 31, 2005.

SO ORDERED.27

The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn,
filed a Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.

In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIR’s motion. The CTA
Second Division ruled that the legislature did not intend that Section 112 (Refunds or Tax Credits of
Input Tax) should be read in isolation from Section 229 (Recovery of Tax Erroneously or Illegally
Collected) or vice versa. The CTA Second Division applied the mandatory statute of limitations in
seeking judicial recourse prescribed under Section 229 to claims for refund or tax credit under
Section 112.

The Court of Tax Appeals’ Ruling: En Banc

On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8
January 2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that
Taganito’s entire claim for refund be denied.

In its 8 December 2010 Decision,29 the CTA EB granted the CIR’s petition for review and reversed
and set aside the challenged decision and resolution.

The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning
of the two-year prescriptive period for filing a claim for tax refund or credit over input VAT to be the
close of the taxable quarter when the sales were made. The CTA EB also relied on this Court’s
rulings in the cases of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi)30 and Commisioner of Internal Revenue v. Mirant Pagbilao Corporation
(Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input
VAT arising from zero-rated sales should be reckoned from the close of the taxable quarter when the
sales were made. Aichi further emphasized that the failure to await the decision of the Commissioner
or the lapse of 120-day period prescribed in Section 112(D) amounts to a premature filing.

The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well
within the period prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA
EB found that Taganito’s judicial claim was prematurely filed. Taganito filed its Petition for Review
before the CTA Second Division on 14 February 2007. The judicial claim was filed after the lapse of
only 92 days from the filing of its administrative claim before the CIR, in violation of the 120-day
period prescribed in Section 112(D) of the 1997 Tax Code.

The dispositive portion of the Decision states:

WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated
January 8, 2010 and Resolution dated April 7, 2010 of the Special Second Division of this Court are
hereby REVERSED and SET ASIDE. Another one is hereby entered DISMISSING the Petition for
Review filed in CTA Case No. 7574 for having been prematurely filed.

SO ORDERED.32

In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim
before the CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within which
Refund or Tax Credit of Input Taxes shall be Made) in conjunction with Section 229 (Recovery of
Tax Erroneously or Illegally Collected). Justice Bautista also relied on this Court’s ruling in Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue
(Atlas),34 which stated that refundable or creditable input VAT and illegally or erroneously collected
national internal revenue tax are the same, insofar as both are monetary amounts which are
currently in the hands of the government but must rightfully be returned to the taxpayer. Justice
Bautista concluded:

Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or
tax credit of excess or unutilized input tax with this Court, either within 30 days from receipt of the
denial of its claim, or after the lapse of the 120-day period in the event of inaction by the
Commissioner, provided that both administrative and judicial remedies must be undertaken within
the 2-year period.35

Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an
Opposition on 26 January 2011. The CTA EB denied for lack of merit Taganito’s motion in a
Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable reason to depart from this
Court’s rulings in Aichi and Mirant.

G.R. No. 197156

Philex Mining Corporation v. CIR

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[Philex] is a corporation duly organized and existing under the laws of the Republic of the
Philippines, which is principally engaged in the mining business, which includes the exploration and
operation of mine properties and commercial production and marketing of mine products, with office
address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.

[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government
entity tasked with the duties/functions of assessing and collecting all national internal revenue taxes,
fees, and charges, and enforcement of all forfeitures, penalties and fines connected therewith,
including the execution of judgments in all cases decided in its favor by [the Court of Tax Appeals]
and the ordinary courts, where she can be served with court processes at the BIR Head Office, BIR
Road, Quezon City.

On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005
and Amended VAT Return for the same quarter on December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of ₱23,956,732.44 with
the One Stop Shop Center of the Department of Finance. However, due to [the CIR’s] failure to act
on such claim, on October 17, 2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as
amended, [Philex] filed a Petition for Review, docketed as C.T.A. Case No. 7687.

In [her] Answer, respondent CIR alleged the following special and affirmative defenses:

4. Claims for refund are strictly construed against the taxpayer as the same partake the
nature of an exemption;

5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid.
Failure on the part of [Philex] to prove the same is fatal to its cause of action;

6. [Philex] should prove its legal basis for claiming for the amount being refunded.37

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division, in its Decision dated 20 July 2009, denied Philex’s claim due to
prescription. The CTA Second Division ruled that the two-year prescriptive period specified in
Section 112(A) of RA 8424, as amended, applies not only to the filing of the administrative claim with
the BIR, but also to the filing of the judicial claim with the CTA. Since Philex’s claim covered the 3rd
quarter of 2005, its administrative claim filed on 20 March 2006 was timely filed, while its judicial
claim filed on 17 October 2007 was filed late and therefore barred by prescription.

On 10 November 2009, the CTA Second Division denied Philex’s Motion for Reconsideration.

The Court of Tax Appeals’ Ruling: En Banc

Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009
Decision and the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.

The CTA EB, in its Decision38 dated 3 December 2010, denied Philex’s petition and affirmed the CTA
Second Division’s Decision and Resolution.

The pertinent portions of the Decision read:

In this case, while there is no dispute that [Philex’s] administrative claim for refund was filed within
the two-year prescriptive period; however, as to its judicial claim for refund/credit, records show that
on March 20, 2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the
amount of ₱23,956,732.44 with the One Stop Shop Center of the Department of Finance, per
Application No. 52490. From March 20, 2006, which is also presumably the date [Philex] submitted
supporting documents, together with the aforesaid application for refund, the CIR has 120 days, or
until July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-day
period, or from July 19, 2006 until August 17, 2006, [Philex] should have elevated its claim for refund
to the CTA. However, [Philex] filed its Petition for Review only on October 17, 2007, which is 426
days way beyond the 30- day period prescribed by law.

Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition
for Review in CTA Case No. 7687 should have been dismissed on the ground that the Petition for
Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the
CTA in Division; and not due to prescription.

WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE
COURSE, and accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the
Petition for Review in CTA Case No. 7687 due to prescription, and Resolution dated November 10,
2009 denying [Philex’s] Motion for Reconsideration are hereby AFFIRMED, with modification that the
dismissal is based on the ground that the Petition for Review in CTA Case No. 7687 was filed way
beyond the 30-day prescribed period to appeal.

SO ORDERED.39

G.R. No. 187485

CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the Petition for Review:

I. The Court of Tax Appeals En Banc erred in holding that [San Roque’s] claim for refund
was not prematurely filed.

II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of
Tax Appeals (Second Division) granting [San Roque’s] claim for refund of alleged unutilized
input VAT on its purchases of capital goods and services for the taxable year 2001 in the
amount of P483,797,599.65. 40

G.R. No. 196113

Taganito Mining Corporation v. CIR

Taganito raised the following grounds in its Petition for Review:

I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in erroneously applying
the Aichi doctrine in violation of [Taganito’s] right to due process.

II. The Court of Tax Appeals committed serious error and acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in erroneously interpreting the
provisions of Section 112 (D).41

G.R. No. 197156

Philex Mining Corporation v. CIR

Philex raised the following grounds in its Petition for Review:

I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that
the petition was filed with the CTA within the period set by prevailing court rulings at the time
it was filed.

II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in
this instant case.42

The Court’s Ruling

For ready reference, the following are the provisions of the Tax Code applicable to the present
cases:

Section 105:

Persons Liable. — Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.

xxxx

Section 110(B):

Sec. 110. Tax Credits. —

(B) Excess Output or Input Tax. — If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters: [Provided,
That the input tax inclusive of input VAT carried over from the previous quarter that may be credited
in every quarter shall not exceed seventy percent (70%) of the output VAT:]43 Provided, however,
That any input tax attributable to zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue taxes, subject to the provisions
of Section 112.

Section 112:44

Sec. 112. Refunds or Tax Credits of Input Tax. —

(A) Zero-Rated or Effectively Zero-Rated Sales.— Any VAT-registered person, whose

sales are zero-rated or effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)
(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of
goods or properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.

(B) Capital Goods.- A VAT — registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to the
extent that such input taxes have not been applied against output taxes. The application may
be made only within two (2) years after the close of the taxable quarter when the importation
or purchase was made.

(C) Cancellation of VAT Registration. — A person whose registration has been cancelled
due to retirement from or cessation of business, or due to changes in or cessation of status
under Section 106(C) of this Code may, within two (2) years from the date of cancellation,
apply for the issuance of a tax credit certificate for any unused input tax which may be used
in payment of his other internal revenue taxes

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection (A)
and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.

(E) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on Audit, the provisions of the Administrative
Code of 1987 to the contrary notwithstanding: Provided, that refunds under this paragraph
shall be subject to post audit by the Commission on Audit.

Section 229:

Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in

any court for the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessively 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 filed after the expiration of two (2) 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.

(All emphases supplied)

I. Application of the 120+30 Day Periods

a. G.R. No. 187485 - CIR v. San Roque Power Corporation

On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the
Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA docketed as
CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did not wait for the 120-
day period to lapse before filing its judicial claim; second, San Roque filed its judicial claim more
than four (4) years before the Atlas45 doctrine, which was promulgated by the Court on 8 June 2007.

Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law
to the Commissioner to decide whether to grant or deny San Roque’s application for tax refund or
credit. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of the
first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting period was
extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of
1997. Thus, the waiting period has been in our statute books for more than fifteen (15)
years before San Roque filed its judicial claim.

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates
the doctrine of exhaustion of administrative remedies and renders the petition premature and thus
without a cause of action, with the effect that the CTA does not acquire jurisdiction over the
taxpayer’s petition. Philippine jurisprudence is replete with cases upholding and reiterating these
doctrinal principles.46

The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of
the Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue
taxes."47 When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA
without waiting for the decision of the Commissioner, there is no "decision" of the Commissioner to
review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The
charter of the CTA also expressly provides that if the Commissioner fails to decide within "a specific
period" required by law, such "inaction shall be deemed a denial"48 of the application for tax
refund or credit. It is the Commissioner’s decision, or inaction "deemed a denial," that the taxpayer
can take to the CTA for review. Without a decision or an "inaction x x x deemed a denial" of the
Commissioner, the CTA has no jurisdiction over a petition for review.49

San Roque’s failure to comply with the 120-day mandatory period renders its petition for review with
the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity." San Roque’s void
petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized "except when the law itself authorizes [its]
validity." There is no law authorizing the petition’s validity.

It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law
cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his
own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No
vested or acquired right can arise from acts or omissions which are against the law or which infringe
upon the rights of others."50 For violating a mandatory provision of law in filing its petition with the
CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque’s petition
with the CTA is a mere scrap of paper.

This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-
day period just because the Commissioner merely asserts that the case was prematurely filed with
the CTA and does not question the entitlement of San Roque to the refund. The mere fact that a
taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or
excessively collected from him, does not entitle him as a matter of right to a tax refund or credit.
Strict compliance with the mandatory and jurisdictional conditions prescribed by law to claim such
tax refund or credit is essential and necessary for such claim to prosper. Well-settled is the rule
that tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer.51 The burden is on the taxpayer to show that he has strictly complied with the conditions
for the grant of the tax refund or credit.

This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply
because the Commissioner chose not to contest the numerical correctness of the claim for tax
refund or credit of the taxpayer. Non-compliance with mandatory periods, non-observance of
prescriptive periods, and non-adherence to exhaustion of administrative remedies bar a taxpayer’s
claim for tax refund or credit, whether or not the Commissioner questions the numerical correctness
of the claim of the taxpayer. This Court should not establish the precedent that non-compliance with
mandatory and jurisdictional conditions can be excused if the claim is otherwise meritorious,
particularly in claims for tax refunds or credit. Such precedent will render meaningless compliance
with mandatory and jurisdictional requirements, for then every tax refund case will have to be
decided on the numerical correctness of the amounts claimed, regardless of non-compliance with
mandatory and jurisdictional conditions.

San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine
because San Roque filed its petition for review with the CTA more than four years
before Atlas was promulgated. The Atlas doctrine did not exist at the time San Roque failed to
comply with the 120- day period. Thus, San Roque cannot invoke the Atlas doctrine as an excuse for
its failure to wait for the 120-day period to lapse. In any event, the Atlas doctrine merely stated that
the two-year prescriptive period should be counted from the date of payment of the output VAT, not
from the close of the taxable quarter when the sales involving the input VAT were
made. The Atlas doctrine does not interpret, expressly or impliedly, the 120+3052 day periods.

In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the
Court in Atlas as the applicable provision of the law did not yet provide for the 30-day period for the
taxpayer to appeal to the CTA from the decision or inaction of the Commissioner.53 Thus,
the Atlas doctrine cannot be invoked by anyone to disregard compliance with the 30-day
mandatory and jurisdictional period. Also, the difference between the Atlas doctrine on one hand,
and the Mirant54 doctrine on the other hand, is a mere 20 days. The Atlas doctrine counts the two-
year prescriptive period from the date of payment of the output VAT, which means within 20 days
after the close of the taxable quarter. The output VAT at that time must be paid at the time of filing of
the quarterly tax returns, which were to be filed "within 20 days following the end of each quarter."

Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the
administrative claims filed with the Commissioner, and the petitions for review filed with the CTA,
were all filed within two years from the date of payment of the output VAT, following Section 229:

Date of Filing Return Date of Filing Date of Filing

Period Covered
& Payment of Tax Administrative Claim Petition With CTA
2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992
Close of Quarter
30 June 1990
3rd Quarter, 1990 18 October 1990 21 November 1990 9 October 1992
Close of Quarter
30 September 1990
4th Quarter, 1990 20 January 1991 19 February 1991 14 January 1993
Close of Quarter
31 December 1990

Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th
day after the close of the taxable quarter. Had the twoyear prescriptive period been counted from
the "close of the taxable quarter" as expressly stated in the law, the tax refund claims of Atlas would
have already prescribed. In contrast, the Mirant doctrine counts the two-year prescriptive period from
the "close of the taxable quarter when the sales were made" as expressly stated in the law, which
means the last day of the taxable quarter. The 20-day difference55 between the Atlas doctrine
and the later Mirant doctrine is not material to San Roque’s claim for tax refund.
Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because
what is at issue in the present case is San Roque’s non-compliance with the 120-day mandatory and
jurisdictional period, which is counted from the date it filed its administrative claim with the
Commissioner. The 120-day period may extend beyond the two-year prescriptive period, as long as
the administrative claim is filed within the two-year prescriptive period. However, San Roque’s fatal
mistake is that it did not wait for the Commissioner to decide within the 120-day period, a mandatory
period whether the Atlas or the Mirant doctrine is applied.

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods
were already in the law. Section 112(C)56 expressly grants the Commissioner 120 days within which
to decide the taxpayer’s claim. The law is clear, plain, and unequivocal: "x x x the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred
twenty (120) days from the date of submission of complete documents." Following the verba
legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal.
The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s
decision within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction
because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA
to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its
administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the
mandatory 120-day period, and it cannot blame anyone but itself.

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision
or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals. (Emphasis supplied)

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner’s decision, or if the Commissioner does not act on the taxpayer’s claim
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period.

b. G.R. No. 196113 - Taganito Mining Corporation v. CIR

Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-
day period to lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of
the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is
almost four months before the adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly
situated as San Roque - both cannot claim being misled, misguided, or confused by
the Atlas doctrine.

However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which
expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed its
judicial claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of
the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have filed its judicial claim
with the CTA on time.

c. G.R. No. 197156 – Philex Mining Corporation v. CIR

Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005;
(2) filed on 20 March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007
its Petition for Review with the CTA. The close of the third taxable quarter in 2005 is 30 September
2005, which is the reckoning date in computing the two-year prescriptive period under Section
112(A).

Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period.
Even if the two-year prescriptive period is computed from the date of payment of the output VAT
under Section 229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is
immaterial in this case. The Commissioner had until 17 July 2006, the last day of the 120-day
period, to decide Philex’s claim. Since the Commissioner did not act on Philex’s claim on or before
17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial
claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its
judicial claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007,
or four hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one
year and 61 days in filing its judicial claim. As the CTA EB correctly found:

Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the
Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was
acquired by the CTA Division; x x x58 (Emphasis supplied)

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex
did not file any petition with the CTA within the 120-day period. Philex did not also file any petition
with the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial
claim long after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day
period. In any event, whether governed by jurisprudence before, during, or after
the Atlas case, Philex’s judicial claim will have to be rejected because of late filing. Whether
the two-year prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed
late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law, "deemed
a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its
judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance with the conditions attached by the
statute for its exercise.59 Philex failed to comply with the statutory conditions and must thus bear the
consequences.

II. Prescriptive Periods under Section 112(A) and (C)

There are three compelling reasons why the 30-day period need not necessarily fall within the two-
year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive
period.

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer
"may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of the creditable input
tax due or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime
within two years. Thus, the application for refund or credit may be filed by the taxpayer with
the Commissioner on the last day of the two-year prescriptive period and it will still strictly
comply with the law. The twoyear prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before his right to apply for a tax refund or credit
is barred by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for
refund or credit "within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection (A)."
The reference in Section 112(C) of the submission of documents "in support of the
application filed in accordance with Subsection A" means that the application in Section
112(A) is the administrative claim that the Commissioner must decide within the 120-day
period. In short, the two-year prescriptive period in Section 112(A) refers to the period within
which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise,
the two-year prescriptive period does not refer to the filing of the judicial claim with
the CTA but to the filing of the administrative claim with the Commissioner. As held
in Aichi, the "phrase ‘within two years x x x apply for the issuance of a tax credit or
refund’ refers to applications for refund/credit with the CIR and not to appeals made to
the CTA."
 Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive
period (equivalent to 730 days60), then the taxpayer must file his administrative claim for
refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the
filing of the administrative claim beyond the first 610 days will result in the appeal to
the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files
his administrative claim on the 611th day, the Commissioner, with his 120-day period, will
have until the 731st day to decide the claim. If the Commissioner decides only on the 731st
day, or does not decide at all, the taxpayer can no longer file his judicial claim with the CTA
because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day
period granted by law to the taxpayer to file an appeal before the CTA becomes utterly
useless, even if the taxpayer complied with the law by filing his administrative claim within
the two-year prescriptive period.

The theory that the 30-day period must fall within the two-year prescriptive period adds a condition
that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the
taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a law
to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and
unequivocal language.

Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language.
The taxpayer can file his administrative claim for refund or credit at anytime within the two-year
prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is
still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer
still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the
only logical interpretation of Section 112(A) and (C).

III. "Excess" Input VAT and "Excessively" Collected Tax

The input VAT is not "excessively" collected as understood under Section 229 because at the time
the input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability
of, and legally paid by, a VAT-registered seller61 of goods, properties or services used as input by
another VAT-registered person in the sale of his own goods, properties, or services. This tax liability
is true even if the seller passes on the input VAT to the buyer as part of the purchase price. The
second VAT-registered person, who is not legally liable for the input VAT, is the one who applies the
input VAT as credit for his own output VAT.62 If the input VAT is in fact "excessively" collected as
understood under Section 229, then it is the first VAT-registered person - the taxpayer who is legally
liable and who is deemed to have legally paid for the input VAT - who can ask for a tax refund or
credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such event,
the second VAT-registered taxpayer will have no input VAT to offset against his own output VAT.

In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the
input VAT is not "excessively" collected as understood under Section 229. At the time of payment of
the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no
claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more
than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the
input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply
means that the input VAT available as credit exceeds the output VAT, not that the input VAT is
excessively collected because it is more than what is legally due. Thus, the taxpayer who legally
paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under
Section 229.

Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the
date of payment of the tax "erroneously, x x x illegally, x x x excessively or in any manner wrongfully
collected." The prescriptive period is reckoned from the date the person liable for the tax pays the
tax. Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax
actually pays more than what is legally due, the taxpayer must file a judicial claim for refund within
two years from his date of payment. Only the person legally liable to pay the tax can file the
judicial claim for refund. The person to whom the tax is passed on as part of the purchase
price has no personality to file the judicial claim under Section 229.63

Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for
"excess" input VAT is two years from the close of the taxable quarter when the sale was made by
the person legally liable to pay the output VAT. This prescriptive period has no relation to the date
of payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than
two years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112(A),
which has a different reckoning period from Section 229. Moreover, the person claiming the refund
or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the
VAT refund or credit does not claim that the input VAT was "excessively" collected from him, or that
he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid
the input VAT.

As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the
chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on
the value added by the taxpayer, but on the entire selling price of his goods, properties or services.
However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold
him the inputs for his goods, properties, or services. The net effect is that the taxpayer pays the VAT
only on the value that he adds to the goods, properties, or services that he actually sells.

Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only
exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like
companies generating power through renewable sources of energy.64 Thus, a non zero-rated VAT-
registered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or
credit of his unused input VAT under the VAT System. Even if the taxpayer has sales but his input
VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under
the VAT System. He can only carry-over and apply his "excess" input VAT against his future
output VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be
able to seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The
VAT System does not allow such refund or credit. Such "excess" input VAT is not an "excessively"
collected tax under Section 229. The "excess" input VAT is a correctly and properly collected tax.
However, such "excess" input VAT can be applied against the output VAT because the VAT is a tax
imposed only on the value added by the taxpayer. If the input VAT is in fact "excessively" collected
under Section 229, then it is the person legally liable to pay the input VAT, not the person to whom
the tax was passed on as part of the purchase price and claiming credit for the input VAT under the
VAT System, who can file the judicial claim under Section 229.

Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax
under Section 229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT
under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section
229, mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is
no requirement under Section 229 for an output VAT or subsequent sale of goods, properties, or
services using materials subject to input VAT.

From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is
"erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." In short,
there must be a wrongful payment because what is paid, or part of it, is not legally due. As the
Court held in Mirant, Section 229 should "apply only to instances of erroneous payment or
illegal collection of internal revenue taxes." Erroneous or wrongful payment includes excessive
payment because they all refer to payment of taxes not legally due. Under the VAT System,
there is no claim or issue that the "excess" input VAT is "excessively or in any manner wrongfully
collected." In fact, if the "excess" input VAT is an "excessively" collected tax under Section 229, then
the taxpayer claiming to apply such "excessively" collected input VAT to offset his output VAT may
have no legal basis to make such offsetting. The person legally liable to pay the input VAT can claim
a refund or credit for such "excessively" collected tax, and thus there will no longer be any "excess"
input VAT. This will upend the present VAT System as we know it.

IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-
year prescriptive period under Section 229, should be effective only from its promulgation on 8
June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was
limited to the reckoning of the two-year prescriptive period from the date of payment of the output
VAT. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input
VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which
abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in
computing the two-year prescriptive period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the
application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day
periods was first raised in Aichi, which adopted the verba legis rule in holding that the 120+30 day
periods are mandatory and jurisdictional. The language of Section 112(C) is plain, clear, and
unambiguous. When Section 112(C) states that "the Commissioner shall grant a refund or issue the
tax credit within one hundred twenty (120) days from the date of submission of complete
documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayer’s
claim. Resort to the courts prior to the expiration of the 120-day period is a patent violation of the
doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due to
prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of
exhaustion of administrative remedies.65 Such doctrine is basic and elementary.

When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of
the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal
the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30
day periods optional just because the law uses the word "may." The word "may" simply means that
the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt
of the decision, or within 30 days from the expiration of the 120-day period. Certainly, by no stretch
of the imagination can the word "may" be construed as making the 120+30 day periods optional,
allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the
Commissioner.

The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioner’s
decision if the two-year prescriptive period is about to expire, cannot apply because that rule was
adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to
do away with the old rule, so that under the VAT System the taxpayer will always have 30
days to file the judicial claim even if the Commissioner acts only on the 120th day, or does
not act at all during the 120-day period. With the 30-day period always available to the taxpayer,
the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the
Commissioner to decide until the expiration of the 120-day period.

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against
the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is
compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with
the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the
effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03
on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and jurisdictional.

V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003

There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for
the 120-day period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes
the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial
claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day
period. RMC 49-03 states: "In cases where the taxpayer has filed a ‘Petition for Review’ with the
Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency
(either the Bureau of Internal Revenue or the One- Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center of the Department of Finance), the administrative agency and the court may act on
the case separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day
period, the BIR will nevertheless continue to act on the administrative claim because such premature
filing cannot divest the Commissioner of his statutory power and jurisdiction to decide the
administrative claim within the 120-day period.

On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner
can still continue to evaluate the administrative claim. There is nothing new in this because even
after the expiration of the 120-day period, the Commissioner should still evaluate internally the
administrative claim for purposes of opposing the taxpayer’s judicial claim, or even for purposes of
determining if the BIR should actually concede to the taxpayer’s judicial claim. The internal
administrative evaluation of the taxpayer’s claim must necessarily continue to enable the BIR to
oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to
concede to the judicial claim, resulting in the termination of the judicial proceedings.
What is important, as far as the present cases are concerned, is that the mere filing by a
taxpayer of a judicial claim with the CTA before the expiration of the 120-day period cannot
operate to divest the Commissioner of his jurisdiction to decide an administrative claim
within the 120-day mandatory period, unless the Commissioner has clearly given cause for
equitable estoppel to apply as expressly recognized in Section 246 of the Tax Code.67

VI. BIR Ruling No. DA-489-03 dated 10 December 2003

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the
Tax Code. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait
for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of
Petition for Review." Prior to this ruling, the BIR held, as shown by its position in the Court of
Appeals,68 that the expiration of the 120-day period is mandatory and jurisdictional before a judicial
claim can be filed.

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does
not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period.
There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a
specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such
specific ruling is applicable only to such particular taxpayer. The second exception is where the
Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code,
misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the
Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax
Code.

Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the
Commissioner the power to interpret tax laws, thus:

Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. — The power
to interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or 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.

Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers
acting in good faith should not be made to suffer for adhering to general interpretative rules of the
Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be
reversed by the Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly
provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in
good faith relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows:

Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any of

the rules and regulations promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be given retroactive application if
the revocation, modification or reversal will be prejudicial to the taxpayers, except in the
following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith. (Emphasis supplied)

Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers
from the time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is
not limited to a reversal only by the Commissioner because this Section expressly states,
"Any revocation, modification or reversal" without specifying who made the revocation, modification
or reversal. Hence, a reversal by this Court is covered under Section 246.

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly

on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof
that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question
of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly
situated, being made to return the tax refund or credit they received or could have received
under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent
fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued
by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively. As held by this Court in CIR v. Philippine Health Care Providers, Inc.:70

In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of
the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a
position contrary to one previously taken where injustice would result to the taxpayer. Hence,
where an assessment for deficiency withholding income taxes was made, three years after a new
BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment
was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets
of good faith, equity, and fair play.

This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later cases
1âw phi1

of Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega

Gen. Mdsg. Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc.,
and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have
no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer,
as in this case.

More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer
was entitled to tax refunds or credits based on the BIR’s own issuances but later was suddenly
saddled with deficiency taxes due to its subsequent ruling changing the category of the taxpayer’s
transactions for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively
would be prejudicial to the taxpayer. (Emphasis supplied)

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable
to all taxpayers or a specific ruling applicable only to a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds
and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the
Department of Finance. This government agency is also the addressee, or the entity responded to,
in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the
Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in
fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on
BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by
this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional

However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is
admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the
120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third,
prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim
prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly
construed against the taxpayer.

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial
claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10
December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its
judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed
its judicial claim. At the time San Roque filed its judicial claim, the law as applied and administered
by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact
the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque
never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court,
the CTA, or before the Commissioner.

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial
claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No.
DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the
filing of its judicial claim from the vice of prematurity.

Philex’s situation is not a case of premature filing of its judicial claim but of late filing,
indeed very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which
means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim.
Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial
claim prematurely but filed it long after the lapse of the 30-day period following the expiration of
the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day
period.

VII. Existing Jurisprudence

There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that
the filing dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period. The effect of the claim of the dissenting opinions is that San
Roque’s failure to wait for the 120-day mandatory period to lapse is inconsequential, thus allowing
San Roque to claim the tax refund or credit. However, the five cases cited by the dissenting opinions
do not support even remotely the claim that this Court had already made such a ruling. None of
these five cases mention, cite, discuss, rule or even hint that compliance with the 120-day
mandatory period is inconsequential as long as the administrative and judicial claims are
filed within the two-year prescriptive period.

In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was
actually passed on to Toshiba that it could claim as input VAT subject to tax credit or refund. The
Commissioner argued that "although Toshiba may be a VAT-registered taxpayer, it is not engaged in
a VAT-taxable business." The Commissioner cited Section 4.106-1 of Revenue Regulations No. 75
that "refund of input taxes on capital goods shall be allowed only to the extent that such capital
goods are used in VAT-taxable business." In the words of the Court, "Ultimately, however, the issue
still to be resolved herein shall be whether respondent Toshiba is entitled to the tax credit/refund of
its input VAT on its purchases of capital goods and services, to which this Court answers in the
affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the
instant case are (1) whether the absence of the BIR authority to print or the absence of the TIN-V in
petitioner’s export sales invoices operates to forfeit its entitlement to a tax refund/credit of its
unutilized input VAT attributable to its zero-rated sales; and (2) whether petitioner’s failure to indicate
"TIN-V" in its sales invoices automatically invalidates its claim for a tax credit certification." Again,
nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative
and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.

In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First
Division, conceding that petitioner’s transactions fall under the classification of zero-rated sales,
nevertheless denied petitioner’s claim ‘for lack of substantiation,’ x x x." The Court quoted the
ruling of the First Division that "valid VAT official receipts, and not mere sale invoices, should
have been submitted" by petitioner to substantiate its claim. The Court further stated: "x x x the
CTA En Banc, x x x affirmed x x x the CTA First Division," and "petitioner’s motion for
reconsideration having been denied x x x, the present petition for review was filed." Clearly, the sole
issue in this case is whether petitioner complied with the substantiation requirements in claiming for
tax refund or credit. Again, nowhere in this case did the Court discuss, state, or rule that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the
two-year prescriptive period.

In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner:
"Simply put, the sole issue the petition raises is whether or not the CTA erred in granting respondent
Ironcon’s application for refund of its excess creditable VAT withheld." The Commissioner argued
that "since the NIRC does not specifically grant taxpayers the option to refund excess creditable
VAT withheld, it follows that such refund cannot be allowed." Thus, this case is solely about whether
the taxpayer has the right under the NIRC to ask for a cash refund of excess creditable VAT
withheld. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to
VAT. Compliance with the 120-day period was never an issue in Cebu Toyo. As the Court explained:

Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that
respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and
local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC.
Thus, they contend that respondent Cebu Toyo Corporation is not entitled to any refund or credit on
input taxes it previously paid as provided under Section 4.103-1 of Revenue Regulations No. 7-95,
notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim recognition of the input tax
credit.

The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years
from August 7, 1995 making it exempt from income tax but not from other taxes such as
VAT. Hence, according to respondent, its export sales are not exempt from VAT, contrary to
petitioner’s claim, but its export sales is subject to 0% VAT. Moreover, it argues that it was able
to establish through a report certified by an independent Certified Public Accountant that the input
taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its export
sales. Since it did not have any output tax against which said input taxes may be offset, it had the
option to file a claim for refund/tax credit of its unutilized input taxes.

Considering the submission of the parties and the evidence on record, we find the petition bereft of
merit.

Petitioner’s contention that respondent is not entitled to refund for being exempt from VAT is
untenable. This argument turns a blind eye to the fiscal incentives granted to PEZA-registered
enterprises under Section 23 of Rep. Act No. 7916. Note that under said statute, the respondent had
two options with respect to its tax burden. It could avail of an income tax holiday pursuant to
provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not from
other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes,
including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No.
7916. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the
income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and
1997 Annual Corporate Income Tax Returns, where respondent specified that it was availing of the
tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly
registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt
transactions. (Emphasis supplied)

Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to
VAT at 0% tax rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input
VAT. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait
for the Resolution of its (administrative) claim by the CIR" before filing its judicial claim with the CTA,
this issue was not raised before the Court. Certainly, this statement of the Court is not a binding
precedent that the taxpayer need not wait for the 120-day period to lapse.

Any issue, whether raised or not by the parties, but not passed upon by the Court, does not
have any value as precedent. As this Court has explained as early as 1926:

It is contended, however, that the question before us was answered and resolved against the
contention of the appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no question
was raised nor was it even suggested that said section 216 did not apply to a public officer. That
question was not discussed nor referred to by any of the parties interested in that case. It has been
frequently decided that the fact that a statute has been accepted as valid, and invoked and applied
for many years in cases where its validity was not raised or passed on, does not prevent a court
from later passing on its validity, where that question is squarely and properly raised and
presented. Where a question passes the Court sub silentio, the case in which the question
was so passed is not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor
should it be considered as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs.
Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310,
319; Cross vs. Burke, 146 U.S. 82.) For the reasons given in the case of McGirr vs. Hamilton and
Abreu, supra, the decision in the case of Bautista vs. Fajardo, supra, can have no binding force in
the interpretation of the question presented here.76 (Emphasis supplied)

In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even
raised as an issue by any of the parties. The Court never passed upon this issue. Thus, Cebu
Toyo does not constitute binding precedent on the nature of the 120-day period.

There is also the claim that there are numerous CTA decisions allegedly supporting the argument
that the filing dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period. Suffice it to state that CTA decisions do not constitute
precedents, and do not bind this Court or the public. That is why CTA decisions are appealable to
this Court, which may affirm, reverse or modify the CTA decisions as the facts and the law may
warrant. Only decisions of this Court constitute binding precedents, forming part of the Philippine
legal system.77 As held by this Court in The Philippine Veterans Affairs Office v. Segundo:78

x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or
the Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws" by their
own right because they interpret what the laws say or mean. Unlike rulings of the lower courts,
which bind the parties to specific cases alone, our judgments are universal in their scope and
application, and equally mandatory in character. Let it be warned that to defy our decisions is to
court contempt. (Emphasis supplied)

The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils.,
Inc.:79

The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:

ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the
legal system of the Philippines.

It enjoins adherence to judicial precedents. It requires our courts to follow a rule already
established in a final decision of the Supreme Court. That decision becomes a judicial precedent
to be followed in subsequent cases by all courts in the land. The doctrine of stare decisis is based on
the principle that once a question of law has been examined and decided, it should be deemed
settled and closed to further argument. (Emphasis supplied)

VIII. Revenue Regulations No. 7-95 Effective 1 January 1996

Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the
taxpayer files the judicial claim "after" the lapse of the 60-day period, a period with which San Roque
failed to comply. Under Section 4.106-2(c), the 60-day period is still mandatory and
jurisdictional.

Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a
later contrary law, more so in this case where the later law was enacted precisely to amend the prior
administrative regulation and the law it implements.

The laws and regulation involved are as follows:

1977 Tax Code, as amended by Republic Act No. 7716 (1994)

Sec. 106. Refunds or tax credits of creditable input tax. —

(a) x x x x
 (d) Period within which refund or tax credit of input tax shall be made - In proper cases, the
Commissioner shall grant a refund or issue the tax credit for creditable input taxes within
sixty (60) days from the date of submission of complete documents in support of the
application filed in accordance with subparagraphs (a) and (b) hereof. In case of full or
partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from receipt of the decision denying the
claim or after the expiration of the sixty-day period, appeal the decision or the unacted
claim with the Court of Tax Appeals.

Revenue Regulations No. 7-95 (1996)

Section 4.106-2. Procedures for claiming refunds or tax credits of input tax — (a) x x x

xxxx

(c) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the
Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the
date of submission of complete documents in support of the application filed in accordance with
subparagraphs (a) and (b) above.

In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of
Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from
the receipt of said denial, otherwise the decision will become final. However, if no action on the
claim for tax credit/refund has been taken by the Commissioner of Internal Revenue after the
sixty (60) day period from the date of submission of the application but before the lapse of
the two (2) year period from the date of filing of the VAT return for the taxable quarter, the
taxpayer may appeal to the Court of Tax Appeals.

xxxx

1997 Tax Code

Section 112. Refunds or Tax Credits of Input Tax —

(A) x x x

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be made. — In proper cases, the
Commissioner shall grant the refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete documents
in support of the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.

There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716,
the Commissioner has a 60-day period to act on the administrative claim. This 60-day period is
mandatory and jurisdictional.

Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no
longer mandatory and jurisdictional? The obvious answer is no.

Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner
fails to act on the administrative claim, the taxpayer may file the judicial claim even "before the lapse
of the two (2) year period." Thus, under Section 4.106-2(c) the 60-day period is still mandatory
and jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented
it, for two reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day
period. This cannot be disputed. 1âwphi1

Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner
during the 60-day period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that "if no
action on the claim for tax refund/credit has been taken by the Commissioner after the sixty (60)
day period," the taxpayer "may" already file the judicial claim even long before the lapse of the two-
year prescriptive period. Prior to the amendment by RA 7716, the taxpayer had to wait until the two-
year prescriptive period was about to expire if the Commissioner did not act on the claim.80 With the
amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is about to
expire before filing the judicial claim because mere inaction by the Commissioner during the 60-day
period is deemed a denial of the claim. This is the meaning of the phrase "but before the lapse
of the two (2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial
claim can be filed only "after the sixty (60) day period," this period remains mandatory and
jurisdictional. Clearly, Section 4.106-2(c) did not amend Section 106(d) but merely faithfully
implemented it.

Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95,
an administrative issuance, amended Section 106(d) of the Tax Code to make the period given to
the Commissioner non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original
intent and provision of Section 106(d) by extending the 60-day period to 120 days and re-adopting
the original wordings of Section 106(d). Thus, Section 4.106-2(c), a mere administrative issuance,
becomes inconsistent with Section 112(D), a later law. Obviously, the later law prevails over a prior
inconsistent administrative issuance.

Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner
has 120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only
within thirty days after the Commissioner partially or fully denies the claim within the 120- day
period, or (2) only within thirty days from the expiration of the 120- day period if the
Commissioner does not act within the 120-day period.

There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more
than five years before San Roque filed its administrative claim on 28 March 2003, the law has
been clear: the 120- day period is mandatory and jurisdictional. San Roque’s claim, having been
filed administratively on 28 March 2003, is governed by the 1997 Tax Code, not the 1977 Tax Code.
Since San Roque filed its judicial claim before the expiration of the 120-day mandatory and
jurisdictional period, San Roque’s claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can
only file the judicial claim "after" the lapse of the 60-day period from the filing of the administrative
claim. San Roque filed its judicial claim just 13 days after filing its administrative claim. To
recall, San Roque filed its judicial claim on 10 April 2003, a mere 13 days after it filed its
administrative claim.

Even if, contrary to all principles of statutory construction as well as plain common sense, we
gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot
recover any refund or credit because San Roque did not wait for the 60-day period to lapse,
contrary to the express requirement in Section 4.106-2(c). In short, San Roque does not even
comply with Section 4.106-2(c). A claim for tax refund or credit is strictly construed against the
taxpayer, who must prove that his claim clearly complies with all the conditions for granting the tax
refund or credit. San Roque did not comply with the express condition for such statutory grant.

A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its
tax efficiency collection for the longest time with minimal success. Consequently, the Philippines has
suffered the economic adversities arising from poor tax collections, forcing the government to
continue borrowing to fund the budget deficits. This Court cannot turn a blind eye to this economic
malaise by being unduly liberal to taxpayers who do not comply with statutory requirements for tax
refunds or credits. The tax refund claims in the present cases are not a pittance. Many other
companies stand to gain if this Court were to rule otherwise. The dissenting opinions will turn on its
head the well-settled doctrine that tax refunds are strictly construed against the taxpayer.

WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue
in G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power
Corporation; (2) GRANTS the petition of Taganito Mining Corporation in G.R. No. 196113 for a tax
refund or credit of P8,365,664.38; and (3) DENIES the petition of Philex Mining Corporation in G.R.
No. 197156 for a tax refund or credit of P23,956,732.44.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice
G.R. No. 134062 April 17, 2007

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.

DECISION

CORONA, J.:

This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated May 29,
1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision3 and resolution4 of the
Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case
No. 4715.

In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed
respondent Bank of the Philippine Islands’ (BPI’s) deficiency percentage and documentary stamp
taxes for the year 1986 in the total amount of ₱129,488,656.63:

1986 – Deficiency Percentage Tax

Deficiency percentage tax ₱ 7, 270,892.88

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

TOTAL AMOUNT DUE AND COLLECTIBLE ₱12,319,441.13

1986 – Deficiency Documentary Stamp Tax

Deficiency percentage tax ₱93,723,372.40

Add: 25% surcharge 23,430,843.10
15,000.00
Compromise penalty

TOTAL AMOUNT DUE AND COLLECTIBLE ₱117,169,215.50.5

Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes have] been assessed as
shown above. Said assessment has been based on return – (filed by you) – (as verified) – (made by
this Office) – (pending investigation) – (after investigation). You are requested to pay the above
amount to this Office or to our Collection Agent in the Office of the City or Deputy Provincial
Treasurer of xxx6

In a letter dated December 10, 1988, BPI, through counsel, replied as follows:

1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed,
even in the vaguest terms, why it is being assessed a deficiency. The very purpose of a
deficiency assessment is to inform taxpayer why he has incurred a deficiency so that he can
make an intelligent decision on whether to pay or to protest the assessment. This is all the
more so when the assessment involves astronomical amounts, as in this case.

We therefore request that the examiner concerned be required to state, even in the briefest
form, why he believes the taxpayer has a deficiency documentary and percentage taxes, and
as to the percentage tax, it is important that the taxpayer be informed also as to what
particular percentage tax the assessment refers to.
 2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise
forged between your office and the Bankers Association of the Philippines [BAP] on this
issue and of BPI’s submission of its computations under this compromise. There is therefore
no basis whatsoever for this assessment, assuming it is on the subject of the BAP
compromise. On the other hand, if it relates to documentary stamp tax on some other issue,
we should like to be informed about what those issues are.

3. As to the alleged deficiency percentage tax, we are completely at a loss on how such
assessment may be protested since your letter does not even tell the taxpayer what
particular percentage tax is involved and how your examiner arrived at the deficiency. As
soon as this is explained and clarified in a proper letter of assessment, we shall inform you of
the taxpayer’s decision on whether to pay or protest the assessment.7

On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:

… although in all respects, your letter failed to qualify as a protest under Revenue Regulations No.
12-85 and therefore not deserving of any rejoinder by this office as no valid issue was raised against
the validity of our assessment… still we obliged to explain the basis of the assessments.

xxx xxx xxx

… this constitutes the final decision of this office on the matter.8

On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIR’s May 8,
1991 letter.9 This was denied in a letter dated December 12, 1991, received by BPI on January 21,
1992.10

On February 18, 1992, BPI filed a petition for review in the CTA.11 In a decision dated November 16,
1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments had become
final and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the
National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA
1125.12 It denied reconsideration in a resolution dated May 27, 1996.13

On appeal, the CA reversed the tax court’s decision and resolution and remanded the case to the
CTA14 for a decision on the merits.15 It ruled that the October 28, 1988 notices were not valid
assessments because they did not inform the taxpayer of the legal and factual bases therefor. It
declared that the proper assessments were those contained in the May 8, 1991 letter which provided
the reasons for the claimed deficiencies.16 Thus, it held that BPI filed the petition for review in the
CTA on time.17 The CIR elevated the case to this Court.

This petition raises the following issues:

1) whether or not the assessments issued to BPI for deficiency percentage and documentary
stamp taxes for 1986 had already become final and unappealable and

2) whether or not BPI was liable for the said taxes.

The former Section 27018 (now renumbered as Section 228) of the NIRC stated:

Sec. 270. Protesting of assessment. — When the [CIR] or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the [CIR] shall issue an
assessment based on his findings.

xxx xxx xxx (emphasis supplied)

Were the October 28, 1988 Notices Valid Assessments?

The first issue for our resolution is whether or not the October 28, 1988 notices19 were valid
assessments. If they were not, as held by the CA, then the correct assessments were in the May 8,
1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for a
reconsideration of the findings which the CIR denied in his December 12, 1991 letter, received by
BPI on January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on February
18, 1992 would be well within the 30-day period provided by law.20

The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid
assessments. He asserts that he used BIR Form No. 17.08 (as revised in November 1964) which
was designed for the precise purpose of notifying taxpayers of the assessed amounts due and
demanding payment thereof.21 He contends that there was no law or jurisprudence then that required
notices to state the reasons for assessing deficiency tax liabilities.22

BPI counters that due process demanded that the facts, data and law upon which the assessments
were based be provided to the taxpayer. It insists that the NIRC, as worded now (referring to Section
228), specifically provides that:

"[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void."

According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due
process requires even under the former Section 270.

BPI’s contention has no merit. The present Section 228 of the NIRC provides:

Sec. 228. Protesting of Assessment. — When the [CIR] or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be required in the following
cases:

xxx xxx xxx

The taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.

xxx xxx xxx (emphasis supplied)

Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of
the deficiency taxes were made. He merely notified BPI of his findings, consisting only of the
computation of the tax liabilities and a demand for payment thereof within 30 days after receipt.

In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270
prior to its amendment by RA 8424 (also known as the Tax Reform Act of 1997).23 In CIR v.
Reyes,24 we held that:

In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424,
otherwise known as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIR's findings was changed in
1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment
would be made; otherwise, the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.25(emphasis supplied; italics in the original)

Accordingly, when the assessments were made pursuant to the former Section 270, the only
requirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old law
required a written statement to the taxpayer of the law and facts on which the assessments were
based. The Court cannot read into the law what obviously was not intended by Congress. That
would be judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax
liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed
period.26 Everything considered, there was no doubt the October 28, 1988 notices sufficiently met
the requirements of a valid assessment under the old law and jurisprudence.

The sentence

[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void

was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997.
Evidently, the legislature saw the need to modify the former Section 270 by inserting the aforequoted
sentence.27 The fact that the amendment was necessary showed that, prior to the introduction of the
amendment, the statute had an entirely different meaning.28

Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an
affirmation of what the law required under the former Section 270. The amendment introduced by
RA 8424 was an innovation and could not be reasonably inferred from the old law.29 Clearly, the
legislature intended to insert a new provision regarding the form and substance of assessments
issued by the CIR.30

In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:

xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of
the legal and factual basis of the former’s decision to charge the latter for deficiency documentary
stamp and gross receipts taxes.31

In other words, the CA’s theory was that BPI was deprived of due process when the CIR failed to
inform it in writing of the factual and legal bases of the assessments —even if these were not called
for under the old law.

We disagree.

Indeed, the underlying reason for the law was the basic constitutional requirement that "no person
shall be deprived of his property without due process of law."32 We note, however, what the CTA had
to say:

xxx xxx xxx

From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity
to discuss with the [CIR] when the latter issued the former a Pre-Assessment Notice (which [BPI]
ignored) but that the examiners themselves went to [BPI] and "we talk to them and we try to [thresh]
out the issues, present evidences as to what they need." Now, how can [BPI] and/or its counsel
honestly tell this Court that they did not know anything about the assessments?

Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,]
contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Manager
of the Accounting Department of [BPI]. He testified to the fact that he prepared worksheets which
contain his analysis regarding the findings of the [CIR’s] examiner, Mr. San Pedro and that the same
worksheets were presented to Mr. Carlos Tan, Comptroller of [BPI].

xxx xxx xxx

From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature
and basis of the assessments, and was given all the opportunity to contest the same but ignored it
despite the notice conspicuously written on the assessments which states that "this ASSESSMENT
becomes final and unappealable if not protested within 30 days after receipt." Counsel resorted to
dilatory tactics and dangerously played with time. Unfortunately, such strategy proved fatal to the
cause of his client.33

The CA never disputed these findings of fact by the CTA:

[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated
exclusively to the consideration of tax problems, has necessarily developed an expertise on the
subject, and its conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if they are not supported by
substantial evidence or there is a showing of gross error or abuse on the part of the [CTA].34

Under the former Section 270, there were two instances when an assessment became final and
unappealable: (1) when it was not protested within 30 days from receipt and (2) when the adverse
decision on the protest was not appealed to the CTA within 30 days from receipt of the final
decision:35

Sec. 270. Protesting of assessment. 1a\^ /phi1.net

xxx xxx xxx

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation in such form and manner as may be prescribed by the implementing regulations
within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final
and unappealable.

If the protest is denied in whole or in part, the individual, association or corporation adversely
affected by the decision on the protest may appeal to the [CTA] within thirty (30) days from receipt of
the said decision; otherwise, the decision shall become final, executory and demandable.

Implications Of A Valid Assessment

Considering that the October 28, 1988 notices were valid assessments, BPI should have protested
the same within 30 days from receipt thereof. The December 10, 1988 reply it sent to the CIR did not
qualify as a protest since the letter itself stated that "[a]s soon as this is explained and clarified in a
proper letter of assessment, we shall inform you of the taxpayer’s decision on whether to pay
or protest the assessment."36 Hence, by its own declaration, BPI did not regard this letter as a
protest against the assessments. As a matter of fact, BPI never deemed this a protest since it did not
even consider the October 28, 1988 notices as valid or proper assessments.

The inevitable conclusion is that BPI’s failure to protest the assessments within the 30-day period
provided in the former Section 270 meant that they became final and unappealable. Thus, the CTA
correctly dismissed BPI’s appeal for lack of jurisdiction. BPI was, from then on, barred from disputing
the correctness of the assessments or invoking any defense that would reopen the question of its
liability on the merits.37 Not only that. There arose a presumption of correctness when BPI failed to
protest the assessments:

Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has
the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties,
an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior
officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments.38

Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed
to have failed to appeal the CIR’s final decision regarding the disputed assessments within the 30-
day period provided by law. The CIR, in his May 8, 1991 response, stated that it was his "final
decision … on the matter." BPI therefore had 30 days from the time it received the decision on June
27, 1991 to appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal
in the CTA only on February 18, 1992, way beyond the reglementary period. BPI must now suffer
the repercussions of its omission. We have already declared that:

… the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his
action on an assessment questioned by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by Sections 7 and 11 of [RA 1125], as amended. On the
basis of his statement indubitably showing that the Commissioner's communicated action is
his final decision on the contested assessment, the aggrieved taxpayer would then be able to
take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer
would be able to determine when his right to appeal to the tax court accrues.
The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer
to continually delay the finality of the assessment — and, consequently, the collection of the
amount demanded as taxes — by repeated requests for recomputation and
reconsideration. On the part of the [CIR], this would encourage his office to conduct a careful and
thorough study of every questioned assessment and render a correct and definite decision thereon
in the first instance. This would also deter the [CIR] from unfairly making the taxpayer grope in the
dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater
import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in
administrative action.39(emphasis supplied)

Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the
subject tax assessments.

We realize that these assessments (which have been pending for almost 20 years) involve a
considerable amount of money. Be that as it may, we cannot legally presume the existence of
something which was never there. The state will be deprived of the taxes validly due it and the public
will suffer if taxpayers will not be held liable for the proper taxes assessed against them:

Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being
of the people.40

WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of
Appeals in CA-G.R. SP No. 41025 is REVERSED and SET ASIDE.

SO ORDERED.

RENATO C. CORONA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA

Associate Justice Asscociate Justice

CANCIO C. GARCIA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court’s Division.

REYNATO S. PUNO
Chief Justice
G.R. No. L-22734 September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

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

Office of the Solicitor General for petitioner.

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

BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First
Instance of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The
estate was divided among and awarded to the heirs and the proceedings terminated on June 8,
1948. Manuel B. Pineda's share amounted to about P2,500.00.

After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income
tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding
income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue
filed said returns for the estate on the basis of information and data obtained from the aforesaid
estate proceedings and issued an assessment for the following:

1. Deficiency income tax

1945 P135.83
1946 436.95
1947 1,206.91 P1,779.69
Add: 5% surcharge 88.98
1% monthly interest
from November 30,
1953 to April 15, 1957 720.77
Compromise for late
filing 80.00
Compromise for late
payment 40.00

Total amount due P2,707.44

===========
Additional residence tax for P14.50
2.
1945 ===========
3. Real Estate dealer's tax for
the fourth quarter of 1946 P207.50
and the whole year of 1947 ===========

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed
to the Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion
pertaining to him as one of the heirs."

After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and collect the tax has prescribed. The
Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the
assessment for income tax for the year 1947 but held that the right to assess and collect the taxes
for 1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August 24, 1953;
assessments for both taxable years were made within five years therefrom or on October 19, 1953;
and the action to collect the tax was filed within five years from the latter date, on August 7, 1957.
For taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made
on October 19, 1953, more than five years from the date the return was filed; hence, the right to
assess income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court
for further appropriate proceedings.1

In the Tax Court, the parties submitted the case for decision without additional evidence.

On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda
liable for the payment corresponding to his share of the following taxes:

Deficiency income tax

P135.8
1945
3
1946 436.95
Real estate dealer's
fixed tax 4th quarter
of 1946 and whole
year of 1947 P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B.
Pineda liable for the payment of all the taxes found by the Tax Court to be due from the estate in the
total amount of P760.28 instead of only for the amount of taxes corresponding to his share in the
estate.1aw phîl.nèt

Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid
income tax due the estate only up to the extent of and in proportion to any share he received. He
relies on Government of the Philippine Islands v. Pamintuan2 where We held that "after the partition
of an estate, heirs and distributees are liable individually for the payment of all lawful outstanding
claims against the estate in proportion to the amount or value of the property they have respectively
received from the estate."

We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes
assessed.

Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to
the estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to
the share he received from the inheritance.3 His liability, however, cannot exceed the amount of his
share.4

As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the
property in his possession. The reason is that the Government has a lien on the P2,500.00 received
by him from the estate as his share in the inheritance, for unpaid income taxes4a for which said
estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote
hereunder:

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

or insurance company liable to pay the income tax, neglects or refuses to pay the same after
demand, the amount shall be a lien in favor of the Government of the Philippines from the
time when the assessment was made by the Commissioner of Internal Revenue until paid
with interest, penalties, and costs that may accrue in addition thereto upon all property and
rights to property belonging to the taxpayer: . . .

By virtue of such lien, the Government has the right to subject the property in Pineda's possession,
i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment,
Pineda will have a right of contribution from his co-heirs,5 to achieve an adjustment of the proper
share of each heir in the distributable estate.

All told, the Government has two ways of collecting the tax in question. One, by going after all the
heirs and collecting from each one of them the amount of the tax proportionate to the inheritance
received. This remedy was adopted in Government of the Philippine Islands v. Pamintuan, supra. In
said case, the Government filed an action against all the heirs for the collection of the tax. This
action rests on the concept that hereditary property consists only of that part which remains after the
settlement of all lawful claims against the estate, for the settlement of which the entire estate is first
liable.6 The reason why in case suit is filed against all the heirs the tax due from the estate is levied
proportionately against them is to achieve thereby two results: first, payment of the tax; and second,
adjustment of the shares of each heir in the distributed estate as lessened by the tax.

Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and
rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of
the estate which is in the hands of an heir or transferee to the payment of the tax due, the estate.
This second remedy is the very avenue the Government took in this case to collect the tax. The
Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary
discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the
particular provision of the Tax Code above quoted, because taxes are the lifeblood of government
and their prompt and certain availability is an imperious need.7 And as afore-stated in this case the
suit seeks to achieve only one objective: payment of the tax. The adjustment of the respective
shares due to the heirs from the inheritance, as lessened by the tax, is left to await the suit for
contribution by the heir from whom the Government recovered said tax.

WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay
to the Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and
1946, and real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947,
without prejudice to his right of contribution for his co-heirs. No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur.
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. 1âwphi1.nêt

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 Order2 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 parties-
respondents.

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.

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:

"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 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.

Issues

Petitioner submits the following issues for our consideration:24

"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 in Cojuangco 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. Roxas30 ("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 Conjuangco-Roxas,38 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 two-tiered 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?

"Atty. Herbosa:

"Yes, Your Honor.

xxx xxx 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

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."

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

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.

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:

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

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.
 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.

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

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:

(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:

"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.

"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

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

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

(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 Osmeña v. Orbos.58

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."60 The 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:

"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

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 lesser will be the pressure upon the traditional sources of
public revenues, i.e., the pocket books of individual taxpayers and importers."67

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.

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 faciepublic 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 third Whereas 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 facie public 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.

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 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

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 merely prima 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.

Davide, Jr., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Quisumbing, Pardo, Buena, Ynares-
Santiago, De Leon, Jr., and Sandoval-Gutierrez, JJ., concur.
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,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.

Ernesto J. Gonzaga for appellant.

Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres
and Solicitor Felicisimo R. Rosete for appellee.

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-McDuffe Act, and the "eventual loss of its preferential position in the United States market";
wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from
the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its preferential position in the United States market and
the imposition of the export taxes."

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture
of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on
owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others
for a consideration, on lease or otherwise —

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.

According to section 6 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 preferntial position of the Philippine sugar in the United States market, and ultimately to
insure its continued existence notwithstanding the loss of that market and the consequent
necessity of meeting competition in the free markets of the world;

Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof — the mill, the landowner, the planter of the sugar cane, and the laborers in
the factory and in the field — so that all might continue profitably to engage
therein;lawphi1.net

Third, to limit the production of sugar to areas more economically suited to the production
thereof; and

Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the adjourment
of the next regular session of the National Assembly, make the necessary disbursements
from the fund herein created (1) for the establishment and operation of sugar experiment
station or stations and the undertaking of researchers (a) to increase the recoveries of the
centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and
propagate higher yielding varieties of sugar cane more adaptable to different district
conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the
 buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the
possibility of utilizing the other by-products of the industry, (f) to determine what crop or
crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other
problems the solution of which would help rehabilitate and stabilize the industry, and (2) for
the improvement of living and working conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary agency or agencies to take charge of the
expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated,
and, likewise, authorizing the disbursement from the fund herein created of the necessary
amount or amounts needed for salaries, wages, travelling expenses, equipment, and other
sundry expenses of said agency or agencies.

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40
paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950;
alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar
industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be
constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs
appealed the case directly to this Court (Judiciary Act, section 17).

The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily an exercise of the police power.

This Court can take judicial notice of the fact that sugar production is one of the great industries of
our nation, sugar occupying a leading position among its export products; that it gives employment
to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of
the important sources of foreign exchange needed by our government, and is thus pivotal in the
plans of a regime committed to a policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general welfare. Hence it was competent for the
legislature to find that the general welfare demanded that the sugar industry should be stabilized in
turn; and in the wide field of its police power, the lawmaking body could provide that the distribution
of benefits therefrom be readjusted among its components to enable it to resist the added strain of
the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson
vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).

As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida —

The protection of a large industry constituting one of the great sources of the state's wealth
and therefore directly or indirectly affecting the welfare of so great a portion of the population
of the State is affected to such an extent by public interests as to be within the police power
of the sovereign. (128 Sp. 857).

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of
public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may
be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.
S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4
Wheat. 316, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from 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 vs. 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; that the legislature is not required by the Constitution to adhere to a policy of "all or
none." As ruled in Minnesota ex rel. Pearson vs. 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. vs. 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 improvements 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 vs.
Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).

The decision appealed from is affirmed, with costs against appellant. So ordered.

Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ.,
concur.
G.R. No. L-68252 May 26, 1995

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP AGENCIES INC., and
COURT OF TAX APPEALS, respondents.

PUNO, J.:

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

Private respondent is a foreign corporation represented in the Philippines by Soriamont Steamship

Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia. In December 1980,
NASUTRA2 chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines.3 On
December 23, 1980, Mr. Edilberto Lising, the operations supervisor of Soriamont Agency,4 paid the
required income and common carrier's taxes in the respective sums of FIFTY-NINE THOUSAND
FIVE HUNDRED TWENTY-THREE PESOS and SEVENTY-FIVE CENTAVOS (P59,523.75) and
FORTY-SEVEN THOUSAND SIX HUNDRED NINETEEN PESOS (P47,619.00), or a total of ONE
HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE
CENTAVOS (P107,142.75) based on the expected gross receipts of the vessel.5 Upon arriving,
however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981,
NASUTRA and private respondent's agent mutually agreed to have the vessel sail for Japan without
any cargo.

Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was
realized from the charter agreement, private respondent instituted a claim for tax credit or refund of
the sum ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO PESOS and
SEVENTY-FIVE CENTAVOS (P107,142.75) before petitioner Commissioner of Internal Revenue on
March 23, 1981. Petitioner failed to act promptly on the claim, hence, on May 14, 1981, private
respondent filed a petition for review6 before public respondent Court of Tax Appeals.

Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that
taxes are presumed to have been collected in accordance with law; that in an action for refund, the
burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and the
taxpayer's failure to sustain said burden is fatal to the action for refund; and that claims for refund
are construed strictly against tax claimants.7

After trial, respondent tax court decided in favor of the private respondent. It held:

It has been shown in this case that 1) the petitioner has complied with the mentioned
statutory requirement by having filed a written claim for refund within the two-year
period from date of payment; 2) the respondent has not issued any deficiency
assessment nor disputed the correctness of the tax returns and the corresponding
amounts of prepaid income and percentage taxes; and 3) the chartered vessel sailed
out of the Philippine port with absolutely no cargo laden on board as cleared and
certified by the Customs authorities; nonetheless 4) respondent's apparent bit of
reluctance in validating the legal merit of the claim, by and large, is tacked upon the
"examiner who is investigating petitioner's claim for refund which is the subject
matter of this case has not yet submitted his report. Whether or not respondent will
present his evidence will depend on the said report of the examiner." (Respondent's
Manifestation and Motion dated September 7, 1982). Be that as it may the case was
submitted for decision by respondent on the basis of the pleadings and records and
by petitioner on the evidence presented by counsel sans the respective
memorandum.

An examination of the records satisfies us that the case presents no dispute as to

relatively simple material facts. The circumstances obtaining amply justify petitioner's
righteous indignation to a more expeditious action. Respondent has offered no
reason nor made effort to submit any controverting documents to bash that patina of
legitimacy over the claim. But as might well be, towards the end of some two and a
 half years of seeming impotent anguish over the pendency, the respondent
Commissioner of Internal Revenue would furnish the satisfaction of ultimate solution
by manifesting that "it is now his turn to present evidence, however, the Appellate
Division of the BIR has already recommended the approval of petitioner's claim for
refund subject matter of this petition. The examiner who examined this case has also
recommended the refund of petitioner's claim. Without prejudice to withdrawing this
case after the final approval of petitioner's claim, the Court ordered the resetting to
September 7, 1983." (Minutes of June 9, 1983 Session of the Court) We need not
fashion any further issue into an apparently settled legal situation as far be it from a
comedy of errors it would be too much of a stretch to hold and deny the refund of the
amount of prepaid income and common carrier's taxes for which petitioner could no
longer be made accountable.

On August 3, 1984, respondent court denied petitioner's motion for reconsideration, hence, this
petition for review on certiorari.

Petitioner now contends: (1) private respondent has the burden of proof to support its claim of
refund; (2) it failed to prove that it did not realize any receipt from its charter agreement; and (3) it
suppressed evidence when it did not present its charter agreement.

We find no merit in the petition.

There is no dispute about the applicable law. It is section 24 (b) (2) of the National Internal Revenue
Code which at that time provides as follows:

A corporation organized, authorized, or existing under the laws of any foreign

country, engaged in trade or business within the Philippines, shall be taxable as
provided in subsection (a) of this section upon the total net income derived in the
preceding taxable year from all sources within the Philippines: Provided, however,
That international carriers shall pay a tax of two and one-half per cent (2 1/2%) on
their gross Philippine billings: "Gross Philippine Billings" include gross revenue
realized from uplifts anywhere in the world by any international carrier doing business
in the Philippines of passage documents sold therein, whether for passenger, excess
baggage or mail, provided the cargo or mail originates from the Philippines. The
gross revenue realized from the said cargo or mail include the gross freight charge
up to final destination. Gross revenue from chartered flights originating from the
Philippines shall likewise form part of "Gross Philippine Billings" regardless of the
place or payment of the passage documents . . . . .

Pursuant to this provision, a resident foreign corporation engaged in the transport of cargo is liable
for taxes depending on the amount of income it derives from sources within the Philippines. Thus,
before such a tax liability can be enforced the taxpayer must be shown to have earned income
sourced from the Philippines.

We agree with petitioner that a claim for refund is in the nature of a claim for exemption8 and should
be construed in strictissimi juris against the taxpayer.9 Likewise, there can be no disagreement with
petitioner's stance that private respondent has the burden of proof to establish the factual basis of its
claim for tax refund.

The pivotal issue involves a question of fact — whether or not the private respondent was able to
prove that it derived no receipts from its charter agreement, and hence is entitled to a refund of the
taxes it pre-paid to the government.

The respondent court held that sufficient evidence has been adduced by the private respondent
proving that it derived no receipt from its charter agreement with NASUTRA. This finding of fact rests
on a rational basis, and hence must be sustained. Exhibits "E", "F," and "G" positively show that the
tramper vessel M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found no raw sugar to load
and returned to Japan without any cargo laden on board. Exhibit "E" is the Clearance Vessel to a
Foreign Port issued by the District Collector of Customs, Port of Iloilo while Exhibit "F" is the
Certification by the Officer-in-Charge, Export Division of the Bureau of Customs Iloilo. The
correctness of the contents of these documents regularly issued by officials of the Bureau of
Customs cannot be doubted as indeed, they have not been contested by the petitioner. The records
also reveal that in the course of the proceedings in the court a quo, petitioner hedged and hawed
when its turn came to present evidence. At one point, its counsel manifested that the BIR examiner
and the appellate division of the BIR have both recommended the approval of private respondent's
claim for refund. The same counsel even represented that the government would withdraw its
opposition to the petition after final approval of private respondents' claim. The case dragged on but
petitioner never withdrew its opposition to the petition even if it did not present evidence at all. The
insincerity of petitioner's stance drew the sharp rebuke of respondent court in its Decision and for
good reason. Taxpayers owe honesty to government just as government owes fairness to taxpayers.

In its last effort to retain the money erroneously prepaid by the private respondent, petitioner
contends that private respondent suppressed evidence when it did not present its charter agreement
with NASUTRA. The contention cannot succeed. It presupposes without any basis that the charter
agreement is prejudicial evidence against the private respondent. 10 Allegedly, it will show that private
respondent earned a charter fee with or without transporting its supposed cargo from Iloilo to Japan.
The allegation simply remained an allegation and no court of justice will regard it as truth. Moreover,
the charter agreement could have been presented by petitioner itself thru the proper use of
a subpoena duces tecum. It never did either because of neglect or because it knew it would be of no
help to bolster its position. 11 For whatever reason, the petitioner cannot take to task the private
respondent for not presenting what it mistakenly calls "suppressed evidence."

We cannot but bewail the unyielding stance taken by the government in refusing to refund the sum
of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY
FIVE CENTAVOS (P107,142.75) erroneously prepaid by private respondent. The tax was paid way
back in 1980 and despite the clear showing that it was erroneously paid, the government succeeded
in delaying its refund for fifteen (15) years. After fifteen (15) long years and the expenses of litigation,
the money that will be finally refunded to the private respondent is just worth a damaged nickel. This
is not, however, the kind of success the government, especially the BIR, needs to increase its
collection of taxes. Fair deal is expected by our taxpayers from the BIR and the duty demands that
BIR should refund without any unreasonable delay what it has erroneously collected. Our ruling
in Roxas v. Court of Tax Appeals 12 is apropos to recall:

The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
the "hen that lays the golden egg." And, in order to maintain the general public's trust
and confidence in the Government this power must be used justly and not
treacherously.

IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals, dated September 15,
1983, is AFFIRMED in toto. No costs.

SO ORDERED.

Narvasa, C.J., Regalado and Mendoza, JJ., concur.

G.R. Nos. L-49839-46 April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities as appointed
and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H.
NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed
and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS
CATIIL in his capacity as City Assessor of Manila,respondents.

Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:

This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board
of Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v.
Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29,
1976 decision of the Board of Tax Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615,
615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros
Reyes v. City Assessor of Manila" upholding the classification and assessments made by the City
Assessor of Manila.

The facts of the case are as follows:

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in
Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling
sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of lands
on which another's dwelling is located, where such rentals do not exceed three hundred pesos
(P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The said Act
also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity
thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease.
On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the
aforementioned provision of the Civil Code, excepting leases with a definite period. Consequently,
the Reyeses, petitioners herein, were precluded from raising the rentals and from ejecting the
tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the
subject properties based on the schedule of market values duly reviewed by the Secretary of
Finance. The revision, as expected, entailed an increase in the corresponding 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 (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the
assessments valid, holding thus:

WHEREFORE, and considering that the appellants have failed to submit concrete evidence
which could overcome the presumptive regularity of the classification and assessments
appear to be in accordance with the base schedule of market values and of the base
schedule of building unit values, as approved by the Secretary of Finance, the cases should
be, as they are hereby, upheld.

SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).

The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among
1âwphi 1

others, the summary of the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity where the subject properties
of petitioners are located. To better appreciate the locational and physical features of the land, the
Board of Hearing Commissioners conducted an ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of the case. Neither the owners nor their
authorized representatives were present during the said ocular inspection despite proper notices
served them. It was found that certain parcels of land were below street level and were affected by
the tides (Rollo, pp. 24-25).

On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive
portion of which reads:

WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots
covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is
affirmed.

For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-
266, the appealed Decision is modified by allowing a 20% reduction in their respective
market values and applying therein the assessment level of 30% to arrive at the
corresponding assessed value.

SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)

Petitioner's subsequent motion for reconsideration was denied, hence, this petition.

The Reyeses assigned the following error:

THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES

APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.

The petition is impressed with merit.

The crux of the controversy is in the method used in tax assessment of the properties in question.
Petitioners maintain that the "Income Approach" method would have been more realistic for in
disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real estate taxes would
admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under
P.D. 20. Hence, petitioners protested against the levels of the values assigned to their properties as
revised and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).

On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that
the income approach is used in determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is rejected in the consideration and study
of land values as in the case of properties affected by the Rent Control Law for they do not project
the true market value in the open market (Rollo, p. 21). Thus, respondents opted instead for the
"Comparable Sales Approach" on the ground that the value estimate of the properties predicated
upon prices paid in actual, market transactions would be a uniform and a more credible standards to
use especially in case of mass appraisal of properties (Ibid.). Otherwise stated, public respondents
would have this Court completely ignore the effects of the restrictions of P.D. No. 20 on the market
value of properties within its coverage. In any event, it is unquestionable that both the "Comparable
Sales Approach" and the "Income Approach" are generally acceptable methods of appraisal for
taxation purposes (The Law on Transfer and Business Taxation by Hector S. De Leon, 1988
Edition). However, it is conceded that the propriety of one as against the other would of course
depend on several factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v.
Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the assessors, in
finding the value of the property, have to consider all the circumstances and elements of value and
must exercise a prudent discretion in reaching conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only
be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the
same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).

Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.

Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).

The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses of
the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it
were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power to
tax involves the power to destroy." The web or unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power to
destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984];
Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).

In the same vein, 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
confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).

The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a 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
(Ibid., p. 662).

Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes
is that the property must be "appraised at its current and fair market value."

By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much lesser
market value in view of the rental restrictions.

Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing seller
and a willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice that for properties covered by P.D. 20 especially
during the time in question, there were hardly any willing buyers. As a general rule, there were no
takers so that there can be no reasonable basis for the conclusion that these properties were
comparable with other residential properties not burdened by P.D. 20. Neither can the given
circumstances be nonchalantly dismissed by public respondents as imposed under distressed
conditions clearly implying that the same were merely temporary in character. At this point in time,
the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.

Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, 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 taxations, which
is the promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue
Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle
of social justice should not now be penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount to
only P10.00 per sq. meter at the time in question.

PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment
Appeals of Manila and the City Assessor of Manila are ordered to make a new assessment by the
income approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).

SO ORDERED.

Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Griño-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.
G.R. No. L-67649 June 28, 1988

ENGRACIO FRANCIA, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:

The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the
auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at
public auction to Ho Fernandez and ordered titled in the latter's name.

The antecedent facts are as follows:

Engracio Francia is the registered owner of a residential lot and a two-story house built upon it
situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an
area of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739
(37795) of the Registry of Deeds of Pasay City.

On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the
Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent
to the assessed value of the aforesaid portion.

Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5,
1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section
73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax
delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.

Francia was not present during the auction sale since he was in Iligan City at that time helping his
uncle ship bananas.

On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for
Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739
(37795) and the issuance in his name of a new certificate of title. Upon verification through his
lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the
City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated
at the back of TCT No. 4739 (37795) by the Register of Deeds.

On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his
complaint on January 24, 1980.

On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the

amended complaint and ordering:

(a) The Register of Deeds of Pasay City to issue a new Transfer

Certificate of Title in favor of the defendant Ho Fernandez over the
parcel of land including the improvements thereon, subject to
whatever encumbrances appearing at the back of TCT No. 4739
(37795) and ordering the same TCT No. 4739 (37795) cancelled.

(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00

as attorney's fees. (p. 30, Record on Appeal)

The Intermediate Appellate Court affirmed the decision of the lower court in toto.

Hence, this petition for review.

Francia prefaced his arguments with the following assignments of grave errors of law:
I

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW

IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX
DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS
INDEBTED TO THE FORMER.

II

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS

ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED
THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977
TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.

III

RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS

ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF
P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO
SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY
WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE
THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)

We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that
his property was sold at public auction without notice to him and that the price paid for the property
was shockingly inadequate, amounting to fraud and deprivation without due process of law.

A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his
petition upon himself. While we commiserate with him at the loss of his property, the law and the
facts militate against the grant of his petition. We are constrained to dismiss it.

Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of his land was
expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as
of October 15, 1977.

There is no legal basis for the contention. By legal compensation, obligations of persons, who in
their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil
Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to
wit:

(1) that each one of the obligors be bound principally and that he be at the same time
a principal creditor of the other;

xxx xxx xxx

(3) that the two debts be due.

xxx xxx xxx

This principal contention of the petitioner has no merit. We have consistently ruled that there can be
no off-setting of taxes against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government owes him an amount equal to
or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit
against the government.

In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal
Revenue Taxes can not be the subject of set-off or compensation. We stated that:

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off under the statutes of set-off, which are construed uniformly, in the light of
public policy, to exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither are they
 a proper subject of recoupment since they do not arise out of the contract or
transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of
public policy is well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The reason on which the general
rule is based, is that taxes are not in the nature of contracts between the party and
party but grow out of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of individual taxpayers is not
required. ..."

We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he
has a claim against the governmental body not included in the tax levy.

This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "...
internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer
are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a
"claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."

There are other factors which compel us to rule against the petitioner. The tax was due to the city
government while the expropriation was effected by the national government. Moreover, the amount
of P4,116.00 paid by the national government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale at public auction of his remaining
property. Notice of the deposit dated September 28, 1977 was received by the petitioner on
September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00
deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw
P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public
auction.

Petitioner had one year within which to redeem his property although, as well be shown later, he
claimed that he pocketed the notice of the auction sale without reading it.

Petitioner contends that "the auction sale in question was made without complying with the
mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was
presented that the procedure outlined by law on sales of property for tax delinquency was followed.
... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore
rests upon him to show that plaintiff was duly and properly notified ... .(Petition for Review, Rollo p.
18; emphasis supplied)

We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the
burden of proof to show that there was compliance with all the prescribed requisites for a tax sale.

The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:

xxx xxx xxx

... [D]ue process of law to be followed in tax proceedings must be established by

proof and the general rule is that the purchaser of a tax title is bound to take upon
himself the burden of showing the regularity of all proceedings leading up to the
sale. (emphasis supplied)

There is no presumption of the regularity of any administrative action which results in depriving a
taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular
Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings
are presumed to be regular.

But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been
complied with, the petitioner can not, however, deny that he did receive the notice for the auction
sale. The records sustain the lower court's finding that:

[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not
properly notified of the auction sale. Surprisingly, however, he admitted in his
testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown
by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on
December 5, 1977 the date of the auction sale because he went to Iligan City. As
 long as there was substantial compliance with the requirements of the notice, the
validity of the auction sale can not be assailed ... .

We quote the following testimony of the petitioner on cross-examination, to wit:

Q. My question to you is this letter marked as Exhibit I for Ho

Fernandez notified you that the property in question shall be sold at
public auction to the highest bidder on December 5, 1977 pursuant to
Sec. 74 of PD 464. Will you tell the Court whether you received the
original of this letter?

A. I just signed it because I was not able to read the same. It was just
sent by mail carrier.

Q. So you admit that you received the original of Exhibit I and you
signed upon receipt thereof but you did not read the contents of it?

A. Yes, sir, as I was in a hurry.

Q. After you received that original where did you place it?

A. I placed it in the usual place where I place my mails.

Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he
ignored such notice. By his very own admission that he received the notice, his now coming to court
assailing the validity of the auction sale loses its force.

Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy
of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation
Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo
Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of
price is not material when the law gives the owner the right to redeem as when a sale is made at
public auction, upon the theory that the lesser the price, the easier it is for the owner to effect
redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held:

... [R]espondent treasurer now claims that the prices for which the lands were sold
are unconscionable considering the wide divergence between their assessed values
and the amounts for which they had been actually sold. However, while in ordinary
sales for reasons of equity a transaction may be invalidated on the ground of
inadequacy of price, or when such inadequacy shocks one's conscience as to justify
the courts to interfere, such does not follow when the law gives to the owner the right
to redeem, as when a sale is made at public auction, upon the theory that the lesser
the price the easier it is for the owner to effect the redemption. And so it was aptly
said: "When there is the right to redeem, inadequacy of price should not be material,
because the judgment debtor may reacquire the property or also sell his right to
redeem and thus recover the loss he claims to have suffered by reason of the price
obtained at the auction sale."

The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et
al. (188 Wash. 162, 61 P. 2d, 1290):

If mere inadequacy of price is held to be a valid objection to a sale for taxes, the
collection of taxes in this manner would be greatly embarrassed, if not rendered
altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is
stated as follows: "where land is sold for taxes, the inadequacy of the price given is
not a valid objection to the sale." This rule arises from necessity, for, if a fair price for
the land were essential to the sale, it would be useless to offer the property. Indeed,
it is notorious that the prices habitually paid by purchasers at tax sales are grossly
out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307,
73 P. 367, 369).

In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P.
555):
 Like most cases of this character there is here a certain element of hardship from
which we would be glad to relieve, but do so would unsettle long-established rules
and lead to uncertainty and difficulty in the collection of taxes which are the life blood
of the state. We are convinced that the present rules are just, and that they bring
hardship only to those who have invited it by their own neglect.

We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in
value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the
expropriation of adjoining areas, real estate values have gone up in the area. However, the price
quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the
foregoing reasons which answer the petitioner's claims lead us to deny the petition.

And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no
strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14
years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale
without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the
expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for
the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on
November 3, 1978, during the period of redemption, regarding his tax delinquency. There is
furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez.
The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly
asking for the annulment of the sale.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision
of the respondent court is affirmed.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

G.R. No. L-25299 July 29, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ITOGON-SUYOC MINES, INC., and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete
and Special Attorney Oscar S. de Castro for petitioner.
Ramon O. Reynoso, Jr. and Melchor R. Flores for respondents.

FERNANDO, J.:

The question presented for determination in this petition for the review of a decision of the Court of
Tax Appeals, one that is of first impression, would not have arisen had respondent Itogon-Suyoc
Mines, Inc., the taxpayer involved, duly paid in full its liability according to its income tax return for
the fiscal year 1960-61. Instead, it deducted right away the amount represented by claim for refund
filed eight (8) months back, for the previous year's income tax, for which it was not liable at all, so it
alleged, as it suffered a loss instead, a claim subsequently favorably acted on by petitioner
Commissioner of Internal Revenue but after the date of such payment of the 1960-1961 tax.
Accordingly, an interest in the amount of P1,512.83 was charged by petitioner Commissioner of
Internal Revenue on the sum withheld on the ground that no deduction on such refund should be
allowed before its approval. When the matter was taken up before the Court of Tax Appeals, the
above assessment representing interest was set aside in the decision of September 30, 1965. That
is the decision now an appeal by petitioner Commissioner of Internal Revenue. We sustain the Court
of Tax Appeals.

Respondent Itogon-Suyoc Mines, Inc., a mining corporation duly organized and existing in
accordance with the laws of the Philippines, filed on January 13, 1961, its income tax return for the
fiscal year 1959-1960. It declared a taxable income of P114,368.04 and a tax due thereon
amounting to P26,310.41, for which it paid on the same day, the amount of P13,155.20 as the first
installment of the income tax due. On May 17, 1961, petitioner filed an amended income tax return,
reporting therein a net loss of P331,707.33. It thus sought a refund from the Commissioner of
Internal Revenue, now the petitioner. 1äw phï1.ñët

On February 14, 1962, respondent Itogon-Suyoc Mines, Inc. filed its income tax return for the fiscal
year 1960-1961, setting forth its income tax liability to the tune of P97,345.00, but deducting the
amount of P13,155.20 representing alleged tax credit for overpayment of the preceding fiscal year
1959-1960. 0n December 18, 1962, petitioner Commissioner of Internal Revenue assessed against
the respondent the amount of P1,512.83 as 1% monthly interest on the aforesaid amount of
P13,155.20 from January 16, 1962 to December 31, 1962. The basis for such an assessment was
the absence of legal right to deduct said amount before the refund or tax credit thereof was
approved by petitioner Commissioner of Internal Revenue. 1

Such an assessment was contested by respondent before the Court of Tax Appeals. As already
noted, it prevailed. The decision of September 30, 1965, now on appeal, explains why. Thus:
"Respondent assessed against the petitioner the amount of P1,512.83 as 1% monthly interest on the
sum of P13,155.20 from January 16, 1962 to December 31, 1962 on the ground that petitioner had
no legal right to deduct the said amount from its income tax liability for the fiscal year 1960-1961 until
the refund or tax credit thereof has been approved by respondent. As aforestated, petitioner paid the
amount of P13,155.20 as first installment on its reported income tax liability for the fiscal year 1959-
1960. But, it turned out that instead of deriving a net gain, it sustained a net loss during the said
fiscal year. Accordingly, it filed an amended income tax return and a claim for the refund of the sum
of P13,155.20, which sum it subsequently, deducted from its income tax liability for the succeeding
fiscal year 1960-1961. The overpayment for the fiscal year 1959-1960 and the deduction of the
overpaid amount from its 1960-1961 tax liability are not denied by respondent. In this circumstance,
we find it unfair and unjust for the Commissioner to exact an interest on the said sum of P13,155.20,
which, after all, was paid to and received by the government even before the incidence of the tax in
question." 2

That is the question before us in this petition for review by the Commissioner of Internal Revenue.
He argues that the Court of Tax Appeals should not have absolved respondent corporation "from
liability to pay the sum of P1,512.83 as 1% monthly interest for delinquency in the payment of
income tax for the fiscal year 1960-1961." 3 As noted at the outset, we find such contention far from
persuasive.
It could not be error for the Court of Tax Appeals, considering the admitted fact of overpayment,
entitling respondent to refund, to hold that petitioner should not repose an interest on the aforesaid
sum of P13,155.20 "which after all was paid to and received by the government even before the
incidence of the tax in question." It would be, according to the Court of Tax Appeals, "unfair and
unjust" to do so. We agree but we go farther. The imposition of such an interest by petitioner is not
supported by law.

The National Internal Revenue Code provides that interest upon the amount determined as a
deficiency shall be assessed and shall be paid upon notice and demand from the Commissioner of
Internal Revenue at the specified. 4It is made clear, however, in an earlier provision found in the
same section that if in any preceding year, the taxpayer was entitled to a refund of any amount due
as tax, such amount, if not yet refunded, may be deducted from the tax to be paid. 5

There is no question respondent was entitled to a refund. Instead of waiting for the sum involved to
be delivered to it, it deducted the said amount from the tax that it had to pay. That it had a right to do
according to the law. It is true a doubt could have arisen due to the fact that as of the time such a
deduction was made, the Commissioner of Internal Revenue had not as yet approved such a refund.
It is an admitted fact though that respondent was clearly entitled to it, and petitioner did not allege
otherwise. Nor could he do so. Under all the circumstances disclosed therefore, the applicability of
the legal provision allowing such a deduction from the amount of the tax to be paid cannot be
disputed.

This conclusion is in accordance with the principle announced in Castro v. Collector of Internal
Revenue. 6 While the case is not directly in point, it yields an implication that makes even more
formidable the case for respondent taxpayer. As there held, the imposition of the monthly interest
was considered as not constituting a penalty "but a just compensation to the state for the delay in
paying the tax, and for the concomitant use by the taxpayer of funds that rightfully should be in the
government's hands ...."

What is therefore sought to be avoided is for the taxpayer to make use of funds that should have
been paid to the government. Here, in view of the overpayment for the fiscal year 1959-1960, the
sum of P13,155.20 had already formed part of the public funds. It cannot be said, therefore, that
respondent taxpayer was guilty of any delay enabling it to utilize a sum of money that should have
been in the government treasury.

How then, as a matter of pure law, even if we lay to one side the demands of fairness and justice,
which to the Court of Tax Appeals seem to be uppermost, can its decision be overturned?
Accordingly, we find no valid ground for this appeal.

WHEREFORE, the decision of September 30, 1965 of the Court of Tax Appeals is affirmed. Without
pronouncement as to costs. 1äw phï1.ñët

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Capistrano and
Teehankee, JJ., concur.
Barredo, J., took no part.
G.R. No. 97787 August 1, 1996

The Anti-Graft League of the Philippines, Inc., represented by REYNALDO L. BAGATSING, in

his capacity as Chief Prosecutor/Investigator, petitioner,
vs.
Hon. REYNALDO SAN JUAN, Provincial Governor, Hon. JOSE M. BARRETO, SR., Provincial
Vice-Governor, Hons. ERNESTO ESTRADA, ROMAN REYES, ISIDRO PACIS, LEONISA
VERGEL DE DIOS, REMEDIOS PARALEJAS, TIMOTEO PASCUAL, ALFREDO VILLANUEVA,
AMOS REYES, Members of the Provincial Board of Rizal, Hon. EUTROPIO MIGRIÑO,
Presiding Judge, RTC-Pasig, Branch CLI (151), Ortigas & Company Ltd., represented by
ATTY. FRACISCO ORTIGAS, JR., Asian Appraisal Co. Inc., Rizal Provincial Appraisal
Assessor, Provincial Auditor and District Engineer, JESS DOE, STEVE DOE and HECTOR
DOE, respondents.

ROMERO, J.:p

It is fundamental in this jurisdiction that any party may only come to court if he has legal
standing and a valid cause of action. Petitioner Anti-Graft League of the Philippines, a self-
confessed "non-governmental, non-stock and non-profit organization, which was constituted
to protect the interest of the Republic and its instrumentalities and political subdivisions and
its constituents against abuses of its public officials and employees," claims the instant
petition for certiorari is a taxpayer's suit which it filed because the Provincial Board of Rizal
(the Board) allegedly illegally disbursed public funds in transactions involving four parcels of
land in Ugong Norte, Pasig. The allegation is denied by respondents who challenge the
propriety of this action, as well as the capacity of petitioner to file the same. Public
respondents, officers of the Province of Rizal (the Province), even intimate that the filing of
this petition is politically-motivated.

On March 20, 1975, the President Ferdinand E. Marcos issued Presidential Decree No. 674,
establishing the Technological Colleges of Rizal. Among other things, it directed the Board to
provide funds for the purchase of a site and the construction of the necessary structures
thereon. Acting upon an authority granted by the office of the President, the Province was
able to negotiate with respondent Ortigas & Co., Ltd. (Ortigas) for the acquisition of four
parcels of land located in Ugong Norte, Pasig. Three deeds of absolute sale were executed
on April 22 and May 9, 1975, whereby Ortigas transferred its ownership over a total of
192,177 square meters of land to the Province at P110.00 per square meter. The projected
construction, however, never materialized because of the decimation of the Province's
resources brought about by the creation of the Metro Manila Commission (MMC) in 1976.

Twelve years later, with the property lying idle and the Province needing funds to propel its
5-years Comprehensive Development Program, the then incumbent Board passed
Resolution No. 87-205 dated October 15, 1987 authorizing the Governor to sell the same.
The said property was eventually sold to Valley View Realty Development Corporation
(Valley View) for P700.00 per square meter or a total of P134,523,900.00, of which 30 million
was given as downpayment. On May 10, 1988, after learning about the sale, Ortigas filed
before Branch 151 of the Regional Trial Court of Pasig an action for recission of contract plus
damages with preliminary injunction against the Province. Docketed as Civil Case No.
55904, the complaint alleged that the Province violated one of the terms of its contracts with
Ortigas by selling the subject lots which were intended to be utilized solely as a site for the
construction of the Rizal Technological Colleges and the Rizal Provincial Hospital.

Meanwhile, the new provincial officials, including herein public respondents, assumed office.
On April 21, 1988, the Board adopted Resolution No. 88-65 which provided for the rescission
of the deed of sale between the Province and Valley View on the ground that the sale price
was exceedingly low and, thus, prejudicial to the Province. Because of this, Valley View then
filed a complaint docketed as a Civil Case No. 55913 against the Province for specific
performance and damages. The case was, however, dismissed after the parties executed on
August 12, 1988 a compromise agreement whereby the Province returned the 30-million
peso downpayment earlier given by Valley View.

Civil Case No. 55904 was also resolved through a compromise agreement executed by and
between the Province and Ortigas on March 20, 1989. Under the said compromise
agreement, which was approved by respondent Judge Eutropio Migriño in his decision dated
March 21, 1989, the Province agreed to reconvey the four parcels of land to Ortigas at a
price of P2,250.00 per square meter, or a total of P432,398,250.00, payable within two years
at an annual interest rate of fourteen percent. This amount is higher than the market values
separately determined by respondents Asian Appraisal, Inc. and the Provincial Appraisal
Committee, which respectively pegged the price of the subject properties at P1,800.00 and
P2,200.00 per square meter. Ortigas made its final payment on March 30, 1991.

On April 1, 1991, petitioner filed the instant petition for certiorari with application for
preliminary injunction seeking the nullification of the March 20, 1989 compromise agreement,
and, corollarily, the decision of respondent Judge approving the same.

A reading of the petition immediately raises several questions: (1) Is the present action a
taxpayer's suit? Collarily, does petitioner possess the legal standing to question the
transaction entered into by the Provincial Board of Rizal with private respondent Ortigas? (2)
Is the Supreme Court the proper forum for the instant petition? (3) Assuming arguendo that
the prior questions may be answered in the affirmative, is the present action barred by
laches?

Petitioner and respondents agree that to constitute a taxpayer's suit, two requisites must be
met, namely, that public funds are disbursed by a political subdivision or instrumentality and
in doing so, a law is violated or some irregularity is committed, and that the petitioner is
directly affected by the alleged ultra vires act.1 The same pronouncement was made
in Kilosbayan, Inc. v. Guingona, Jr.,2 where the Court also reiterated its liberal stance in
entertaining so-called taxpayer's suits, especially when important issues are involved. A
closer examination of the facts of this case would readily demonstrate that petitioner's
standing should not even be made an issue here, "since standing is a concept in
constitutional law and here no constitutional question is actually involved."3

In the case at bar, disbursement of public funds was only made in 1975 when the Province
bought the lands from Ortigas at P110.00 per square meter in line with the objectives of P.D.
674. Petitioner never referred to such purchase as an illegal disbursement of public funds but
focused on the alleged fraudulent reconveyance of said property to Ortigas because the
price paid was lower than the prevailing market value of neighboring lots. The first
requirement, therefore, which would make this petition a taxpayer's suit is absent. The only
remaining justification for petitioner to be allowed to pursue this action is whether it is, or
would be, directly affected by the act complained of. As we stated in Kilosbayan,
Inc. v. Morato,4

Standing is a special concern in constitutional law because in some cases suits are
brought not by parties who have been personally injured by the operation of a law or
by official action taken, but by concerned citizens, taxpayers or voters who actually
sue in the public interest. Hence the question in standing is whether such parties
have "alleged such a personal stake in the outcome of the controversy as to assure
that concrete adverseness which sharpens the presentation of issues upon which the
court so largely depends for illumination of difficult constitutional questions." (Citing
Baker v. Carr, 369 U.S. 186, 7 L. Ed. 2d 633 [1962])

Undeniably, as a taxpayer, petitioner would somehow be adversely affected by an illegal use

of public money. When, however, no such unlawful spending has been shown, as in the case
at bar, petitioner, even as a taxpayer, cannot question the transaction validly executed by
and between the Province and Ortigas for the simple reason that it is not privy to said
contract. In other words, petitioner has absolutely no cause of action, and consequently
no locus standi, in the instant case.

Petitioner committed further procedural error by filing its petition with this Court. While it is
ostensibly questioning the reconveyance of the subject lots to Ortigas, that is, the acts of the
Governor of Rizal and of the members of the Provincial Board, it is in effect mainly assailing
the March 21, 1989 judgment of respondent Judge Migriño who approved the compromise
agreement. The proper remedy which it should have taken was to file a petition for review of
the trial court's decision before the Court of Appeals because petitioner is questioning the
wisdom of the trial court's action which, in turn, calls for a factual determination of the
feasibility of an amicable settlement between the litigants. No legal issue cognizable by this
 Court was ever raised by petitioner. Even if there was, such an action would have failed
because of petitioner's lack of legal standing to file the same.

Assuming arguendo that petitioner did have the personality and was justified in lodging this
case before the Court, did it do so seasonably? We think not. The questioned decision was
promulgated on March 21, 1989 and, no appeal having been made therefrom, became final
and executory on April 55, 1989. Petitioner filed the present action only on April 1, 1991, two
years later, contending that the trial court's decision merely adopted the compromise
agreement which provided, inter alia, that the last installment was due only on March 30,
1991. This specious line of reasoning is easily demolished. Why should petitioner wait until
the parties to the transaction have fulfilled their respective obligations, which is two years
from the date of the contract, when it could have questioned the same much earlier, even at
the contract's inception, and in the process, spared everyone from unnecessary
aggravation?

Accordingly, after concluding that, not only does petitioner lack the legal personality to file
this so-called taxpayer's suit, but that it filed the same beyond the reglementary period, this
Court no longer finds any reason to delve into the merits, or the lack of it, of the instant
petition.

WHEREFORE, premises considered, the instant petition for certiorari is hereby DISMISSED.
Cost against petitioner.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado, Davide, Jr., Melo, Puno, Kapunan, Mendoza, Francisco,
Hermosisima, Jr., Panganiban and Torres, Jr., JJ., concur.

Vitug, J., concurs in the result.

Bellosillo, J., is on leave.

G.R. No. L-59068 January 27, 1983

JOSE MARI EULALIO C. LOZADA and ROMEO B. IGOT, petitioners,

vs.
THE COMMISSION ON ELECTIONS, respondent.

DE CASTRO, J.:

This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a
representative suit for and in behalf of those who wish to participate in the election irrespective of
party affiliation, to compel the respondent COMELEC to call a special election to fill up existing
vacancies numbering twelve (12) in the Interim Batasan Pambansa. The petition is based on Section
5(2), Article VIII of the 1973 Constitution which reads:

(2) In case a vacancy arises in the Batasang Pambansa eighteen months or more
before a regular election, the Commission on Election shall call a special election to
be held within sixty (60) days after the vacancy occurs to elect the Member to serve
the unexpired term.

Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient
voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa;
while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus
the calling of a special election as mandated by the 1973 Constitution. As reason for their petition,
petitioners allege that they are "... deeply concerned about their duties as citizens and desirous to
uphold the constitutional mandate and rule of law ...; that they have filed the instant petition on their
own and in behalf of all other Filipinos since the subject matters are of profound and general interest.
"

The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially,
that 1) petitioners lack standing to file the instant petition for they are not the proper parties to
institute the action; 2) this Court has no jurisdiction to entertain this petition; and 3) Section 5(2),
Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa.

The petition must be dismiss.

As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax
money is being illegally spent. The act complained of is the inaction of the COMELEC to call a
special election, as is allegedly its ministerial duty under the constitutional provision above cited, and
therefore, involves no expenditure of public funds. It is only when an act complained of, which may
include a legislative enactment or statute, involves the illegal expenditure of public money that the
so-called taxpayer suit may be allowed. 1 What the case at bar seeks is one that entails expenditure
of public funds which may be illegal because it would be spent for a purpose that of calling a special
election which, as will be shown, has no authority either in the Constitution or a statute.

As voters, neither have petitioners the requisite interest or personality to qualify them to maintain
and prosecute the present petition. The unchallenged rule is that the person who impugns the
validity of a statute must have a personal and substantial interest in the case such that he has
sustained, or will sustain, direct injury as a result of its enforcement. 2 In the case before Us, the
alleged inaction of the COMELEC to call a special election to fill-up the existing vacancies in the
Batasan Pambansa, standing alone, would adversely affect only the generalized interest of all
citizens. Petitioners' standing to sue may not be predicated upon an interest of the kind alleged here,
which is held in common by all members of the public because of the necessarily abstract nature of
the injury supposedly shared by all citizens. Concrete injury, whether actual or threatened, is that
indispensable element of a dispute which serves in part to cast it in a form traditionally capable of
judicial resolution. 3 When the asserted harm is a "generalized grievance" shared in substantially
equal measure by all or a large class of citizens, that harm alone normally does not warrant exercise
of jurisdiction. 4 As adverted to earlier, petitioners have not demonstrated any permissible personal
stake, for petitioner Lozada's interest as an alleged candidate and as a voter is not sufficient to
confer standing. Petitioner Lozada does not only fail to inform the Court of the region he wants to be
a candidate but makes indiscriminate demand that special election be called throughout the country.
Even his plea as a voter is predicated on an interest held in common by all members of the public
and does not demonstrate any injury specially directed to him in particular.

II

The Supreme Court's jurisdiction over the COMELEC is only to review by certiorari the latter's
decision, orders or rulings. This is as clearly provided in Article XI IC Section 11 of the New
Constitution which reads:

Any decision, order, or ruling of the Commission may be brought to the Supreme
Court on certiorari by the aggrieved party within thirty days from his receipt of a copy
thereof.

There is in this case no decision, order or ruling of the COMELEC which is sought to be reviewed by
this Court under its certiorari jurisdiction as provided for in the aforequoted provision which is the
only known provision conferring jurisdiction or authority on the Supreme Court over the COMELEC.
It is not alleged that the COMELEC was asked by petitioners to perform its alleged duty under the
Constitution to call a special election, and that COMELEC has issued an order or resolution denying
such petition.

Even from the standpoint of an action for mandamus, with the total absence of a showing that
COMELEC has unlawfully neglected the performance of a ministerial duty, or has refused on being
demanded, to discharge such a duty; and as demonstrated above, it is not shown, nor can it ever be
shown, that petitioners have a clear right to the holding of a special election. which is equally the
clear and ministerial duty of COMELEC to respect, mandamus will not lie. 5 The writ will not issue in
doubtful cases. 6

It is obvious that the holding of special elections in several regional districts where vacancies exist,
would entail huge expenditure of money. Only the Batasan Pambansa can make the necessary
appropriation for the purpose, and this power of the Batasan Pambansa may neither be subject to
mandamus by the courts much less may COMELEC compel the Batasan to exercise its power of
appropriation. From the role Batasan Pambansa has to play in the holding of special elections, which
is to appropriate the funds for the expenses thereof, it would seem that the initiative on the matter
must come from said body, not the COMELEC, even when the vacancies would occur in the regular
not interim Batasan Pambansa. The power to appropriate is the sole and exclusive prerogative of
the legislative body, the exercise of which may not be compelled through a petition for mandamus.
What is more, the provision of Section 5(2), Article VIII of the Constitution was intended to apply to
vacancies in the regular National Assembly, now Batasan Pambansa, not to the Interim Batasan
Pambansa, as will presently be shown.

III

Perhaps the strongest reason why the aforecited provision of the Constitution is not intended to
apply to the Interim National Assembly as originally envisioned by the 1973 Constitution is the fact
that as passed by the Constitutional Convention, the Interim National Assembly was to be composed
by the delegates to the Constitutional Convention, as well as the then incumbent President and Vice-
President, and the members of the Senate and House of Representatives of Congress under the
1935 Constitution. With such number of representatives representing each congressional district, or
a province, not to mention the Senators, there was felt absolutely no need for filing vacancies
occurring in the Interim National Assembly, considering the uncertainty of the duration of its
existence. What was in the mind of the Constitutional Convention in providing for special elections to
fill up vacancies is the regular National Assembly, because a province or representative district
would have only one representative in the said National Assembly.

Even as presently constituted where the representation in the Interim Batasan Pambansa is regional
and sectoral, the need to fill up vacancies in the Body is neither imperative nor urgent. No district or
province would ever be left without representation at all, as to necessitate the filling up of vacancies
in the Interim Batasan Pambansa. There would always be adequate representation for every
province which only forms part of a certain region, specially considering that the Body is only
transitory in character.

The unmistakable intent of the Constitutional Convention as adverted to is even more positively
revealed by the fact that the provision of Section 5(2) of Article VIII of the New Constitution is in the
main body of the said Constitution, not in the transitory provisions in which all matters relating to the
Interim Batasan Pambansa are found. No provision outside of Article VIII on the "Transitory
Provisions" has reference or relevance to the Interim Batasan Pambansa.

Also under the original provision of the Constitution (Section 1, Article XVII-Transitory Provisions),
the Interim National Assembly had only one single occasion on which to call for an election, and that
is for the election of members of the regular National Assembly. The Constitution could not have at
1äw phï1.ñët

that time contemplated to fill up vacancies in the Interim National Assembly the composition of
which, as already demonstrated, would not raise any imperious necessity of having to call special
elections for that purpose, because the duration of its existence was neither known or pre-
determined. It could be for a period so brief that the time prescriptions mentioned in Section 5(2),
Article VIII of the Constitution cannot be applicable.

The foregoing observations make it indubitably clear that the aforementioned provision for calling
special elections to fill up vacancies apply only to the regular Batasan Pambansa. This is evident
from the language thereof which speaks of a vacancy in the Batasan Pambansa, " which means
the regular Batasan Pambansa as the same words "Batasan Pambansa" found in all the many other
sections of Article VIII, undoubtedly refer to the regular Batasan, not the interim one. A word or
phrase used in one part of a Constitution is to receive the same interpretation when used in every
other part, unless it clearly appears, from the context or otherwise, that a different meaning should
be applied. 7

WHEREFORE, the petition is hereby dismissed.

SO ORDERED.

Aquino, Concepcion Jr., Guerrero, Plana, Escolin Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Fernando, CJ., Makasiar, and Melencio-Herrera, JJ., concurs in the result.

Teehankee, J., took no part.

Abad Santos, J., I reserve my vote.

G.R. No. 99886 March 31, 1993

JOHN H. OSMEÑA, petitioner,

vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity
as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of
Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.

Nachura & Sarmiento for petitioner.

The Solicitor General for public respondents.

NARVASA, C.J.:

The petitioner seeks the corrective,1 prohibitive and coercive remedies provided by Rule 65 of the
Rules of Court,2upon the following posited grounds, viz.:3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to § 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution;4

2) the unconstitutionality of § 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order
No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;"5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund,6 because it contravenes § 8, paragraph 2 (2) of
P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.

It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The
OPSF was designed to reimburse oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024,7 and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order
also authorized the investment of the fund in government securities, with the earnings from such
placements accruing to the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by the Ministry of Finance.

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion;8 that to abate the worsening deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents — Oscar
Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his
capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board — "are poised to accept,
process and pay claims not authorized under P.D. 1956."9

The petition further avers that the creation of the trust fund violates §
29(3), Article VI of the Constitution, reading as follows:

(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.
The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not channeled to another government
objective." 10 Petitioner further 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." 11

He also contends that the "delegation of legislative authority" to the ERB violates § 28 (2). Article VI
of the Constitution, viz.:

(2) The Congress may, by law, authorize the President to fix, within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government;

and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, and because they are, supposedly, taxes
levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a
portion thereof is taken from collections of ad valorem taxes and the increases thereon.

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. The Solicitor General observes that the "argument rests on the assumption that
the OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose." 13 The petitioner's perceptions are, in the Court's view, not quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding in Valmonte v. Energy Regulatory Board, et al. 14 —

The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established
"for the purpose of minimizing the frequent price changes brought about by exchange
rate adjustment and/or changes in world market prices of crude oil and imported
petroleum products." 15 Under P.D. No. 1956, as amended by Executive Order No.
137 dated 27 February 1987, this Trust Account may be funded from any of the
following sources:

a) Any increase in the tax collection from ad valorem tax or customs

duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board
of Energy;

b) Any increase in the tax collection as a result of the lifting of tax

exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy:

c) Any additional amount to be imposed on petroleum products to

augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;

d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
 products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.

xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude
oil and petroleum products from sources of supply to the Philippines may also vary
from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in
world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day or even only from week to week would result in a chaotic market
with unpredictable effects upon the country's economy in general. The OPSF was
established precisely to protect local consumers from the adverse consequences that
such frequent oil price adjustments may have upon the economy. Thus, the OPSF
serves as a pocket, as it were, into which a portion of the purchase price of oil and
petroleum products paid by consumers as well as some tax revenues are inputted
and from which amounts are drawn from time to time to reimburse oil companies,
when appropriate situations arise, for increases in, as well as underrecovery of, costs
of crude importation. The OPSF is thus a buffer mechanism through which the
domestic consumer prices of oil and petroleum products are stabilized, instead of
fluctuating every so often, and oil companies are allowed to recover those portions of
their costs which they would not otherwise recover given the level of domestic prices
existing at any given time. To the extent that some tax revenues are also put into it,
the OPSF is in effect a device through which the domestic prices of petroleum
products are subsidized in part. It appears to the Court that the establishment and
maintenance of the OPSF is well within that pervasive and non-waivable power and
responsibility of the government to secure the physical and economic survival and
well-being of the community, that comprehensive sovereign authority we designate
as the police power of the State. The stabilization, and subsidy of domestic prices of
petroleum products and fuel oil — clearly critical in importance considering, among
other things, the continuing high level of dependence of the country on imported
crude oil — are appropriately regarded as public purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality
of the sugar stabilization fees and explained their nature and character, viz.:

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 v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).

xxx xxx xxx

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 state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the 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, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). 17
 The character of the Stabilization Fund as a special kind of 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 (3), lifted from the
1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).

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.

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, § 8(c) of P.D.
1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what
is involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the
ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with expediency in
carrying out the objectives of the law which are embraced by the police power of the State.

The interplay and constant fluctuation of the various factors involved in the determination of the price
of oil and petroleum products, and the frequently shifting need to either augment or exhaust the
Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by
the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or
avoid the undesirable consequences of such fluidity. As such, the standard as it is expressed,
suffices to guide the delegate in the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.

For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix
a standard — limits of which
are sufficiently determinate or determinable — to which the delegate must conform. 20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be
carried out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole. 21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law
intended was to permit the additional imposts for as long as there exists a need to protect the
general public and the petroleum industry from the adverse consequences of pump rate fluctuations.
"Where the standards set up for the guidance of an administrative officer and the action taken are in
fact recorded in the orders of such officer, so that Congress, the courts and the public are assured
that the orders in the judgment of such officer conform to the legislative standard, there is no failure
in the performance of the legislative functions." 22

This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may
be justified.

In relation to the third question — respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of § 8, paragraph 2
(2) of P.D. 1956, amended 23 — the Court finds for the petitioner.

The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in § 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'" 24 and since these items are reimbursements for which the
OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million." 25 It is argued "that under the principle of ejusdem generis . . . the term 'other
factors' (as used in § 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result
in the reduction of domestic prices of petroleum products." 26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines
of the rule of ejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed
upon the application of ejusdem generis to paragraph 2 of § 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned." 28 A
reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these subparagraphs.
What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly
allows the cost underrecovery only if such were incurred as a result of the reduction
of domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of § 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of
domestic prices of petroleum products. Under the same provision, however, the payment of
inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil
companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher
price.

Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is
equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and
regulations as held in Caltex 29 and which have been pointed to by the Solicitor General. At any rate,
doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A.
6952, establishing the Petroleum Price Standby Fund, § 2 of which specifically authorizes the
reimbursement of "cost underrecovery incurred as a result of fuel oil sales to the National Power
Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort
to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the
so-called overpayment refunds. To be sure, the absence of any argument for or against the validity
of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.

Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.

WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement
of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.

SO ORDERED.

Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo,
Melo, Campos, Jr., and Quiason, JJ., concur.

Gutierrez, Jr., J., is on leave.

G.R. No. 117359 July 23, 1998

DAVAO GULF LUMBER CORPORATION, petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS, respondents.

PANGANIBAN, J.:

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.

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:

Sec. 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.

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 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 actualhy paid by petitioner under
the NIRC.

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

Public Respondent's 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 Court's
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 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

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 Court's Ruling

The petition is not meritorious.

Petitioner Entitled to Refund

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 Constrtued

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

. . . Sec. 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 . . . [otherwise,] Section 5
should very well have been included in Section 1 . . . ." 18

The Court is nor persuaded. The relevant statutory provisions do not clearly support
petitioner's claim for refund. RA 1435 provides:
Sec. 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.

xxx xxx xxx

Sec. 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.

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:

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;

(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;

(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;

(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five centavos. (As
amended by Sec. 1, P.D. No. 1672.)

xxx xxx xxx

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 centumabsolute 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.

xxx xxx xxx

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 strictissimiJuris against the grantee. Hence,
petitioner's 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 petitioner's 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 Coure 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 in Commissioner 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 Tubacase sets forth the controlling doctrine. In that Resolution, we
stated:

Since the private respondent's 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 respondent's 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 Atlas's claims for refund cover specific taxes
paid before 1985, it should be granted the refund based on the rates specified
by 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. (Emphasis supplied.)

Insular Lumber Co. and First Atlas Case

Not Inconsistent With Rio Tuba

and Second Atlas Case

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 nor 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 petitioner's 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, Qiusumbing and Purisima, JJ., concur.
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 Appeals1 on September 28, 19952 and February 29, 19963 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

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 non-members. 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 CA6 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

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. 7

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

I
 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.

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:

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 Issue:
Factual Findings of the CTA

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. 13The 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 Issue:
Is the Rental Income of the YMCA Taxable?

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;

(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;

xxx xxx xxx

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)

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 . . . ."

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.
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

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.

It is axiomatic that where the language of the law is clear and unambiguous, its express
terms must be applied. 21 Parenthetically, 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

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." 23This 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.

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, 29which 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
coversproperty 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 by-laws, 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 50 and 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.

Davide, Jr., Vitug and Quisumbing, JJ., concur.

Bellosillo, J., Please see Dissenting Opinion.

G.R. No. L-4817 May 26, 1954

SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.

Calanog and Alafriz for plaintiffs-appellants.

City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.

REYES, J.:

This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical
practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf
and in behalf of other professionals practising in the City of Manila who may desire to join it." Object
of the suit is the annulment of Ordinance No. 3398 of the City of Manila together with the provision of
the Manila charter authorizing it and the refund of taxes collected under the ordinance but paid under
protest.

The ordinance in question, which was approved by the municipal board of the City of Manila on July
25, 1950, imposes a municipal occupation tax on persons exercising various professions in the city
and penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by
imprisonment of not more than six months, or by both such fine and imprisonment in the discretion of
the court." Among the professions taxed were those to which plaintiffs belong. The ordinance was
enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila (as
amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various
professions above referred to.

Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same
under protest and then brought the present suit for the purpose already stated. The lower court
upheld the validity of the provision of law authorizing the enactment of the ordinance but declared
the ordinance itself illegal and void on the ground that the penalty there in provided for non-payment
of the tax was not legally authorized. From this decision both parties appealed to this Court, and the
only question they have presented for our determination is whether this ruling is correct or not, for
though the decision is silent on the refund of taxes paid plaintiffs make no assignment of error on
this point.

To begin with defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The last
paragraph (kk) of the very section that authorizes the enactment of this tax ordinance (section 18 of
the Manila Charter) in express terms also empowers the Municipal Board "to fix penalties for the
violation of ordinances which shall not exceed to(sic) two hundred pesos fine or six months"
imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement
below that the ordinance in question is illegal and void because it imposes a penalty not authorized
by law is clearly without basis.

As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double
taxation.

In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the
professions to which they respectively belong have been singled out for the imposition of this
municipal occupation tax; and in any event, the Legislature may, in its discretion, select what
occupations shall be taxed, and in the exercise of that discretion it may tax all, or it may select for
taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp.
3393-3395.) Plaintiffs' complaint is that while the law has authorized the City of Manila to impose the
said tax, it has withheld that authority from other chartered cities, not to mention municipalities. We
do not think it is for the courts to judge what particular cities or municipalities should be empowered
to impose occupation taxes in addition to those imposed by the National Government. That matter is
peculiarly within the domain of the political departments and the courts would do well not to
encroach upon it. Moreover, as the seat of the National Government and with a population and
volume of trade many times that of any other Philippine city or municipality, Manila, no doubt, offers
a more lucrative field for the practice of the professions, so that it is but fair that the professionals in
Manila be made to pay a higher occupation tax than their brethren in the provinces.

Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who
have no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs
make a distinction that is not found in the ordinance. The ordinance imposes the tax upon every
person "exercising" or "pursuing" — in the City of Manila naturally — any one of the occupations
named, but does not say that such person must have his office in Manila. What constitutes exercise
or pursuit of a profession in the city is a matter of judicial determination. The argument against
double taxation may not be invoked where one tax is imposed by the state and the other is imposed
by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am.
Jur., 341.)

In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance
No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the
provision of the Manila charter authorizing it. With costs against plaintiffs-appellants.

Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.
G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,

vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.

Sabido, Sabido & Associates for appellant.

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

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294,
which was certified to Us by the Court of Appeals on October 6, 1969, as involving only pure
questions of law, challenging the power of taxation delegated to municipalities under the Local
Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959).

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc.,
commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for
that court to declare Section 2 of Republic Act No. 2264.1 otherwise known as the Local Autonomy
Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances
Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state
that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same, and second, that on January 17,
1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager
of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies
and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo
for every bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm,
company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly
report, of the total number of bottles produced and corked during the month. 3

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

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'

On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the
complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under
the oft the said Ordinances; and to pay the costs."

From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals,
which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as
amended.

There are three capital questions raised in this appeal:

1. — Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory

and oppressive?
 2. — Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?

3. — Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter
of right to every independent government, without being expressly conferred by the people. 6 It is a
power that is purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the theory of separation
of powers. The exception, however, lies in the case of municipal corporations, to which, said theory
does not apply. Legislative powers may be delegated to local governments in respect of matters of
local concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative
power to create political corporations for purposes of local self-government carries with it the power
to confer on such local governmental agencies the power to tax. 9 Under the New Constitution, local
governments are granted the autonomous authority to create their own sources of revenue and to
levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create
its sources of revenue and to levy taxes, subject to such limitations as may be provided by law."
Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere
of the legislative power to enact and vest in local governments the power of local taxation.

The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense,
would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities and the like, it is meant that there may
be delegated such measure of power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy
the State has not deemed wise to tax for more general purposes. 10 This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed
over under the guise of the taxing power, except when the taking of the property is in the lawful
exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice
and opportunity for hearing are provided. 11 Due process is usually violated where the tax imposed is
for a private as distinguished from a public purpose; a tax is imposed on property outside the State,
i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in assessing and
collecting taxes. But, a tax does not violate the due process clause, as applied to a particular
taxpayer, although the purpose of the tax will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property subject to the tax or the amount of tax to
be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the
tax and the manner in which it shall be apportioned are generally not necessary to due process of
law. 12

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

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because
these two ordinances cover the same subject matter and impose practically the same tax rate. The
thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is
not so. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or
collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for
.every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered
that the producer or manufacturer could increase the volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28,
1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No.
27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The
intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was
intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter,
even without words to that effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees
are only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms
the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the
plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned
admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-
appellees. Even the Provincial Fiscal, counsel for 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 1-½ 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.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muñoz Palma, Aquino and
Concepcion, Jr., JJ., concur.