G.R. No. 36081.
 April 24, 1989.* of validity. The question of reasonableness though is open to judicial inquiry. Much should be left
PROGRESSIVE DEVELOPMENT CORPORATION, petitioner vs. QUEZON CITY, respondent.
Taxation; Local Governments; License Fee as Distinguished from Tax; The imposition is a
tax, if its primary purpose is to generate revenue, and regulation is merely incidental; but if
regulation is the primary purpose, the fact that incidentally revenue is also obtained does not
make the imposition a tax.—–The term “tax” frequently applies to all kinds of exactions of monies
which become public funds. It is often loosely used to include levies for revenue as well as levies
for regulatory purposes such that license fees are frequently called taxes although license fee is a
legal concept distinguishable from tax: the former is imposed in the exercise of police power
primarily for purposes of regulation, while the latter is imposed under the taxing power primarily
for purposes of raising revenues. Thus, if the generating of revenue is the primary purpose and
regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose the
fact that incidentally revenue is also obtained does not make the imposition a tax.
Same; Same; Same; Same; A charge of a fixed sum which bears no relation at all to the
cost of inspection and regulation may be considered a tax.—– To be considered a license fee, the
imposition questioned must relate to an occupation or activity that so engages the public interest
in health, morals, safety and development as to require regulation for the protection and
promotion of such public interest; the imposition must also bear a reasonable relation to the
probable expenses of regulation, taking into account not only the cost of direct regulation but also
its incidental consequences as well. When an activity, occupation or profession is of such a
character that inspection or supervision by public officials is reasonably necessary for the
safeguarding and furtherance of public health, morals and safety, or the general welfare, the
legislature may provide that such inspection or supervision or other form of regulation shall be
carried out at the expense of the persons engaged in such occupation or performing such activity,
and that no one shall engage in the occupation or carry out the activity until a fee or charge
sufficient to cover the cost of the inspection or supervision has been paid. Accordingly, a charge of
a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to
be a tax rather than an exercise of the police power.
Same; Same; Same; Same; Police Power; The 5% tax imposed in Ordinance No. 9236
constitutes a license tax or fee for the regulation of petitioner’s business and not a tax on income.
—–We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income,  not a city income tax (as distinguished from the national income
tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the
Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which the
petitioner is engaged. While it is true that the amount imposed by the questioned ordinances may
be considered in determining whether the exaction is really one for revenue or prohibition, instead
of one of regulation under the police power, it nevertheless will be presumed to be reasonable.
Same; Same; Same; Same; Same; Local Ordinances; The reasonableness of a local taxing
ordinance may be determined from the particular municipal conditions, and the nature of the
business being subjected to the imposition.—– Local governments are allowed wide discre-
631
VOL. 172, APRIL 24, 1989 631
Progressive Development Corporation vs. Quezon City
tion in determining the rates of imposable license fees even in cases of purely police power
measures, in the absence of proof as to particular municipal conditions and the nature of the
business being taxed as well as other detailed factors relevant to the issue of arbitrariness or
unreasonableness of the questioned rates. Thus: “[A]n ordinance carries with it the presumption
thus to the discretion of municipal authorities. Courts will go slow in writing off an ordinance as
unreasonable unless the amount is so excessive as to be prohibitory, arbitrary, unreasonable,
oppressive, or confiscatory. A rule which has gained acceptance is that factors relevant to such an
inquiry are the municipal conditions as a whole and the nature of the business made subject to
imposition.”
Same; Same; Same; Same; As a general rule, there must be a statutory grant before a
local government unit may lawfully impose a gross receipts tax.—– Finally, petitioner argues that
respondent is without power to impose a gross receipts tax for revenue purposes absent an
express grant from the national government. As a general rule, there must be a statutory grant for
a local government unit to impose lawfully a gross receipts tax, that unit not having the inherent
power of taxation. The rule, however, finds no application in the instant case where what is
involved is an exercise of, principally, the regulatory power of the respondent City and where that
regulatory power is expressly accompanied by the taxing power.
PETITION to review the decision of the Court of First Instance of Rizal, Br. 18, Quezon City.
The facts are stated in the opinion of the Court.
     Jalandoni, Herrera, Del Castillo & Associates for petitioner.
FELICIANO, J.:
On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997,
Series of 1969, otherwise known as the Market Code of Quezon City, Section 3 of which provided:
“Sec. 3. Supervision Fee.—–Privately owned and operated public markets  shall submit monthly to
the Treasurer’s Office, a certified list of stallholders showing the amount of stall fees or rentals
paid daily by each stallholder, x x x and shall pay 10% of the gross receipts from stall
632
632 SUPREME COURT REPORTS ANNOTATED
Progressive Development Corporation vs. Quezon City
rentals to the City, x x x, as supervision fee. Failure  to submit said list and to pay the
corresponding amount within the period herein prescribed shall subject the operator to the
penalties provided in this Code x x x including revocation of permit to operate. x x x.”1
The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March
1972, which reads:
SECTION 1. There is hereby imposed a five percent (5%) tax on gross receipts on rentals  or lease
of space in privately-owned public markets in Quezon City.
x x x     x x x     x x x
SECTION 3. For the effective implementation of this Ordinance, owners of privately owned
public markets shall submit x x x a monthly certified list of stallholders of lessees of space in their
markets showing x x x:
. a.name of stallholder or lessee;
. b.amount of rental;
. c.period of lease, indicating therein whether the same is on a daily, monthly or yearly
basis.
x x x     x x x     x x x
 SECTION 4. x x x In case of consistent failure to pay the percentage tax for three (3)
consecutive months, the City shall revoke the permit of the privately-owned market  to operate
and/ or take any other appropriate action or remedy allowed by law for the collection of the
overdue percentage tax and surcharge.
x x x     x x x     x x x.”2
On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a public
market known as the “Farmers Market & Shopping Center” filed a Petition for Prohibition with
Preliminary Injunction against respondent before the then Court of First Instance of Rizal on the
ground that the supervision fee or license tax imposed by the above-mentioned ordinances is in
reality a tax on income which respondent may not impose, the same being expressly prohibited by
Republic Act No. 2264, as amended.
In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the
questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on
income. The Solicitor General also filed an Answer arguing that petitioner, not having paid the ten
percent (10%) supervision fee prescribed by Ordinance No. 7997, had no personality to question,
and was estopped from questioning, its validity; that the tax on gross receipts was not a tax on
income but one imposed for the enjoyment of the privilege to engage in a particular trade or
business which was within the power of respondent to impose.
In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under
protest the five percent (5%) tax under Ordinance No. 9236 for the months of June to September
1972. Two (2) days later, on 25 September 1972, petitioner moved for judgment on the
pleadings, alleging that the material facts had been admitted by the parties.
On 21 October 1972, the lower court dismissed the petition, ruling3 that the questioned
imposition is not a tax on income, but rather a privilege tax or license fee which local
governments, like respondent, are empowered to impose and collect.
Having failed to obtain reconsideration of said decision, petitioner came to us on the present
Petition for Review.
The only issue to be resolved here is whether the tax imposed by respondent on gross receipts
of stall rentals is properly characterized as partaking of the nature of an income tax or,
alternatively, of a license fee.
We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known as
the Revised Charter of Quezon City, authorizes the City Council:
“x x x     x x x     x x x
. (b)To provide for the levy and collection of taxes and other city revenues and apply the
same to the payment of city expenses in accordance with appropriations.
. (c)To tax, fix the license fee, and regulate the business of  the following:
x x x preparation and sale of meat, poultry, fish, game, butter, cheese, lard, vegetables, bread
and other provisions.”4
The scope of legislative authority conferred upon the Quezon City Council in respect of businesses
like that of the petitioner, is comprehensive: the grant of authority is not only” [to] regulate” and
“fix the license fee,” but also “to tax.”5
Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local
Autonomy Act, provides that:
“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 service 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: x x x”6
It is now settled that Republic Act No. 2264 confers upon local governments broad taxing
authority extending to almost “everything, excepting those which are mentioned therein,”
provided that the tax levied is “for public purposes, just and uniform,” does not transgress any
constitutional provision and is not repugnant to a controlling statute.7 Both the Local Autonomy
Act and the Charter of respondent clearly show that respondent is authorized to fix the license fee
collectible from and regulate the business of petitioner as operator of a privately-owned public
market.
Petitioner, however, insists that the “supervision fee” collected from rentals, being a return
from capital invested in the construction of the Farmers Market, practically operates as a tax on
income, one of those expressly excepted from respondent’s taxing authority, and thus beyond the
latter’s competence. Petitioner cites the same Section 2 of the Local Autonomy Act which goes on
to state:8
“x x x Provided, however, That no city, municipality or municipal district may levy or impose any of
the following:
x x x     x x x     x x x
‘(g) Taxes on income  of any kind whatsoever;’ ”
The term “tax” frequently applies to all kinds of exactions of monies which become public funds. It
is often loosely used to include levies for revenue as well as levies for regulatory purposes such
that license fees are frequently called taxes although license fee is a legal concept distinguishable
from tax: the former is imposed in the exercise of police power primarily for purposes of
regulation, while the latter is imposed under the taxing power primarily for purposes of raising
revenues.9 Thus, if the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that
incidentally revenue is also obtained does not make the imposition a tax.10
To be considered a license fee, the imposition questioned must relate to an occupation or activity
that so engages the public interest in health, morals, safety and development as to require
regulation for the protection and promotion of such public interest; the imposition must also bear
a reasonable relation to the probable expenses of regulation, taking into account not only the
costs of direct regulation but also its incidental consequences as well.11 When an activity,
occupation or profession is of such a character that inspection or supervision by public officials is
reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or
the general welfare, the legislature may provide that such inspection or supervision or other form
of regulation shall be carried out at the expense of the persons engaged in such occupation or
performing such activity, and that no one shall engage in the occupation or carry out the activity
until a fee or charge sufficient to cover the cost of the inspection or supervision has been
paid.12 Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection
and regulation may be held to be a tax rather than an exercise of the police power.13
In the case at bar, the “Farmers Market & Shopping Center” was built by virtue of Resolution
No. 7350 passed on 30 January 1967 by respondents’s local legislative body authorizing petitioner
to establish and operate a market with a permit to sell fresh meat, fish, poultry and other
foodstuffs.14 The same resolution imposed upon petitioner, as a condition for continuous
operation, the obligation to “abide by and comply with the ordinances, rules and regulations
prescribed for the establishment, operation and maintenance of markets in Quezon City.”15
The “Farmers’ Market and Shopping Center” being a public market in the sense of a market open
to and inviting the patronage of the general public, even though privately owned, petitioner’s
operation thereof required a license issued by the respondent City, the issuance of which, applying
the standards set forth above, was done principally in the exercise of the respondent’s police
power.16 The operation of a privately owned market is, as correctly noted by the Solicitor
General, equivalent to or quite the same as the operation of a government-owned market; both
are established for the rendition of service to the general public, which warrants close supervision
and control by the respondent City,17 for the protection of the health of the public by insuring,
e.g., the maintenance of sanitary and hygienic conditions in the market, compliance of all food
stuffs sold therein with applicable food and drug and related standards, for the prevention of fraud
and imposition upon the buying public, and so forth.
We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax (as distinguished from the national income
tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the
Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which the
petitioner is engaged. While it is true that the amount imposed by the questioned ordinances may
be considered in determining whether the exaction is really one for revenue or prohibition, instead
of one of regulation under the police power,18 it nevertheless will be presumed to be reasonable.
Local governments are allowed wide discretion in determining the rates of imposable license fees
even in cases of purely police power measures, in the absence of proof as to particular municipal
conditions and the nature of the business being taxed as well as other detailed factors relevant to
the issue of arbitrariness or unreasonableness of the questioned rates.19 Thus:
“[A]n ordinance carries with it the presumption of validity. The question of reasonableness though
is open to judicial inquiry. Much should be left thus to the discretion of municipal authorities.
Courts will go slow in writing off an ordinance as unreasonable unless the amount is so excessive
as to be prohibitory, arbitrary, unreasonable, oppressive, or confiscatory. A rule which has gained
acceptance is that factors relevant to such an inquiry are the municipal conditions as a whole and
the nature of the business made subject to imposition.”20
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and
excessive and so grossly disproportionate to the costs of the regulatory service being performed
by the respondent as to compel the Court to characterize the imposition as a revenue measure
exclusively. The lower court correctly held that the gross receipts from stall rentals have been
used only as a basis for computing the fees or taxes due respondent to cover the latter’s
administrative expenses, i.e., for regulation and supervision of the sale of foodstuffs to the public.
The use of the gross amount of stall rentals as basis for determining the collectible amount of
license tax, does not by itself, upon the one hand, convert or render the license tax into a
prohibited city tax on income. Upon the other hand, it has not been suggested that such basis has
no reasonable relationship to the probable costs of regulation and supervision of the petitioner’s
kind of business. For, ordinarily, the higher the amount of stall rentals, the higher the aggregate
volume of foodstuffs and related items sold in petitioner’s privately owned market; and the higher
the volume of goods sold in such private market, the greater the extent and frequency of
inspection and supervision that may be reasonably required in the interest of the buying public.
Moreover, what we started with should be recalled here: the authority conferred upon the
respondent’s City Council is not merely “to regulate” but also embraces the power “to tax” the
petitioner’s business.
Finally, petitioner argues that respondent is without power to impose a gross receipts tax for
revenue purposes absent an express grant from the national government. As a general rule, there
must be a statutory grant for a local government unit to impose lawfully a gross receipts tax, that
unit not having the inherent power of taxation.21 The rule, however, finds no application in the
instant case where what is involved is an exercise of, principally, the regulatory power of the
respondent City and where that regulatory power is expressly accompanied by the taxing power.
ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch
18, is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of merit.
SO ORDERED.
 No. L-67649. June 28, 1988.*
ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ,
respondents.
Taxation; Obligations; Requisites of Legal Compensation under Arts. 1278 and 1279 of Civil
Code; Case at bar.—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
Francia vs. Intermediate Appellate Court
(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.
Taxation; Same; Internal Revenue Taxes can not be subject of setoff or compensation.—
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. x x x (80 C.J.S.,
73-74). ‘The general rule based on grounds of public policy is well-settled that no set-off is
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 taxpayer is not required. x x x’ ”
Same; Same; Same; Auction Sale; Purchaser has the burden of proof to show that all
prescribed requisites for tax sale were complied with. —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 “x x x [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.”  (Italics 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
755
VOL. 162, JUNE 28, 1988 755
Francia vs. Intermediate Appellate Court
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. x x x.”
Same; Same; Same; Same; General Rule that gross inadequacy of price is not material. —
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: “x x x
[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.”
PETITION to review the decision of the Intermediate Appellate Court.
The facts are stated in the opinion of the Court.
756
756 SUPREME COURT REPORTS ANNOTATED
Francia vs. Intermediate Appellate Court
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.
757
VOL. 162, JUNE 28, 1988 757
Francia vs. Intermediate Appellate Court
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 a lawsuit against the government.
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT
HOLDING THAT 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
RESPONDENT 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
758
758 SUPREME COURT REPORTS ANNOTATED
Francia vs. Intermediate Appellate Court
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
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,
759
VOL. 162, JUNE 28, 1988 759
Francia vs. Intermediate Appellate Court
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. x x x. (80 C.J.S., 73-74). ‘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. x x x’ ”
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 Cordero v. Gonda (18 SCRA 331) where we stated that:
“x x x 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
760
760 SUPREME COURT REPORTS ANNOTATED
Francia vs. Intermediate Appellate Court
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. x x x 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 x x x.”  (Petition for Review, Rollo p. 18; italics
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
“x x x [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.”  (italics 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. x x x.”
761
VOL. 162, JUNE 28, 1988 761
Francia vs. Intermediate Appellate Court
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:
“x x x [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
762
762 SUPREME COURT REPORTS ANNOTATED
Francia vs. Intermediate Appellate Court
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
763
VOL. 162, JUNE 28, 1988 763
Francia vs. Intermediate Appellate Court
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.
 G.R. No. 125704. August 28, 1998.*
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, COURT
OF APPEALS, and THE COURT OF TAX APPEALS, respondents.
Taxation; Obligations; Compensation; Words and Phrases; Taxes cannot be subject to
compensation for the simple reason that the government and the taxpayer are not creditors and
debtors of each other; Debts are due to the Government in its corporate capacity, while taxes are
due to the Government in its sovereign capacity. —In several instances prior to the instant case,
we have already made the pronouncement that taxes cannot be subject to compensation for the
simple reason that the government and the taxpayer are not creditors and debtors of each other.
There is a material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity. We find no
cogent reason to deviate from the aforementioned distinction. Prescinding from this premise,
in Francia v. Intermediate Appellate Court , we categorically held that taxes cannot be subject to
set-off or compensation, thus: “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.”
Same; Same; Same; The holding in Commissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc., 28 SCRA 867 (1969), that a pending refund may be set off against an existing tax
liability even though the refund has not yet been approved by the Commissioner, has no longer
any support in statutory law. —Further, Philex’s reliance on our holding in Commissioner of
Internal Revenue v. ItogonSuyoc Mines, Inc. , wherein we ruled that a pending refund may be set
off against an existing tax liability even though the refund has not yet been approved by the
Commissioner, is no longer without any support in statutory law. It is important to note that the
premise of our ruling in the aforementioned case was anchored on Section 51(d) of the National
Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted,
the same provision upon which the Itogon-Suyoc pronouncement was based was omitted.
Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.
Same; Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance.—Despite the foregoing rulings clearly adverse to Philex’s position, it
asserts that the imposition of surcharge and interest for the non-payment of the excise taxes
within the time prescribed was unjustified. Philex posits the theory that it had no obligation to pay
the excise tax liabilities within the prescribed period since, after all, it still has pending claims for
VAT input credit/refund with BIR. We fail to see the logic of Philex’s claim for this is an outright
disregard of the basic principle in tax law that taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance. Evidently, to countenance Philex’s whimsical
reason would render ineffective our tax collection system. Too simplistic, it finds no support in law
or in jurisprudence.
Same; A distinguishing feature of a tax is that it is compulsory rather than a matter of
bargain.—To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the
ground that it has a pending tax claim for refund or credit against the government which has not
yet been granted. It must be noted that a distinguishing feature of a tax is that it is compulsory
rather than a matter of bargain. Hence, a tax does not depend upon the consent of the taxpayer.
If any taxpayer can defer the payment of taxes by raising the defense that it still has a pending
claim for refund or credit, this would adversely affect the government revenue system. A taxpayer
cannot refuse to pay his taxes when they fall due simply because he has a claim against the
government or that the collection of the tax is contingent on the result of the lawsuit it filed
against the government. Moreover, Philex’s theory that would automatically apply its VAT input
credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers credit and offset their tax liabilities.
Same; Surcharges; The payment of the surcharge is mandatory and the Bureau of Internal
Revenue is not vested with any authority to waive the collection thereof. —Corollarily, the fact that
Philex has pending claims for VAT input claim/refund with the government is immaterial for the
imposition of charges and penalties prescribed under Sections 248 and 249 of the Tax Code of
1977. The payment of the surcharge is mandatory and the BIR is not vested with any authority to
waive the collection thereof. The same cannot be condoned for flimsy reasons, similar to the one
advanced by Philex in justifying its non-payment of its tax liabilities.
Same; Tax Refunds and Credit; Speedy Disposition of Cases; Once the claimant has
submitted all the required documents, it is the function of the Bureau of Internal Revenue to
assess these documents with purposeful dispatch—since taxpayers owe honesty to government, it
is but just that government render fair service to the taxpayers; Fair dealing and nothing less, is
expected by the taxpayer from the Bureau of Internal Revenue in the latter’s discharge of its
function.—Philex asserts that the BIR violated Section 106(e) of the National Internal Revenue
Code of 1977, which requires the refund of input taxes within 60 days, when it took five years for
the latter to grant its tax claim for VAT input credit/refund. In this regard, we agree with Philex.
While there is no dispute that a claimant has the burden of proof to establish the factual basis of
his or her claim for tax credit or refund, however, once the claimant has submitted all the required
documents, it is the function of the BIR to assess these documents with purposeful dispatch. After
all, since taxpayers owe honesty to government it is but just that government render fair service
to the taxpayers. In the instant case, the VAT input taxes were paid between 1989 to 1991 but
the refund of these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been
more diligent and judicious with their duty, it could have granted the refund earlier. We need not
remind the BIR that simple justice requires the speedy refund of wrongly-held taxes. Fair dealing
and nothing less, is expected by the taxpayer from the BIR in the latter’s discharge of its function.
Same; Same; Same; Estoppel; It is a settled rule that in the performance of governmental
function, the State is not bound by the neglect of its agents and officers, and nowhere is this
more true than in the field of taxation. —Despite our concern with the lethargic manner by which
the BIR handled Philex’s tax claim, it is a settled rule that in the performance of governmental
function, the State is not bound by the neglect of its agents and officers. Nowhere is this more
true than in the field of taxation. Again, while we understand Philex’s predicament, it must be
stressed that the same is not a valid reason for the non-payment of its tax liabilities.
 Same; Same; Same; Public Officers; The taxpayer is not devoid of remedy against public In a letter dated August 20, 1992,4 Philex protested the demand for payment of the tax liabilities
servants or employees, especially BIR examiners who, in investigating tax claims are seen to drag stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years
their feet needlessly.—To be sure, this is not to state that the taxpayer is devoid of remedy 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore, these claims for tax
against public servants or employees, especially BIR examiners who, in investigating tax claims credit/refund should be applied against the tax liabilities, citing our ruling in Commissioner of
are seen to drag their feet needlessly. First, if the BIR takes time in acting upon the taxpayer’s Internal Revenue v. Itogon-Suyoc Mines, Inc.5
claim for refund, the latter can seek judicial remedy before the Court of Tax Appeals in the In reply, the BIR, in a letter dated September 7, 1992,6 found no merit in Philex’s position.
manner prescribed by law. Second, if the inaction can be characterized as willful neglect of duty, Since these pending claims have not yet been established or determined with certainty, it follows
then recourse under the Civil Code and the Tax Code can also be availed of. that no legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle
the amount plus interest within 30 days from the receipt of the letter.
In view of the BIR’s denial of the offsetting of Philex’s claim for VAT input credit/refund
against its excise tax obligation, Philex raised the issue to the Court of Tax Appeals on November
Same; Same; Same; Same; Judicial Notice; Insolence and delay have no place in 6, 1992.7 In the course of the proceedings, the BIR issued Tax Credit Certificate SN 001795 in the
government service; The Court takes judicial notice of the taxpayer’s generally negative amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52;
perception towards the Bureau of Internal Revenue. —Simply put, both provisions abhor official effectively lowered the latter’s tax obligation to P110,677,688.52.
inaction, willful neglect and unreasonable delay in the performance of official duties. In no Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining
uncertain terms must we stress that every public employee or servant must strive to render balance of P110,677,688.52 plus interest, elucidating its reason, to wit:
service to the people with utmost diligence and efficiency. Insolence and delay have no place in “Thus, for legal compensation to take place, both obligations must be liquidated and demandable.
government service. The BIR, being the government collecting arm, must and should do no less. ‘Liquidated’ debts are those where the exact amount has already been determined (PARAS, Civil
It simply cannot be apathetic and laggard in rendering service to the taxpayer if it wishes to Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims
remain true to its mission of hastening the country’s development. We take judicial notice of the of the Petitioner for VAT refund is still pending litigation, and still has to be determined by this
taxpayer’s generally negative perception towards the BIR; hence, it is up to the latter to prove its Court (C.T.A. Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the government
detractors wrong. cannot, therefore, be set-off against the unliquidated claim which Petitioner conceived to exist in
its favor (see Compañia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918,
39 Phil. 34).”8
Moreover, the Court of Tax Appeals ruled that “taxes cannot be subject to set-off on
compensation since claim for taxes is not a debt or contract.”9 The dispositive portion of the CTA
PETITION for review on certiorari of a decision of the Court of Appeals.
decision10 provides:
“In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is
The facts are stated in the opinion of the Court. hereby ORDERED to PAY the Respondent the amount of P110,677,668.52 representing excise tax
     Roco, Bunag, Kapunan & Migallos for petitioner. liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
     The Solicitor General for respondents. interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code, as
amended.”
ROMERO, J.: Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-
G.R. CV No. 36975.11 Nonetheless, on April 8, 1996, the Court of Appeals affirmed the Court of
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, Tax Appeals observation. The pertinent portion of which reads:12
1996 in CA-G.R. SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872 “WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision
dated March 16, 19952 ordering it to pay the amount of P110,677,668.52 as excise tax liability for dated March 16, 1995 is AFFIRMED.”
the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated
August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. July 11, 1996.13
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax However, a few days after the denial of its motion for reconsideration, Philex was able to
liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and
the total amount of P123,821,982.52 computed as follows: 1994, computed as follows:14
PERIOD BASIC TAX 25% INTEREST TOTAL EXCISE TAX Period Covered By Claims Tax Credit Date of Amount
COVERED SURCHARGE DUE For VAT refund/credit Certificate Issue
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91 Number
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60 1994 (2nd Quarter) 007730 11 July P25,317,534.01
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88 1996
  47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39 1994 (4th Quarter) 007731 11 July P21,791,020.61
1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25 1996
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88 1989 007732 11 July P37,322,799.19
  43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13 1996
  90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.523 1990-1991 007751 16 July P84,662,787.46
 1996
1992 (1st-3rd Quarter) 007755 23 July P36,501,147.95
1996
In view of the grant of its VAT input credit/refund, Philex now contends that the same
should, ipso jure, off-set its excise
tax liabilities15 since both had already become “due and demandable, as well as fully
liquidated”;16 hence, legal compensation can properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the pronouncement that
taxes cannot be subject to compensation for the simple reason that the government and the
taxpayer are not creditors and debtors of each other.17 There is a material distinction between a
tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to
the Government in its sovereign capacity.18 We find no cogent reason to deviate from the
aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court ,19 we categorically
held that taxes cannot be subject to set-off or compensation, thus:
“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.”
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v.
Commission on Audit,20 which reiterated that:
“x x x a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually creditors and debtors of
each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be setoff.”
Further, Philex’s reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc., wherein we ruled that a pending refund may be set off against an existing tax liability
even though the refund has not yet been approved by the Commissioner,21 is no longer without
any support in statutory law.
It is important to note that the premise of our ruling in the aforementioned case was anchored
on Section 51(d) of the National Revenue Code of 1939. However, when the National Internal
Revenue Code of 1977 was enacted, the same provision upon which the Itogon-
Suyoc pronouncement was based was omitted.22 Accordingly, the doctrine enunciated
in ItogonSuyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philex’s position, it asserts that the imposition
of surcharge and interest for the non-payment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay the excise tax liabilities within
the prescribed period since, after all, it still has pending claims for VAT input credit/refund with
BIR.23
We fail to see the logic of Philex’s claim for this is an outright disregard of the basic principle in
tax law that taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance.24 Evidently, to countenance Philex’s whimsical reason would render
ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it
has a pending tax claim for refund or credit against the government which has not yet been
granted. It must be noted that a distinguishing feature of a tax is that it is compulsory rather than
a matter of bargain.25 Hence, a tax does not depend upon the consent of the taxpayer.26 If any
taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for
refund or credit, this would adversely affect the government revenue system. A taxpayer cannot
refuse to pay his taxes when they fall due simply because he has a claim against the government
or that the collection of the tax is contingent on the result of the lawsuit it filed against the
government.27 Moreover, Philex’s theory that would automatically apply its VAT input
credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers credit and offset their tax liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the
government is immaterial for the imposition of charges and penalties prescribed under Sections
248 and 249 of the Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is
not vested with any authority to waive the collection thereof.28 The same cannot be condoned for
flimsy reasons,29 similar to the one advanced by Philex in justifying its non-payment of its tax
liabilities. Finally, Philex asserts that the BIR violated Section 106(e)30 of the National Internal
Revenue Code of 1977, which requires the refund of input taxes within 60 days,31 when it took
five years for the latter to grant its tax claim for VAT input credit/refund.32
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden
of proof to establish the factual basis of his or her claim for tax credit or refund, 33 however, once
the claimant has submitted all the required documents, it is the function of the BIR to assess
these documents with purposeful dispatch. After all, since taxpayers owe honesty to government it
is but just that government render fair service to the taxpayers.34
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of
these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent
and judicious with their duty, it could have granted the refund earlier. We need not remind the
BIR that simple justice requires the speedy refund of wrongly-held taxes.35 Fair dealing and
nothing less, is expected by the taxpayer from the BIR in the latter’s discharge of its function. As
aptly held in Roxas v. Court of Tax Appeals:36
“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.”
Despite our concern with the lethargic manner by which the BIR handled Philex’s tax claim, it is a
settled rule that in the performance of governmental function, the State is not bound by the
neglect of its agents and officers. Nowhere is this more true than in the field of taxation.37 Again,
while we understand Philex’s predicament, it must be stressed that the same is not a valid reason
for the non-payment of its tax liabilities.
To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or
employees, especially BIR examiners who, in investigating tax claims are seen to drag their feet
needlessly. First, if the BIR takes time in acting upon the taxpayer’s claim for refund, the latter can
seek judicial remedy before the Court of Tax Appeals in the manner prescribed by law. 38 Second,
if the inaction can be character-ized as willful neglect of duty, then recourse under the Civil Code
and the Tax Code can also be availed of.
Article 27 of the Civil Code provides:
“Art. 27. Any person suffering material or moral loss because a public servant or employee refuses
or neglects, without just cause, to perform his official duty may file an action for damages and
other relief against the latter, without prejudice to any disciplinary action that may be taken.”
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
“x x x      x x x      x x x
(c) wilfully neglecting to give receipts, as by law required for any sum collected in the
performance of duty or wilfully neglecting to perform, any other duties enjoined by law .”
Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the
performance of official duties.39 In no uncertain terms must we stress that every public employee
or servant must strive to render service to the people with utmost diligence and efficiency.
Insolence and delay have no place in government service. The BIR, being the government
collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering
service to the taxpayer if it wishes to remain true to its mission of hastening the country’s
development. We take judicial notice of the taxpayer’s generally negative perception towards the
BIR; hence, it is up to the latter to prove its detractors wrong.
 In sum, while we can never condone the BIR’s apparent callousness in performing its duties,
still, the same cannot justify Philex’s non-payment of its tax liabilities. The adage “no one should
take the law into his own hands” should have guided Philex’s action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed
decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.
 G.R. No. 166006. March 14, 2008.*
PLANTERS PRODUCTS, INC., petitioner, vs.  FERTIPHIL CORPORATION, respondent.
Judicial Review; Locus Standi; In private suits, locus standi requires a litigant to be a “real
party in interest,” which is defined as “the party who stands to be benefited or injured by the
judgment in the suit or the party entitled to the avails of the suit”; In this jurisdiction, We have
adopted the “direct injury test” to determine locus standi in public suits; The “direct injury test” in
public suits is similar to the “real party in interest” rule for private suits under Section 2, Rule 3 of
the 1997 Rules of Civil Procedure.—The doctrine of locus standi or the right of appearance in a
court of justice has been adequately discussed by this Court in a catena of cases. Succinctly put,
the doctrine requires a litigant to have a material interest in the outcome of a case. In private
suits, locus standi requires a litigant to be a “real party in interest,” which is defined as “the party
who stands to be benefited or injured by the judgment in the suit or the party entitled to the
avails of the suit.” In public suits, this Court recognizes the difficulty of applying the doctrine
especially when plaintiff asserts a public right on behalf of the general public because of
conflicting public policy issues. On one end, there is the right of the ordinary citizen to petition the
courts to be freed from unlawful government intrusion and illegal official action. At the other end,
there is the public policy precluding excessive judicial interference in official acts, which may
unnecessarily hinder the delivery of basic public services. In this jurisdiction, We have adopted the
“direct injury test” to determine locus standi in public suits. In People v. Vera, 65 Phil. 56 (1937),
it was held that a 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.”
The “direct injury test” in public suits is similar to the “real party in interest” rule for private suits
under Section 2, Rule 3 of the 1997 Rules of Civil Procedure. Recognizing that a strict application
of the “direct injury” test may hamper public interest, this Court relaxed the requirement in cases
of “transcendental importance” or with “far reaching implications.” Being a mere procedural
technicality, it has also been held that locus standi may be waived in the public interest.
Same; Same; The fact of payment by a seller of the levy imposed by Letter of Instruction
(LOI) 1465 is sufficient injury—the harm occasioned on its business is sufficient injury for
purposes of locus standi.—Whether or not the complaint for collection is characterized as a private
or public suit, Fertiphil has locus standi to file it. Fertiphil suffered a direct injury from the
enforcement of LOI No. 1465. It was required, and it did pay, the P10 levy imposed for every bag
of fertilizer sold on the domestic market. It may be true that Fertiphil has passed some or all of
the levy to the ultimate consumer, but that does not disqualify it from attacking the
constitutionality of the LOI or from seeking a refund. As seller, it bore the ultimate burden of
paying the levy. It faced the possibility of severe sanctions for failure to pay the levy. The fact of
payment is sufficient injury to Fertiphil. Moreover, Fertiphil suffered harm from the enforcement of
the LOI because it was compelled to factor in its product the levy. The levy certainly rendered the
fertilizer products of Fertiphil and other domestic sellers much more expensive. The harm to their
business consists not only in fewer clients because of the increased price, but also in adopting
alternative corporate strategies to meet the demands of LOI No. 1465. Fertiphil and other fertilizer
sellers may have shouldered all or part of the levy just to be competitive in the market. The harm
occasioned on the business of Fertiphil is sufficient injury for purposes of locus standi.
Same; Same; The doctrine of standing, being a mere procedural technicality, should be
waived, if at all, to adequately thresh out an important constitutional issue. —Even
assuming arguendo that there is no direct injury, We find that the liberal policy consistently
adopted by this Court on locus standi  must apply. The issues raised by Fertiphil are of paramount
public importance. It involves not only the constitutionality of a tax law but, more importantly, the
use of taxes for public purpose. Former President Marcos issued LOI No. 1465 with the intention
of rehabilitating an ailing private company. This is clear from the text of the LOI. PPI is expressly
named in the LOI as the direct beneficiary of the levy. Worse, the levy was made dependent and
conditional upon PPI becoming financially viable. The LOI provided that “ the capital contribution
shall be collected until adequate capital is raised to make PPI viable .” The constitu-487
VOL. 548, MARCH 14, 2008 487
Planters Products, Inc. vs. Fertiphil Corporation
tionality of the levy is already in doubt on a plain reading of the statute. It is Our
constitutional duty to squarely resolve the issue as the final arbiter of all justiciable controversies.
The doctrine of standing, being a mere procedural technicality, should be waived, if at all, to
adequately thresh out an important constitutional issue.
Same; Jurisdictions; Regular courts have jurisdiction over cases involving the validity or
constitutionality of a rule or regulation issued by administrative agencies. —In the recent case
of Equi-Asia Placement, Inc. v. Department of Foreign Affairs , 502 SCRA 295 (2006), this Court
reiterated: There is no denying that regular courts have jurisdiction over cases involving the
validity or constitutionality of a rule or regulation issued by administrative agencies. Such
jurisdiction, however, is not limited to the Court of Appeals or to this Court alone for even the
regional trial courts can take cognizance of actions assailing a specific rule or set of rules
promulgated by administrative bodies. Indeed, the Constitution vests the power of judicial review
or the power to declare a law, treaty, international or executive agreement, presidential decree,
order, instruction, ordinance, or regulation in the courts, including the regional trial courts.
Same; Same; Judicial review of official acts on the ground of unconstitutionality may be
sought or availed of through any of the actions cognizable by courts of justice, not necessarily in a
suit for declaratory relief.—Judicial review of official acts on the ground of unconstitutionality may
be sought or availed of through any of the actions cognizable by courts of justice, not necessarily
in a suit for declaratory relief. Such review may be had in criminal actions, as in People v. Ferrer,
48 SCRA 382 (1972), involving the constitutionality of the now defunct Anti-Subversion law, or in
ordinary actions, as in Krivenko v. Register of Deeds , 79 Phil. 461 (1947), involving the
constitutionality of laws prohibiting aliens from acquiring public lands. The constitutional issue,
however, (a) must be properly raised and presented in the case, and (b) its resolution is necessary
to a determination of the case, i.e., the issue of constitutionality must be the very lis
mota presented.
Same; Lis Mota; The constitutionality of Letter of Instruction (LOI) No. 1465 is also the very
lis mota of the complaint for collection. —The constitutionality of LOI No. 1465 is also the very lis
mota of the complaint for collection. Fertiphil filed the complaint to compel488
488 SUPREME COURT REPORTS ANNOTATED
Planters Products, Inc. vs. Fertiphil Corporation
PPI to refund the levies paid under the statute on the ground that the law imposing the levy
is unconstitutional. The thesis is that an unconstitutional law is void. It has no legal effect. Being
void, Fertiphil had no legal obligation to pay the levy. Necessarily, all levies duly paid pursuant to
an unconstitutional law should be refunded under the civil code principle against unjust
enrichment. The refund is a mere consequence of the law being declared unconstitutional. The
RTC surely cannot order PPI to refund Fertiphil if it does not declare the LOI unconstitutional. It is
the unconstitutionality of the LOI which triggers the refund. The issue of constitutionality is the
very lis mota of the complaint with the RTC.
Taxation; Police Power; Words and Phrases; Police power is the power of the State to enact
legislation that may interfere with personal liberty or property in order to promote the general
welfare, while the power of taxation is the power to levy taxes to be used for public purpose. —
Police power and the power of taxation are inherent powers of the State. These powers are
distinct and have different tests for validity. Police power is the power of the State to enact
legislation that may interfere with personal liberty or property in order to promote the general
welfare, while the power of taxation is the power to levy taxes to be used for public purpose. The
main purpose of police power is the regulation of a behavior or conduct, while taxation is revenue
generation. The “lawful subjects” and “lawful means” tests are used to determine the validity of a
law enacted under the police power. The power of taxation, on the other hand, is circumscribed
by inherent and constitutional limitations. We agree with the RTC that the imposition of the levy
was an exercise by the State of its taxation power. While it is true that the power of taxation can
be used as an implement of police power, the primary purpose of the levy is revenue generation.
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.
Same; The power to tax exists for the general welfare, hence, implicit in its power is the
limitation that it should be used only for a public purpose—it would be a robbery for the State to
tax its citizens and use the funds generated for a private purpose. —An inherent limitation on the
power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot be
used for purely private purposes or for the exclusive benefit of private persons. The489
VOL. 548, MARCH 14, 2008 489
Planters Products, Inc. vs. Fertiphil Corporation
reason for this is simple. The power to tax exists for the general welfare; hence, implicit in
its power is the limitation that it should be used only for a public purpose. It would be a robbery
for the State to tax its citizens and use the funds generated for a private purpose. As an old
United States case bluntly put it: “To lay with one hand, the power of the government on the
property of the citizen, and with the other to bestow it upon favored individuals to aid private
enterprises and build up private fortunes, is nonetheless a robbery because it is done under the
forms of law and is called taxation.”
Same; Words and Phrases; Public purpose is the heart of a tax law; Public purpose is an
elastic concept that can be hammered to fit modern standards—it does not only pertain to those
purposes which are traditionally viewed as essentially government functions, such as building
roads and delivery of basic services, but also includes those purposes designed to promote social
justice; While the categories of what may constitute a public purpose are continually expanding in
light of the expansion of government functions, the inherent requirement that taxes can only be
exacted for a public purpose still stands. —The term “public purpose” is not defined. It is an elastic
concept that can be hammered to fit modern standards. Jurisprudence states that “public
purpose” should be given a broad interpretation. It does not only pertain to those purposes which
are traditionally viewed as essentially government functions, such as building roads and delivery of
basic services, but also includes those purposes designed to promote social justice. Thus, public
money may now be used for the relocation of illegal settlers, low-cost housing and urban or
agrarian reform. While the categories of what may constitute a public purpose are continually
expanding in light of the expansion of government functions, the inherent requirement that taxes
can only be exacted for a public purpose still stands. Public purpose is the heart of a tax law.
When a tax law is only a mask to exact funds from the public when its true intent is to give undue
benefit and advantage to a private enterprise, that law will not satisfy the requirement of “public
purpose.” The purpose of a law is evident from its text or inferable from other secondary sources.
Here, We agree with the RTC and that CA that the levy imposed under LOI No. 1465 was not for a
public purpose.490
490 SUPREME COURT REPORTS ANNOTATED
Planters Products, Inc. vs. Fertiphil Corporation
Same; It is utterly repulsive that a tax law would expressly name a private company as the
ultimate beneficiary of the taxes to be levied from the public—it is a clear case of crony capitalism.
—It is a basic rule of statutory construction that the text of a statute should be given a literal
meaning. In this case, the text of the LOI is plain that the levy was imposed in order to raise
capital for PPI. The framers of the LOI did not even hide the insidious purpose of the law. They
were cavalier enough to name PPI as the ultimate beneficiary of the taxes levied under the LOI.
We find it utterly repulsive that a tax law would expressly name a private company as the ultimate
beneficiary of the taxes to be levied from the public. This is a clear case of crony capitalism.
Police Power; Test for Valid Exercise; Letter of Instruction (LOI) No. 1695 is invalid because
it did not promote public interest.—Even if We consider LOI No. 1695 enacted under the police
power of the State, it would still be invalid for failing to comply with the test of “lawful subjects”
and “lawful means.” Jurisprudence states the test as follows: (1) the interest of the public
generally, as distinguished from those of particular class, requires its exercise; and (2) the means
employed are reasonably necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals. For the same reasons as discussed, LOI No. 1695 is invalid because it
did not promote public interest. The law was enacted to give undue advantage to a private
corporation.
Statutes; Operative Fact Doctrine; The general rule is that an unconstitutional law is void—it
produces no rights, imposes no duties and affords no protection, it has no legal effect, and it is, in
legal contemplation, inoperative as if it has not been passed. —The general rule is that an
unconstitutional law is void. It produces no rights, imposes no duties and affords no protection. It
has no legal effect. It is, in legal contemplation, inoperative as if it has not been passed. Being
void, Fertiphil is not required to pay the levy. All levies paid should be refunded in accordance with
the general civil code principle against unjust enrichment. The general rule is supported by Article
7 of the Civil Code, which provides: ART. 7. Laws are repealed only by subsequent ones, and their
violation or non-observance shall not be excused by disuse or custom or practice to the
contrary. When the courts declare a law to be inconsistent with the Constitution, the former shall
be void and the latter shall govern.491
VOL. 548, MARCH 14, 2008 491
Planters Products, Inc. vs. Fertiphil Corporation
Same; Same; Unjust Enrichment; The doctrine of operative fact, as an exception to the
general rule, only applies as a matter of equity and fair play—there is nothing iniquitous in
ordering the beneficiary of an unconstitutional law where it unduly benefited from it, otherwise it
would be unjustly enriched at the expense of others. —The doctrine of operative fact, as an
exception to the general rule, only applies as a matter of equity and fair play. It nullifies the
effects of an unconstitutional law by recognizing that the existence of a statute prior to a
determination of unconstitutionality is an operative fact and may have consequences which cannot
always be ignored. The past cannot always be erased by a new judicial declaration. The doctrine is
applicable when a declaration of unconstitutionality will impose an undue burden on those who
have relied on the invalid law. Thus, it was applied to a criminal case when a declaration of
unconstitutionality would put the accused in double jeopardy or would put in limbo the acts done
by a municipality in reliance upon a law creating it. Here, We do not find anything iniquitous in
ordering PPI to refund the amounts paid by Fertiphil under LOI No. 1465. It unduly benefited from
the levy. It was proven during the trial that the levies paid were remitted and deposited to its
bank account. Quite the reverse, it would be inequitable and unjust not to order a refund. To do
so would unjustly enrich PPI at the expense of Fertiphil. Article 22 of the Civil Code explicitly
provides that “every person who, through an act of performance by another comes into
possession of something at the expense of the latter without just or legal ground shall return the
same to him.” We cannot allow PPI to profit from an unconstitutional law. Justice and equity
dictate that PPI must refund the amounts paid by Fertiphil.
PETITION for review on certiorari of a decision of the Court of Appeals.
   The facts are stated in the opinion of the Court.
 Malaya, Sanchez, Francisco, Añover Law Offices  for petitioner.
  Madrid & Associates  for respondent.
492
492 SUPREME COURT REPORTS ANNOTATED
Planters Products, Inc. vs. Fertiphil Corporation
REYES, R.T., J.:
THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the
constitutionality of statutes, executive orders, presidential decrees and other issuances. The
Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts.
The principle is relevant in this petition for review on certiorari of the Decision1 of the Court of
Appeals (CA) affirming with modification that of the RTC in Makati City, 2 finding petitioner Planters
Products, Inc. (PPI) liable to private respondent Fertiphil Corporation (Fertiphil) for the levies it
paid under Letter of Instruction (LOI) No. 1465.
The Facts
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under
Philippine laws.3 They are both engaged in the importation and distribution of fertilizers, pesticides
and agricultural chemicals.
On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued
LOI No. 1465 which provided, among others, for the imposition of a capital recovery component
(CRC) on the domestic sale of all grades of fertilizers in the Philippines. 4 The LOI provides:
“3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing
formula a capital contribution component of not less than P10 per bag. This capital contribution
shall be collected until adequate capital is raised to make PPI viable.  Such capital contribution
shall be applied by FPA to all domestic sales of fertilizers in the Philippines.” 5 (Italics supplied)
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market
to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to the Far
East Bank and Trust Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to FPA from
July 8, 1985 to January 24, 1986. 6
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With
the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI
No. 1465, but PPI refused to accede to the demand.7
Fertiphil filed a complaint for collection and damages8 against FPA and PPI with the RTC in
Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable,
oppressive, invalid and an unlawful imposition that amounted to a denial of due process of
law.9 Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which used
the proceeds to maintain its monopoly of the fertilizer industry.
In its Answer,10 FPA, through the Solicitor General, countered that the issuance of LOI No.
1465 was a valid exercise of the police power of the State in ensuring the stability of the fertilizer
industry in the country. It also averred that Fertiphil did not sustain any damage from the LOI
because the burden imposed by the levy fell on the ultimate consumer, not the seller.
RTC Disposition
On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as follows:
“WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against the defendant Planters Product, Inc., ordering the latter to pay the former:
1) the sum of P6,698,144.00 with interest at 12% from the time of judicial demand;
2) the sum of P100,000 as attorney’s fees;
3) the cost of suit.
SO ORDERED.”11
Ruling that the imposition of the P10 CRC was an exercise of the State’s inherent power of
taxation, the RTC invalidated the levy for violating the basic principle that taxes can only be levied
for public purpose, viz.:
“It is apparent that the imposition of P10 per fertilizer bag sold in the country by LOI 1465 is
purportedly in the exercise of the power of taxation. It is a settled principle that the power of
taxation by the state is plenary. Comprehensive and supreme, the principal check upon its abuse
resting in the responsibility of the members of the legislature to their constituents. However, there
are two kinds of limitations on the power of taxation: the inherent limitations and the
constitutional limitations.
One of the inherent limitations is that a tax may be levied only for public purposes:
The power to tax can be resorted to only for a constitutionally valid public purpose. By the same
token, taxes may not be levied for purely private purposes, for building up of private fortunes,
or for the redress of private wrongs. They cannot be levied for the improvement of private
property, or for the benefit, and promotion of private enterprises, except where the aid is
incident to the public benefit. It is well-settled principle of constitutional law that no general
tax can be levied except
for the purpose of raising money which is to be expended for public use. Funds cannot be exacted
under the guise of taxation to promote a purpose that is not of public interest. Without such
limitation, the power to tax could be exercised or employed as an authority to destroy the
economy of the people. A tax, however, is not held void on the ground of want of public
interest unless the want of such interest is clear. (71 Am. Jur. pp. 371-372)
In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and
Pesticide Authority pursuant to the P10 per bag of fertilizer sold imposition under LOI 1465 which,
in turn, remitted the amount to the defendant Planters Products, Inc. thru the latter’s depository
bank, Far East Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff, Fertiphil Corporation,
which is a private domestic corporation, became poorer by the amount of P6,698,144.00 and the
defendant, Planters Product, Inc., another private domestic corporation, became richer by the
amount of P6,698,144.00.
Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is
quite evident that LOI 1465 insofar as it imposes the amount of P10 per fertilizer bag sold in the
country and orders that the said amount should go to the defendant Planters Product, Inc. is
unlawful because it violates the mandate that a tax can be levied only for a public purpose and
not to benefit, aid and promote a private enterprise such as Planters Product, Inc.” 12
PPI moved for reconsideration but its motion was denied. 13 PPI then filed a notice of appeal
with the RTC but it failed to pay the requisite appeal docket fee. In a separate but related
proceeding, this Court14 allowed the appeal of PPI and remanded the case to the CA for proper
disposition.
CA Decision
On November 28, 2003, the CA handed down its decision affirming with modification that of
the RTC, with the following fallo:
“IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby AFFIRMED, subject
to the MODIFICATION that the award of attorney’s fees is hereby DELETED.”15
In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection
was the constitutionality of LOI No. 1465, thus:
 “The question then is whether it was proper for the trial court to exercise its power to
judicially determine the constitutionality of the subject statute in the instant case.
As a rule, where the controversy can be settled on other grounds, the courts will not resolve
the constitutionality of a law ( Lim v. Pacquing, 240 SCRA 649 [1995]).  The policy of the courts is
to avoid ruling on constitutional questions and to presume that the acts of political departments
are valid, absent a clear and unmistakable showing to the contrary.
However, the courts are not precluded from exercising such power when the following
requisites are obtaining in a controversy before it: First, there must be before the court an actual
case calling for the exercise of judicial review. Second, the question must be ripe for
adjudication. Third, the person challenging the validity of the act must have standing to
challenge. Fourth, the question of constitutionality must have been raised at the earliest
opportunity; and lastly, the issue of constitutionality must be the very lis mota of the case
(Integrated Bar of the Philippines v. Zamora, 338 SCRA 81 [2000]).
Indisputably, the present case was primarily instituted for collection and damages. However, a
perusal of the complaint also reveals that the instant action is founded on the claim that the levy
imposed was an unlawful and unconstitutional special assessment.
Consequently, the requisite that the constitutionality of the law in question be the very lis mota of
the case is present, making it proper for the trial court to rule on the constitutionality of LOI
1465.”16
The CA held that even on the assumption that LOI No. 1465 was issued under the police
power of the state, it is still unconstitutional because it did not promote public welfare. The CA
explained:
“In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the
said law was an invalid exercise of the State’s power of taxation inasmuch as it violated the
inherent and constitutional prescription that taxes be levied only for public purposes. It reasoned
out that the amount collected under the levy was remitted to the depository bank of PPI, which
the latter used to advance its private interest.
On the other hand, appellant submits that the subject statute’s passage was a valid exercise of
police power. In addition, it disputes the court a quo’s findings arguing that the collections under
LOI 1465 was for the benefit of Planters Foundation, Incorporated (PFI), a foundation created by
law to hold in trust for millions of farmers, the stock ownership of PPI.
Of the three fundamental powers of the State, the exercise of police power has been
characterized as the most essential, insistent and the least limitable of powers, extending as it
does to all the great public needs. It may be exercised as long as the activity or the property
sought to be regulated has some relevance to public welfare ( Constitutional Law, by Isagani A.
Cruz, p. 38, 1995 Edition).
Vast as the power is, however, it must be exercised within the limits set by the Constitution,
which requires the concurrence of a lawful subject and a lawful method. Thus, our courts have
laid down the test to determine the validity of a police measure as follows: (1) the interests of the
public generally, as distinguished from those of a particular class, requires its exercise; and (2) the
means employed are reasonably necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals (National Development Company v. Philippine Veterans Bank , 192
SCRA 257 [1990]).
It is upon applying this established tests that We sustain the trial court’s holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the
country is an undertaking imbued with public interest. However, the method by which LOI 1465
sought to achieve this is by no means a measure that will promote the public welfare. The
government’s commitment to support the successful rehabilitation and continued viability of PPI, a
private corporation, is an unmistakable attempt to mask the subject statute’s impartiality. There is
no way to treat the self-interest of a favored entity, like PPI, as identical with the general interest
of the country’s farmers or even the Filipino people in general. Well to stress, substantive due
process exacts fairness and equal protection disallows distinction where none is needed.  When a
statute’s public purpose is spoiled by private interest, the use of police power becomes a travesty
which must be struck down for being an arbitrary exercise of government power. To rule in favor
of appellant would contravene the general principle that revenues derived from taxes cannot be
used for purely private purposes or for the exclusive benefit of private individuals. ”17
The CA did not accept PPI’s claim that the levy imposed under LOI No. 1465 was for the
benefit of Planters Foundation, Inc., a foundation created to hold in trust the stock ownership of
PPI. The CA stated:
“Appellant next claims that the collections under LOI 1465 was for the benefit of Planters
Foundation, Incorporated (PFI), a foundation created by law to hold in trust for millions of
farmers, the stock ownership of PFI on the strength of Letter of Undertaking (LOU) issued by then
Prime Minister Cesar Virata on April 18, 1985 and affirmed by the Secretary of Justice in an
Opinion dated October 12, 1987, to wit:
“2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to
include in its fertilizer pricing formula a capital recovery component, the proceeds of which
will be used initially for the purpose of funding the unpaid portion of the outstanding capital
stock of Planters presently held in trust by Planters Foundation, Inc. (Planters
Foundation), which unpaid capital is estimated at approximately P206 million (subject to
validation by Planters and Planters Foundation) (such unpaid portion of the outstanding
capital stock of Planters being hereafter referred to as the ‘Unpaid Capital’), and
subsequently for such capital increases as may be required for the continuing viability of
Planters.
The capital recovery component shall be in the minimum amount of P10 per bag, which will be
added to the price of all domestic sales of fertilizer in the Philippines by any importer and/or
fertilizer mother company. In this connection, the Republic hereby acknowledges that the
advances by Planters to Planters Foundation which were applied to the payment of the
Planters shares now held in trust by Planters Foundation, have been assigned to, among
others, the Creditors. Accordingly, the Republic, through FPA, hereby agrees to deposit the
proceeds of the capital recovery component in the special trust account designated in the
notice dated April 2, 1985, addressed by counsel for the Creditors to Planters Foundation.
Such proceeds shall be deposited by FPA on or before the 15th day of each month.
The capital recovery component shall continue to be charged and collected until payment in full
of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy
Receivables, (c) any carrying cost accruing from the date hereof on the amounts which may
be outstanding from time to time of the Unpaid Capital and/or the Subsidy Receivables and
(d) the capital increases contemplated in paragraph 2 hereof. For the purpose of the
foregoing clause (c), the ‘carrying cost’ shall be at such rate as will represent the full and
reasonable cost to Planters of servicing its debts, taking into account both its peso and
foreign currency-denominated obligations.” (Records, pp. 42-43)
Appellant’s proposition is open to question, to say the least. The LOU issued by then Prime
Minister Virata taken together with the Justice Secretary’s Opinion does not preponderantly
demonstrate that the collections made were held in trust in favor of millions of farmers.
Unfortunately for appellant, in the absence of sufficient evidence to establish its claims, this Court
is constrained to rely on what is explicitly provided in LOI 1465—that one of the500
500 SUPREME COURT REPORTS ANNOTATED
Planters Products, Inc. vs. Fertiphil Corporation
primary aims in imposing the levy is to support the successful rehabilitation and continued viability
of PPI.”18
PPI moved for reconsideration but its motion was denied. 19 It then filed the present petition
with this Court.
Issues
Petitioner PPI raises four issues for Our consideration, viz.:
I suits. In People v. Vera,25 it was held that a person who impugns the validity of a statute must
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED  AND BE
DECREED VIA A DEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION AND DAMAGES WHERE
THE ISSUE OF CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE CASE. NEITHER CAN
LOI 1465 BE CHALLENGED BY ANY PERSON OR ENTITY WHICH HAS NO STANDING TO DO SO.
II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FERTILIZER
SUPPLY AND DISTRIBUTION IN THE COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED
BY LAW TO HOLD IN TRUST FOR MILLIONS OF FARMERS THEIR STOCK OWNERSHIP IN
PPI CONSTITUTES A VALID LEGISLATION PURSUANT TO THE EXERCISE OF TAXATION AND
POLICE POWER FOR PUBLIC PURPOSES.
III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS REMITTED TO
THE GOVERNMENT, AND BECAME GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE AND
VALIDLY ENACTED LAW WHICH IMPOSED DUTIES AND CONFERRED RIGHTS BY VIRTUE OF THE
PRINCIPLE OF “OPERATIVE FACT” PRIOR TO ANY DECLARATION OF UNCONSTITUTIONALITY OF
LOI 1465.
IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO APPLICATION IN
THE INSTANT CASE.20 (Italics supplied)
Our Ruling
We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to
resolve constitutional issues.
Fertiphil has locus standi because
it suffered direct injury; doctrine
of standing is a mere procedural
technicality which may be waived.
PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465
because it does not have a “personal and substantial interest in the case or will sustain direct
injury as a result of its enforcement.” 21 It asserts that Fertiphil did not suffer any damage from the
CRC imposition because “incidence of the levy fell on the ultimate consumer or the farmers
themselves, not on the seller fertilizer company.” 22
We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice
has been adequately discussed by this Court in a catena of cases. Succinctly put, the doctrine
requires a litigant to have a material interest in the outcome of a case. In private suits, locus
standi requires a litigant to be a “real party in interest,” which is defined as “the party who stands
to be benefited or injured by the judgment in the suit or the party entitled to the avails of the
suit.”23
In public suits, this Court recognizes the difficulty of applying the doctrine especially when
plaintiff asserts a public right on behalf of the general public because of conflicting public policy
issues24 On one end, there is the right of the ordinary citizen to petition the courts to be freed
from unlawful government intrusion and illegal official action. At the other end, there is the public
policy precluding excessive judicial interference in official acts, which may unnecessarily hinder the
delivery of basic public services.
In this jurisdiction, We have adopted the “direct injury test” to determine locus standi in public
have “a personal and substantial interest in the case such that he has sustained, or will sustain
direct injury as a result.” The “direct injury test” in public suits is similar to the “real party in
interest” rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil Procedure. 26
Recognizing that a strict application of the “direct injury” test may hamper public interest, this
Court relaxed the requirement in cases of “transcendental importance” or with “far reaching
implications.” Being a mere procedural techni-
cality, it has also been held that locus standi may be waived in the public interest.27
Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil
has locus standi to file it. Fertiphil suffered a direct injury from the enforcement of LOI No. 1465.
It was required, and it did pay, the P10 levy imposed for every bag of fertilizer sold on the
domestic market. It may be true that Fertiphil has passed some or all of the levy to the ultimate
consumer, but that does not disqualify it from attacking the constitutionality of the LOI or from
seeking a refund. As seller, it bore the ultimate burden of paying the levy. It faced the possibility
of severe sanctions for failure to pay the levy. The fact of payment is sufficient injury to Fertiphil.
Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled
to factor in its product the levy. The levy certainly rendered the fertilizer products of Fertiphil and
other domestic sellers much more expensive. The harm to their business consists not only in fewer
clients because of the increased price, but also in adopting alternative corporate strategies to
meet the demands of LOI No. 1465. Fertiphil and other fertilizer sellers may have shouldered all or
part of the levy just to be competitive in the market. The harm occasioned on the business of
Fertiphil is sufficient injury for purposes of locus standi.
Even assuming arguendo that there is no direct injury, We find that the liberal policy
consistently adopted by this Court on locus standi  must apply. The issues raised by Fertiphil are of
paramount public importance. It involves not only the constitutionality of a tax law but, more
importantly, the use of taxes for public purpose. Former President Marcos issued LOI No. 1465
with the intention of rehabilitating an ailing private company. This is clear from the text of the
LOI. PPI is expressly named in the LOI as the direct beneficiary of the levy.
Worse, the levy was made dependent and conditional upon PPI becoming financially viable. The
LOI provided that “the capital contribution shall be collected until adequate capital is raised to
make PPI viable.”
The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our
constitutional duty to squarely resolve the issue as the final arbiter of all justiciable controversies.
The doctrine of standing, being a mere procedural technicality, should be waived, if at all, to
adequately thresh out an important constitutional issue.
RTC may resolve constitutional is-
sues; the constitutional issue was
adequately raised in the complaint;
it is the lis mota of the case.
PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It
asserts that the constitutionality of the LOI cannot be collaterally attacked in a complaint for
collection.28 Alternatively, the resolution of the constitutional issue is not necessary for a
determination of the complaint for collection.29
Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its complaint.
It claims that the constitutionality of LOI No. 1465 is the very lis mota of the case because the trial
court cannot determine its claim without resolving the issue.30
 It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute,
presidential decree or an executive order. This is clear from Section 5, Article VIII of the 1987
Constitution, which provides:
“SECTION 5. The Supreme Court shall have the following powers:
x x x x
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari , as the law or the Rules
of Court may provide, final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any  treaty, international or
executive agreement, law, presidential decree, proclamation, order, instruction, ordinance,
or regulation is in question.” (Italics supplied)
In Mirasol v. Court of Appeals ,31 this Court recognized the power of the RTC to resolve
constitutional issues, thus:
“On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to
consider the constitutionality of a statute, presidential decree, or executive order. The Constitution
vests the power of judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation not only in this Court,
but in all Regional Trial Courts.”32
In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs ,33 this Court
reiterated:
“There is no denying that regular courts have jurisdiction over cases involving the validity or
constitutionality of a rule or regulation issued by administrative agencies. Such jurisdiction,
however, is not limited to the Court of Appeals or to this Court alone for even the regional trial
courts can take cognizance of actions assailing a specific rule or set of rules promulgated by
administrative bodies. Indeed, the Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement,presidential decree, order, instruction,
ordinance, or regulation in the courts, including the regional trial courts.”34
Judicial review of official acts on the ground of unconstitutionality may be sought or availed of
through any of the actions cognizable by courts of justice, not necessarily in a suit for declaratory
relief. Such review may be had in criminal actions, as in People v. Ferrer35 involving the
constitutionality of the now defunct Anti-Subversion law, or in ordinary actions, as in  Krivenko v.
Register of Deeds36 involving the constitutionality of laws prohibiting aliens from acquiring public
lands. The constitutional issue, however, (a) must be properly raised and presented in the case,
and (b) its resolution is necessary to a determination of the case, i.e., the issue of constitutionality
must be the very lis mota presented.37
Contrary to PPI’s claim, the constitutionality of LOI No. 1465 was properly and adequately
raised in the complaint for collection filed with the RTC. The pertinent portions of the complaint
allege:
“6. The CRC of P10 per bag levied under LOI 1465 on domestic sales of all grades of fertilizer
in the Philippines, is unlawful, unjust, uncalled for, unreasonable, inequitable and
oppressive because:
x x x x
(c) It favors only one private domestic corporation, i.e. , defendant PPPI, and imposed at the
expense and disadvantage of the other fertilizer importers/distributors who were themselves in
tight business situation and were then exerting all efforts and maximizing management and
marketing skills to remain viable;
x x x x
(e) It was a glaring example of crony capitalism , a forced program through which the
PPI, having been presumptuously masqueraded as “the” fertilizer industry itself, was the
sole and anointed beneficiary;
7. The CRC was an unlawful; and unconstitutional special assessment and its imposition is
tantamount to illegal exaction amounting to a denial of due process since the persons of entities
which had to bear the burden of paying the CRC derived no benefit therefrom ; that on the
contrary it was used by PPI in trying to regain its former despicable monopoly of the fertilizer
industry to the detriment of other distributors and importers.” 38 (Italics supplied)
The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection.
Fertiphil filed the complaint to compel PPI to refund the levies paid under the statute on the
ground that the law imposing the levy is unconstitutional. The thesis is that an unconstitutional
law is void. It has no legal effect. Being void, Fertiphil had no legal obligation to pay the levy.
Necessarily, all levies duly paid pursuant to an unconstitutional law should be refunded under the
civil code principle against unjust enrichment. The refund is a mere consequence of the law being
declared unconstitutional. The RTC surely cannot order PPI to refund Fertiphil if it does not
declare the LOI unconstitutional. It is the unconstitutionality of the LOI which triggers the refund.
The issue of constitutionality is the very lis mota of the complaint with the RTC.
The P10 levy under LOI No. 1465 is
an exercise of the power of taxation.
At any rate, the Court holds that the RTC and the CA did not err in ruling against the
constitutionality of the LOI.
PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of
taxation. It claims that the LOI was implemented for the purpose of assuring the fertilizer supply
and distribution in the country and for benefiting a foundation created by law to hold in trust for
millions of farmers their stock ownership in PPI.
Fertiphil counters that the LOI is unconstitutional because it was enacted to give benefit to a
private company. The levy was imposed to pay the corporate debt of PPI. Fertiphil also argues
that, even if the LOI is enacted under the police power, it is still unconstitutional because it did not
promote the general welfare of the people or public interest.
Police power and the power of taxation are inherent powers of the State. These powers are
distinct and have different tests for validity. Police power is the power of the State to enact
legislation that may interfere with personal liberty or property in order to promote the general
welfare,39 while the power of taxation is the power to levy taxes to be used for public purpose.
The main purpose of police power is the regulation of a behavior or conduct, while taxation is
revenue generation. The “lawful subjects” and “lawful means” tests are used to determine the
validity of a law enacted under the police power. 40 The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.
We agree with the RTC that the imposition of the levy was an exercise by the State of its
taxation power. While it is true that the power of taxation can be used as an implement of police
power,41 the primary purpose of the levy is revenue generation. 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.42
In Philippine Airlines, Inc. v. Edu,43 it was held that the imposition of a vehicle registration fee
is not an exercise by the State of its police power, but of its taxation power, thus:
 “It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the
Land Transportation and Traffic Code 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. x x x Fees may be properly regarded as taxes even though
they also serve as an instrument of regulation.
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. Such is the case of motor vehicle registration
fees. The same provision appears as Section 59(b) 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.” x x x 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. 59(b) of the Code as taxes
like the motor vehicle registration fee and chauffeurs’ license fee. Such fees are to go into the
expenditures of the Land Transportation Commission as provided for in the last proviso of Sec.
61.”44 (Italics supplied)
The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The
levy, no doubt, was a big burden on the seller or the ultimate consumer. It increased the price of
a bag of fertilizer by as much as five percent. 45 A plain reading of the LOI also supports the
conclusion that the levy was for revenue generation. The LOI expressly provided that the levy was
imposed “until adequate capital is raised to make PPI viable .”
Taxes are exacted only for a public pur-
pose. The P10 levy is unconstitutional
because it was not for a public purpose.
The levy was imposed to give undue bene-
fit to PPI.
An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a
public purpose. They cannot be used for purely private purposes or for the exclusive benefit of
private persons.46 The reason for this is simple. The power to tax exists for the general welfare;
hence, implicit in its power is the limitation that it should be used only for a public purpose. It
would be a robbery for the State to tax its citizens and use the funds generated for a private
purpose. As an old United States case bluntly put it: “To lay with one hand, the power of the
government on the property of the citizen, and with the other to bestow it upon favored
individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery
because it is done under the forms of law and is called taxation.”47
The term “public purpose” is not defined. It is an elastic concept that can be hammered to fit
modern standards. Jurisprudence states that “public purpose” should be given a broad
interpretation. It does not only pertain to those purposes which are traditionally viewed as
essentially government functions, such as building roads and delivery of basic services, but also
includes those purposes designed to promote social justice. Thus, public money may now be used
for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.
While the categories of what may constitute a public purpose are continually expanding in light
of the expansion of government functions, the inherent requirement that taxes can only be
exacted for a public purpose still stands. Public purpose is the heart of a tax law. When a tax law
is only a mask to exact funds from the public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy the requirement of “public purpose.”
The purpose of a law is evident from its text or inferable from other secondary sources. Here,
We agree with the RTC and that CA that the levy imposed under LOI No. 1465 was not for a
public purpose.
First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company.
The purpose is explicit from Clause 3 of the law, thus:
“3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing
formula a capital contribution component of not less than P10 per bag. This capital contribution
shall be collected until adequate capital is raised to make PPI viable . Such capital contribution shall
be applied by FPA to all domestic sales of fertilizers in the Philippines.” 48 (Italics supplied)
It is a basic rule of statutory construction that the text of a statute should be given a literal
meaning. In this case, the text of the LOI is plain that the levy was imposed in order to raise
capital for PPI. The framers of the LOI did not even hide the insidious purpose of the law. They
were cavalier enough to name PPI as the ultimate beneficiary of the taxes levied under the LOI.
We find it utterly repulsive that a tax law would expressly name a private company as the ultimate
beneficiary of the taxes to be levied from the public. This is a clear case of crony capitalism.
Second, the LOI provides that the imposition of the P10 levy was conditional and dependent
upon PPI becoming financially “viable.” This suggests that the levy was actually imposed to benefit
PPI. The LOI notably does not fix a maximum amount when PPI is deemed financially “viable.”
Worse, the liability of Fertiphil and other domestic sellers of fertilizer to pay the levy is made
indefinite. They are required to continuously pay the levy until adequate capital is raised for PPI.
Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and
deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI. 49 This proves
that PPI benefited from the LOI. It is also proves that the main purpose of the law was to give
undue benefit and advantage to PPI.
Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of
Understanding50 dated May 18, 1985 signed by then Prime Minister Cesar Virata reveals that PPI
was in deep financial problem because of its huge corporate debts. There were pending petitions
for rehabilitation against PPI before the Securities and Exchange Commission. The government
guaranteed payment of PPI’s debts to its foreign creditors. To fund the payment, President Marcos
issued LOI No. 1465. The pertinent portions of the letter of understanding read:
 
Republic of the Philippines
Office of the Prime Minister
Manila
LETTER OF UNDERTAKING
                                                                           May 18, 1985
TO  : THE BANKING AND FINANCIAL INSTITUTIONS
         LISTED IN ANNEX A HERETO WHICH ARE
         CREDITORS (COLLECTIVELY, THE “CREDITORS”)
         OF PLANTERS PRODUCTS, INC. (“PLANTERS”)
Gentlemen:
This has reference to Planters which is the principal importer and distributor of fertilizer,
pesticides and agricultural chemicals in the Philippines. As regards Planters, the Philippine
Government confirms its awareness of the following: (1) that Planters has outstanding
obligations in foreign currency and/or pesos, to the Creditors, (2) that Planters is currently
experiencing financial difficulties, and (3) that there are presently pending with the
Securities and Exchange Commission of the Philippines a petition filed at Planters’ own
behest for the suspension of payment of all its obligations , and a separate petition filed by
Manufacturers Hanover Trust Company, Manila Offshore Branch for the appointment of a
rehabilitation receiver for Planters.
 In connection with the foregoing, the Republic of the Philippines (the “Republic”)
confirms that it considers and continues to consider Planters as a major fertilizer distributor.
Accordingly, for and in consideration of your expressed willingness to consider and
participate in the effort to rehabilitate Planters, the Republic hereby manifests its full and
unqualified support of the successful rehabilitation and continuing viability of Planters, and
to that end, hereby binds and obligates itself to the creditors and Planters, as follows :
x x x x
2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA
to include in its fertilizer pricing formula a capital recovery component , the proceeds of
which will be used initially for the purpose of funding the unpaid portion of the outstanding
capital stock of Planters presently held in trust by Planters Foundation, Inc. (“Planters
Foundation”), which unpaid capital is estimated at approximately P206 million (subject to
validation by Planters and Planters Foundation) such unpaid portion of the outstanding
capital stock of Planters being hereafter referred to as the “Unpaid Capital”), and
subsequently for such capital increases as may be required for the continuing viability of
Planters.
x x x x
514
514 SUPREME COURT REPORTS ANNOTATED
Planters Products, Inc. vs. Fertiphil Corporation
The capital recovery component shall continue to be charged and collected until
payment in full of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the
Subsidy Receivables, (c) any carrying cost accruing from the date hereof on the amounts
which may be outstanding from time to time of the Unpaid Capital and/or the Subsidy
Receivables, and (d) the capital increases contemplated in paragraph 2 hereof. For the
purpose of the foregoing clause (c), the “carrying cost” shall be at such rate as will
represent the full and reasonable cost to Planters of servicing its debts, taking into account
both its peso and foreign currency-denominated obligations.
                             REPUBLIC OF THE PHILIPPINES
                             By:
         (signed)
          CESAR E. A. VIRATA
 Prime Minister and Minister of Finance51
It is clear from the Letter of Understanding that the levy was imposed precisely to pay the
corporate debts of PPI. We cannot agree with PPI that the levy was imposed to ensure the
stability of the fertilizer industry in the country. The letter of understanding and the plain text of
the LOI clearly indicate that the levy was exacted for the benefit of a private corporation.
All told, the RTC and the CA did not err in holding that the levy imposed under LOI No. 1465
was not for a public purpose. LOI No. 1465 failed to comply with the public purpose requirement
for tax laws.
The LOI is still unconstitutional even
if enacted under the police power; it
did not promote public interest.
Even if We consider LOI No. 1695 enacted under the police power of the State, it would still
be invalid for failing to comply with the test of “lawful subjects” and “lawful means.” Jurisprudence
states the test as follows: (1) the interest of the
_______________
51 Id.
515
VOL. 548, MARCH 14, 2008 515
Planters Products, Inc. vs. Fertiphil Corporation
public generally, as distinguished from those of particular class, requires its exercise; and (2) the
means employed are reasonably necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals.52
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public
interest. The law was enacted to give undue advantage to a private corporation. We quote with
approval the CA ratiocination on this point, thus:
“It is upon applying this established tests that We sustain the trial court’s holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the
country is an undertaking imbued with public interest. However, the method by which LOI 1465
sought to achieve this is by no means a measure that will promote the public welfare.  The
government’s commitment to support the successful rehabilitation and continued viability of PPI, a
private corporation, is an unmistakable attempt to mask the subject statute’s impartiality. There is
no way to treat the self-interest of a favored entity, like PPI, as identical with the general interest
of the country’s farmers or even the Filipino people in general.  Well to stress, substantive due
process exacts fairness and equal protection disallows distinction where none is needed. When a
statute’s public purpose is spoiled by private interest, the use of police power becomes a travesty
which must be struck down for being an arbitrary exercise of government power.  To rule in favor
of appellant would contravene the general principle that revenues derived from taxes cannot be
used for purely private purposes or for the exclusive benefit of private individuals.” (Italics
supplied)
The general rule is that an unconsti-
tutional law is void; the doctrine of
operative fact is inapplicable.
PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared
unconstitutional. It banks on the doctrine of operative fact, which provides that an
unconstitutional law has an effect before being declared unconstitutional. PPI wants to retain the
levies paid under LOI No. 1465 even if it is subsequently declared to be unconstitutional.
We cannot agree. It is settled that no question, issue or argument will be entertained on
appeal, unless it has been raised in the court a quo.53 PPI did not raise the applicability of the
doctrine of operative fact with the RTC and the CA. It cannot belatedly raise the issue with Us in
order to extricate itself from the dire effects of an unconstitutional law.
At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law
is void. It produces no rights, imposes no duties and affords no protection. It has no legal effect.
It is, in legal contemplation, inoperative as if it has not been passed. 54 Being void, Fertiphil is not
required to pay the levy. All levies paid should be refunded in accordance with the general civil
code principle against unjust enrichment. The general rule is supported by Article 7 of the Civil
Code, which provides:
“ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance
shall not be excused by disuse or custom or practice to the contrary.
When the courts declare a law to be inconsistent with the Constitution, the former shall be
void and the latter shall govern.”
The doctrine of operative fact, as an exception to the general rule, only applies as a matter of
equity and fair play.55 It nullifies the effects of an unconstitutional law by recognizing that the
existence of a statute prior to a determination of unconstitutionality is an operative fact and may
have conse-
quences which cannot always be ignored. The past cannot always be erased by a new judicial
declaration.56
The doctrine is applicable when a declaration of unconstitutionality will impose an undue
burden on those who have relied on the invalid law. Thus, it was applied to a criminal case when a
declaration of unconstitutionality would put the accused in double jeopardy 57 or would put in limbo
the acts done by a municipality in reliance upon a law creating it.58
Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by
Fertiphil under LOI No. 1465. It unduly benefited from the levy. It was proven during the trial that
the levies paid were remitted and deposited to its bank account. Quite the reverse, it would be
inequitable and unjust not to order a refund. To do so would unjustly enrich PPI at the expense of
Fertiphil. Article 22 of the Civil Code explicitly provides that “every person who, through an act of
performance by another comes into possession of something at the expense of the latter without
just or legal ground shall return the same to him.” We cannot allow PPI to profit from an
unconstitutional law. Justice and equity dictate that PPI must refund the amounts paid by
Fertiphil.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28, 2003
is AFFIRMED.
SO ORDERED.

Ynares-Santiago (Chairperson), Austria-Martinez, Chico-Nazario  and Nachura, JJ.,  concur.

Petition denied, judgment affirmed.

 
 [No. L-10405. December 29, 1960]
WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner and
appellant vs. THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents
and appellees.
. 1.CONSTITUTIONAL LAW; LEGISLATIVE POWERS; APPROPRIATION OF PUBLIC
REVENUES ONLY FOR PUBLIC PURPOSES; WHAT DETERMINES VALIDITY OF A PUBLIC
EXPENDITURE.—"It is a general rule that the legislature is without power to appropriate
public revenues for anything but a public purpose. * * * It is the essential character of
the direct object of the expenditure which must determine its validity as justifying a tax
and not the magnitude of the interests to be affected nor the degree to which the
general advantage of the community, and thus the public welfare, may be ultimately
benefited by their promotion. Incidental advantage to the public or to the state, which
results from the promotion of private interests, and the prosperity of private enterprises
or business, does not justify their aid by the use of public money." (23 R. L. C. pp. 398-
450).
. 2.ID.; ID.; ID.; UNDERLYING REASON FOR THE RULE.—Generally, under the express or
implied provisions of the constitution, public funds may be used only for a public
purpose. The right of the legislature to appropriate public funds is correlative with its
right to tax, and, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion
thereof to another purpose, no appropriation of state funds can be made for other than
a public purpose. (81 C. J. S. p. 1147).
. 3.ID.; ID.; ID.; TEST OF CONSTITUTIONALITY.—The test of the constitutionality of a
statute requiring the use of public funds is whether the statute is designed to promote
the public interests, as opposed to the furtherance of the advantage of individuals,
although such advantage to individuals might incidentally serve the public. (81 C. J. S.
p. 1147).
. 4.ID.; ID.; ID.; ID.; POWERS OF CONGRESS AT THE TIME OF PASSAGE OF A STATUTE
SHOULD BE CONSIDERED.—The validity of a statute depends upon the powers of
Congress at the time of its passage or approval, not upon events occurring, or acts
performed, subsequently thereto, unless the latter consist of an amendment of the
organic law, removing, with retrospective operation, the constitutional limitation
infringed by said statute.
. 5.ID.; ID.; ID.; APPROPRIATION FOR A PRIVATE PURPOSE NULL AND VOID;
SUBSEQUENT DONATION TO GOVERNMENT NOT CURATIVE OF DEFECT.—Where the
land on which projected feeder roads are to be constructed belongs to a private person,
an appropriation made by Congress for that purpose is null and void, and a donation to
the Government, made over five (5) months after the approval and effectivity of the Act
for the purpose of giving a "semblance of legality" to the appropriation, does not cure
the basic defect. Consequently, a judicial nullification of said donation need not precede
the declaration of unconstitutionality of said appropriation.
. 6.ID.; ID.; ID.; ID.; RIGHT OF TAXPAYERS TO CONTEST CONSTITUTIONALITY OF A
LEGISLATION.—The relation between the people
333
VOL. 110, DECEMBER 29, 1960 333
Pascual vs. Secretary of Public Works
. of the Philippines and its taxpayers, on the one hand, and the Republic of the
Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic
viewpoint, to that existing between the people and taxpayers of each state and the
government thereof, except that the authority of the Republic of the Philippines over
the people of the Philippines is more fully direct than that of the states of the Union,
insofar as the simple and unitary type of our national government is not subject to
limitations analogous to those imposed by the Federal Constitution upon the states of
the Union, and those imposed upon the Federal Government in the interest of the states
of the Union. For this reason, the rule recognizing the right of taxpayers to assail the
constitutionality of a legislation appropriating local or state public funds—which has
been upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601)—has
greater application in the Philippines than that adopted with respect to acts of Congress
of the United States appropriating federal funds.
. 7.CONTRACTS; DEFENSE OF ILLEGALITY; EXCEPTIONS TO ARTICLE 1421 OF THE
CIVIL CODE.—Article 1421 of the Civil Code is subject to exceptions. For instance, the
creditors of a party to an illegal contract may, under the conditions set forth in Article
1177 of said Code, exercise the rights and actions of the latter, except only those which
are inherent in his person, including his right to the annulment of said contract, even
though such creditors are not affected by the same, except indirectly, in the manner
indicated in said legal provision.
APPEAL from a judgment of the Court of First Instance of Rizal (Pasig). Enriquez, J. The facts are
stated in the opinion of the Court.
     Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
     Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.
CONCEPCIÓN, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing
334
334 PHILIPPINE REPORTS ANNOTATED
Pascual vs. Secretary of Public Works
the above entitled case and dissolving the writ of preliminary injunction therein issued, without
costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted
this action for declaratory relief, with injunction, upon the ground that Republic Act No. 920,
entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in
section 1-C (a) thereof, an item (43[h]) of P85,000.00, "for the construction, reconstruction,
repair, extension and improvement" of "Pasig feeder road terminals (Gen. Roxas—Gen. Araneta—
Gen. Lucban—Gen. Capinpin—Gen. Segundo—Gen. Delgado—Gen. Malvar—Gen. Lim)"; that, at
the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing
but projected and planned subdivision roads, not yet constructed, * * * within the Antonio
Subdivision * * * situated at * * * Pasig, Rizal" (according to the tracings attached to the petition
as Annexes A and B, near Shaw Boulevard, not far away from the intersection between the latter
and Highway 54), which projected feeder roads "do not connect any government property or any
important premises to the main highway"; that the aforementioned Antonio Subdivision (as well as
the lands on which said feeder roads were to be constructed) were private properties of
respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a
member of the Senate of the Philippines; that on May 29, 1953, respondent Zulueta, addressed a
letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the
municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject
to the condition "that the donor would submit a plan of the said roads and agree to change the
names of two of them"; that no deed of donation in favor of the municipality of Pasig was,
however, executed; that on July 10, 1953, respondent Zulueta wrote another letter to said council,
calling at-
335
VOL. 110, DECEMBER 29, 1960 335
Pascual vs. Secretary of Public Works
tention to the approval of Republic Act No. 920, and the sum of P85,000.00 appropriated therein
for the construction of the projected feeder roads in question; that the municipal council of Pasig
endorsed said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present
"has not made any endorsement thereon"; that inasmuch as the projected feeder roads in
question were private property at the time of the passage and approval of Republic Act No. 920,
the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair,
extension and improvement of said projected feeder roads, was "illegal and, therefore, void ab
initio"; that said appropriation of P85,000.00 was made by Congress because its members were
made to believe that the projected feeder roads in question were "public roads and not private
streets of a private subdivision'"; that, "in order to give a semblance of legality, when there is
absolutely none, to the aforementioned appropriation", respondent Zulueta executed, on
December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of
donation—copy of which is annexed to the petition—of the four (4) parcels of land constituting
said projected feeder roads, in favor of the Government of the Republic of the Philippines; that
said alleged deed of donation was, on the same date, accepted by the then Executive Secretary;
that being subject to an onerous condition, said donation partook of the nature of a contract; that,
as such, said donation violated the provision of our fundamental law prohibiting members of
Congress from being directly or indirectly financially interested in any contract with the
Government, and, hence, is unconstitutional, as well as null and void ab initio, for the construction
of the projected feeder roads in question with public funds would greatly enhance or increase the
value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from the
burden of constructing his subdivision streets
336
336 PHILIPPINE REPORTS ANNOTATED
Pascual vs. Secretary of Public Works
or roads at his own expense"; that the construction of said projected feeder roads was then being
undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the
respondents would continue to execute, comply with, follow and implement the aforementioned
illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the
petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null
and void; that the alleged deed of donation of the feeder roads in question be "declared
unconstitutional and, therefore, illegal"; that a writ of injunction be issued enjoining the Secretary
of Public Works and Communications, the Director of the Bureau of Public Works, the
Commissioner of the Bureau of Public Highways and Jose C. Zulueta from ordering or allowing the
continuance of the above-mentioned feeder roads project, and from making and securing any new
and further releases on the aforementioned item of Republic Act No. 920, and the disbursing
officers of the Department of Public Works and Communications, the Bureau of Public Works and
the Bureau of Public Highways from making any further payments out of said funds provided for in
Republic Act No. 920; and that pending final hearing on the merits, a writ of preliminary injunction
be issued enjoining the aforementioned parties respondent f rom making and securing any new
and further releases on the aforesaid item of Republic Act No. 920 and from making any further
payments out of said illegally appropriated funds.
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal
capacity to sue", and that the petition did "not state a cause of action". In support to this motion,
respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should
represent the Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that
337
VOL. 110, DECEMBER 29, 1960 337
Pascual vs. Secretary of Public Works
said respondent is "not aware of any law which makes illegal the appropriation of public funds for
the improvement of * * * private property"; and that, the constitutional provision invoked by
petitioner is inapplicable to the donation in question, the same being a pure act of liberality, not a
contract. The other respondents, in turn, maintained that petitioner could not assail the
appropriation in question because "there is no actual bona, fide case * * * in which the validity of
Republic Act No. 920 is necessarily involved" and petitioner "has not shown that he has a personal
and substantial interest" in said Act "and that its enforcement has caused or will cause him a
direct injury".
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision,
dated October 29, 1953, holding that, since public interest is involved in this case, the Provincial
Governor of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite
personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that
"the legislature is without power to appropriate public revenues for anything but a public
purpose", that the construction and improvement of the feeder roads in question, if such roads
were private property, would not be a public purpose; that, being subject to the following
condition:
"The within donation is hereby made upon the condition that the Government of the Republic of
the Philippines will use the parcels of land hereby donated for street purposes only and for no
other purposes whatsoever; it being expressly understood that should the Government of the
Republic of the Philippines violate the condition hereby imposed upon it, the title to the land
hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C. ZULUETA."
(Italics supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is
"absolutely forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil
Code of the Philippines, declares in-
338
338 PHILIPPINE REPORTS ANNOTATED
Pascual vs. Secretary of Public Works
existent and void from the very beginning contracts "whose cause, object or purpose is contrary to
law, morals * * * or public policy"; that the legality of said donation may not be contested,
however, by petitioner herein, because his "interests are not directly affected" thereby; and that,
accordingly, the appropriation in question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the
aforementioned motions to dismiss, which as such, are deemed to have admitted hypothetically
the allegations of fact made in the petition of appellant herein. According to said petition,
respondent Zulueta is the owner of several parcels of residential land, situated in Pasig, Rizal, and
known as the Antonio Subdivision, certain portions of which had been reserved for the projected
feeder roads aforementioned, which, admittedly, were private property of said respondent when
Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair,
extension and improvement" of said roads, was passed by Congress, as well as when it was
approved by the President on June 20, 1953. The petition further alleges that the construction of
said feeder roads, to be undertaken with the aforementioned appropriation of P85,000.00, would
have the effect of relieving respondent Zulueta of the burden of constructing his subdivision
streets or roads at his own expenses,1 and would "greatly enhance or increase the value of the
subdivision" of said respondent. The lower court held that under these circumstances, the
appropriation in question was "clearly for a private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident.2 However,
respondent Zulueta contended, in his motion to dismiss that:
"A law passed by Congress and approved by the President can never be illegal because Congress
is the source of all laws * * *. Aside from the fact that the movant is not aware of any law which
makes illegal the appropriation of public funds for the improvement of what we, in the meantime,
may assume as private property * * *." (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of
the Government established under the Constitution of the Philippines and the system of checks
and balances underlying our political structure. Moreover, it is refuted by the decisions of this
Court invalidating legislative enactments deemed violative of the Constitution or organic laws.3
As regards the legal feasibility of appropriating public funds for a private purpose, the principle
according to Ruling Case Law, is this:
"It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. * * * It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of the
interests to be affected nor the degree to which the general advantage of the community, and
thus the public welfare, may be ultimately benefited by their promotion. Incidental advantage to
the public or to the state, which results from the promotion of private interests and the prosperity
of private enterprises or business, does not justify their aid by the use of public money." (25
R.L.C. pp. 398-400; Italics supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
"In accordance with the rule that the taxing power must be exercised for public purposes
only, discussed supra sec. 14, money raised by taxation can be expended only for public
purposes and not for the advantage of private individuals."  (85 C.J.S. pp. 645-646; italics
supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
"Generally, under the express or implied provisions of the constitution, public funds may be used
only for a public purpose. The right of the legislature to appropriate funds is correlative with its
right to tax, and, under constitutional provisions against taxation except for public purposes and
prohibiting the collection of a tax for one purpose and the devotion thereof to another
purpose, no appropriation of state funds can be made for other than a public purpose.  * * *
*     *     *     *     *     *     *
"The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interests, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve the
public. * * * ." (81 C.J.S. p. 1147; italics supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound,
341
VOL. 110, DECEMBER 29, 1960 341
Pascual vs. Secretary of Public Works
are a necessary corollary to our democratic system of government, which, as such, exists primarily
for the promotion of the general welfare. Besides, reflecting as they do, the established
jurisprudence in the United States, after whose constitutional system ours has been patterned,
said views and jurisprudence are, likewise, part and parcel of our own constitutional law.
This notwithstanding, the lower court felt constrained to uphold the appropriation in question,
upon the ground that petitioner may not contest the legality of the donation above referred to
because the same does not affect him directly. This conclusion is, presumably, based upon the
following premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the
aforementioned appropriation; (2) that the latter may not be annulled without a previous
declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article
1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these
premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter
consist of an amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the
projected feeder roads in question, the legality thereof depended upon whether said roads were
public or private property when the bill, which, later on, became Republic Act No. 920, was passed
by Congress, or, when said bill was approved by the President and the disbursement of said sum
became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on
which the projected feeder roads were to be constructed belonged then to respondent Zulueta,
the result is that said appropriation sought a
342
342 PHILIPPINE REPORTS ANNOTATED
Pascual vs. Secretary of Public Works
private purpose, and, hence, was null and void.4 The donation to the Government, over five (5)
months after the approval and effectivity of said Act, made, according to the petition, for the
purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not
cure its aforementioned basic defect. Consequently, a judicial nullification of said donation need
not precede the declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to
exceptions. For instance, the creditors of a party to an illegal contract may, under the conditions
set forth in Article 1177 of said Code, exercise the rights and actions of the latter, except only
those which are inherent in his person, including, therefore, his right to the annulment of said
contract, even though such creditors are not affected by the same, except indirectly, in the
manner indicated in said legal provision
Again, it is well settled that the validity of a statute may be contested only by one who will
sustain a direct injury in consequence of its enforcement. Yet, there are many decisions nullifying,
at the instance of taxpayers, laws providing for the disbursement of public funds,5 upon the
theory that "the expenditure of public funds by an officer of the State for the purpose of
administering an unconstitutional act constitutes a misapplication of such funds," which may be
enjoined at the request of a taxpayer.6 Although there are some decisions to the contrary,7 the
prevailing view in the United States is stated in the American Jurisprudence as follows:
"In the determination of the degree of interest essential to give the requisite standing to attack
the constitutionality of a statute the general rule is that not only persons individually affected, but
also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by
taxation and may therefore question the constitutionality of statutes requiring expenditure of
public moneys." (11 Am. Jur. 761; italics supplied.)
However, this view was not favored by the Supreme Court of the U.S. in
Frothingham vs. Mellon (262 U.S.447), insofar as federal laws are concerned, upon the ground
that the relationship of a taxpayer of the U.S. to its Federal Government is different from that of a
taxpayer of a municipal corporation to its government. Indeed, under the composite system of
government existing in the U.S., the states of the Union are integral part of the Federation from
an international viewpoint, but, each state enjoys internally a substantial measure of sovereignty,
subject to the limitations imposed by the Federal Constitution. In fact, the same was made by
representatives of each state of the Union, not of the people of the U.S., except insofar as the
former represented the people of the respective States, and the people of each State has,
independently of that of the others, ratified said Constitution. In other words, the Federal
Constitution and the Federal statutes have become binding upon the people of the U.S. in
consequence of an act of, and, in this sense, through the respective states of the Union of which
they are citizens. The peculiar nature of the relation between said people and the Federal
Government of the U.S. is reflected in the election of its President, who is chosen directly,  not by
the people of the U.S., but by electors chosen by each State, in such manner as the legislature
thereof may direct (Article II, section 2, of the Federal Constitution).
The relation between the people of the Philippines and its taxpayers, on the one hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that
existing between the people and taxpayers of each state and the government thereof, except that
the authority of the Republic of the Philippines over the people of the Philippines is more fully
direct than that of the states of the Union, insofar as the simple and unitary type of our national
government is not subject to limitations analogous to those imposed by the
345
VOL. 110, DECEMBER 29, 1960 345
Pascual vs. Secretary of Public Works
those imposed upon the Federal Government in the interest of the states of the Union. For this
reason, the rule recognizing the right of taxpayers to assail the constitutionality of a legislation
appropriating local or state public funds—which has been upheld by the Federal Supreme Court
(Crampton vs. Zabriskie, 101 U.S. 601)—has greater application in the Philippines than that
adopted with respect to acts of Congress of the United States appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a
land by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the
purpose of contesting the price being paid to the owner thereof, as unduly exhorbitant. It is true
that in Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality of an appropriation for backpay of
members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and Barredo vs.
Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of
taxpayers impugning the validity of certain appropriations of public funds, and invalidated the
same. Moreover, the reason that impelled this Court to take such position in said two (2) cases—
the importance of the issues therein raised—is present in the case at bar. Again, like the
petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The
Province of Rizal, which he represents officially as its Provincial Governor, is our most populated
political subdivision.7 and, the taxpayers therein bear a substantial portion of the burden of
taxation, in the Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently
justify petitioner's action in contesting the appropriation and donation in question; that this action
should not have been dismissed by the lower court; and that the writ of preliminary injunction
should have been maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to
the lower court for further proceedings not inconsistent with this decision, with the costs of this
instance against respondent Jose C. Zulueta. It is so ordered.

     Parás, C. J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J. B.

L., Barrera, Gutiérrez David, Paredes, and Dizon, JJ., concur.

Judgment reversed, records remanded to lower court for further proceedings.

 G.R. Nos. 141104 & 148763. June 8, 2007.*
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION,
petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
Taxation; Value-Added Tax; Tax Credit; Tax Refund; Prescription; The two-year
prescriptive period for filing the application for refund /credit of input Value-Added Tax (VAT) on
zero-rated sales shall be determined from the close of the quarter when such sales were made. —
The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated
sales made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977,
as amended, which provided that—SEC. 106. Refunds or tax credits of input tax.—x x x. (b) Zero-
rated or effectively zero-rated sales. —Any person, except those covered by paragraph (a) above,
whose sales are zero-rated may, within two years after the close of the quarter when such sales
were made, apply for the issuance of a tax credit certificate or refund of the input taxes
attributable to such sales to the extent that such input tax has not been applied against output
tax. x x x x (e) Period within which refund of input taxes may be made by the Commissioner. —
The Commissioner shall refund input taxes within 60 days from the date the application for refund
was filed with him or his duly authorized representative. No refund of input taxes shall be allowed
unless the VAT-registered person files an application for refund within the period prescribed in
paragraphs (a), (b) and (c) as the case may be. By a plain reading of the foregoing provision, the
two-year prescriptive period for filing the application for refund/credit of input VAT on zero-rated
sales shall be determined from the close of the quarter when such sales were made.
Same; Same; Same; Same; Same; Unlike corporate income tax, which is reported and paid
on installment every quarter, but is eventually subjected to a final adjustment at the end of the
taxable year, Value-Added Tax (VAT) is computed and paid on a purely quarterly basis without
need for a final adjustment at the end of the taxable year; Even in the absence of a final
adjustment return, the determination of any output VAT payable necessarily requires that the
VAT-registered taxpayer make adjustments in its VAT return every quarter, taking into
consideration the input VAT which are creditable for the present quarter or had been carried over
from the previous quarters.—It is true that unlike corporate income tax, which is reported and
paid on installment every quarter, but is eventually subjected to a final adjustment at the end of
the taxable year, VAT is computed and paid on a purely quarterly basis without need for a final
adjustment at the end of the taxable year. However, it is also equally true that until and unless
the VAT-registered taxpayer prepares and submits to the BIR its quarterly VAT return, there is no
way of knowing with certainty just how much input VAT the taxpayer may apply against its output
VAT; how much output VAT it is due to pay for the quarter or how much excess input VAT it may
carry-over to the following quarter; or how much of its input VAT it may claim as refund/credit. It
should be recalled that not only may a VAT-registered taxpayer directly apply against his output
VAT due the input VAT it had paid on its importation or local purchases of goods and services
during the quarter; the taxpayer is also given the option to either (1) carry over any excess input
VAT to the succeeding quarters for application against its future output VAT liabilities, or (2) file
an application for refund or issuance of a tax credit certificate covering the amount of such input
VAT. Hence, even in the absence of a final adjustment return, the determination of any output
VAT payable necessarily requires that the VAT-registered taxpayer make adjustments in its VAT
return every quarter, taking into consideration the input VAT which are creditable for the present
quarter or had been carried over from the previous quarters.
Same; Same; Same; Same; Same; It is more practical and reasonable to count the two-
year prescriptive period for filing a claim for refund/credit of input Value-Added Tax (VAT) on
zero-rated sales from the date of filing of the return and payment of the tax due which, according
to the law then existing, should be made within 20 days from the end of each quarter. —When
claiming refund/credit, the VAT-registered taxpayer must be able to establish that it does have
refundable or creditable input VAT, and the same has not been applied against its output VAT
liabilities—information which are supposed to be reflected in the taxpayer’s VAT returns. Thus, an
application for refund/credit must be accompanied by copies of the taxpayer’s VAT return/s for the
taxable quarter/s concerned. Lastly, although the taxpayer’s refundable or creditable input VAT
may not be considered as illegally or erroneously collected, its refund/credit is a privilege extended
to qualified and registered taxpayers by the very VAT system adopted by the Legislature. Such
input VAT, the same as any illegally or erroneously collected national internal revenue tax, consists
of monetary amounts which are currently in the hands of the government but must rightfully be
returned to the taxpayer. Therefore, whether claiming refund/credit of illegally or erroneously
collected national internal revenue tax, or input VAT, the taxpayer must be given equal
opportunity for filing and pursuing its claim. For the foregoing reasons, it is more practical and
reasonable to count the two-year prescriptive period for filing a claim for refund/credit of input
VAT on zero-rated sales from the date of filing of the return and payment of the tax due which,
according to the law then existing, should be made within 20 days from the end of each quarter.
Same; Same; Same; Same; Same; Section 106(e) of the Tax Code of 1977, as amended,
explicitly provided that no refund of input Value-Added Tax (VAT) shall be allowed unless the VAT-
registered taxpayer filed an application for refund with respondent Commissioner within the two-
year prescriptive period.—Even though it may seem that petitioner corporation filed in time its
judicial claim with the CTA, there is no showing that it had previously filed an administrative claim
with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly provided that no
refund of input VAT shall be allowed unless the VAT-registered taxpayer filed an application for
refund with respondent Commissioner within the two-year prescriptive period. The application of
petitioner corporation for refund/credit of its input VAT for the first quarter of 1992 was not only
unsigned by its supposed authorized representative, Ma. Paz R. Semilla, Manager-Finance and
Treasury, but it was not dated, stamped, and initialed by the BIR official who purportedly received
the same.
Same; Same; Same; Same; A zero-rated sale is still considered a taxable transaction for
VAT purposes, although the Value-Added Tax (VAT) rate applied is 0%—a sale by a VAT-
registered taxpayer of goods and/or services taxed at 0% shall not result in any output VAT, while
the input VAT on its purchases of goods or services related to such zero-rated sale shall be
available as tax credit or refund.—
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on
the gross selling price or gross value in money of goods sold, bartered or exchanged. Yet, the
same provision subjected the following sales made by VAT-registered persons to 0% VAT—(1)
Export sales; and (2) Sales to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects such sales to
zerorate. “Export Sales” means the sale and shipment or exportation of goods from the Philippines
to a foreign country, irrespective of any shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of the goods so exported, or foreign
currency denominated sales. “Foreign currency denominated sales,” means sales to nonresidents
of goods assembled or manufactured in the Philippines, for delivery to residents in the Philippines
and paid for in convertible foreign currency remitted through the banking system in the
Philippines. These are termed zero-rated sales. A zero-rated sale is still considered a taxable
transaction for VAT purposes, although the VAT rate applied is 0%. A sale by a VAT-registered
taxpayer of goods and/or services taxed at 0% shall not result in any output VAT, while the input
VAT on its purchases of goods or services related to such zero-rated sale shall be available as tax
credit or refund.
Same; Same; Same; Same; Export Processing Zones; Although sales to export-oriented
Board of Investments (BOI)-registered enterprises and sales to Export Processing Zone Authority
(EPZA)-registered enterprises located within export processing zones were both deemed export
sales, which, under Section 100(a) of the Tax Code of 1977, as amended, shall be subject to 0%
VAT distinction must be made between these two types of sales because each may have different
substantiation requirements.—Section 2 of Revenue Regulations No. 2-88, should not have been
applied to the zero-rating of the sales made by petitioner corporation to PASAR and PHILPHOS. At
the onset, it must be emphasized that PASAR and PHILPHOS, in addition to being registered with
the BOI, were also registered with the EPZA and located within an export-processing zone.
Petitioner corporation does not claim that its sales to PASAR and PHILPHOS are zero-rated on the
basis that said sales were made to exportoriented BOI-registered corporations, but rather, on the
basis that the sales were made to EPZA-registered enterprises operating within export processing
zones. Although sales to export-oriented BOI-registered enterprises and sales to EPZA-registered
enterprises located within export processing zones were both deemed export sales, which, under
Section 100(a) of the Tax Code of 1977, as amended, shall be subject to 0% VAT distinction must
be made between these two types of sales because each may have different substantiation
requirements.
Same; Same; Same; Same; Same; Merchandise purchased by a registered zone enterprise
from the customs territory and subsequently brought into the zone, shall be considered as export
sales and the exporter thereof shall be entitled to the benefits allowed by law for such transaction.
—Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers
constructive exportation as export sales. Among other types of constructive exportation specifically
identified by the said provision are sales to export processing zones. Sales to export processing
zones are subjected to special tax treatment. Article 77 of the same Code establishes the tax
treatment of goods or merchandise brought into the export processing zones. Of particular
relevance herein is paragraph 2, which provides that “Merchandise purchased by a registered zone
enterprise from the customs territory and subsequently brought into the zone, shall be considered
as export sales and the exporter thereof shall be entitled to the benefits allowed by law for such
transaction.”
Same; Same; Same; Same; Same; Words and Phrases; According to the Destination
Principle, goods and services are taxed only in the country where these are consumed, and in
connection with the said principle, the Cross Border Doctrine mandates that no VAT shall be
imposed to form part of the cost of the goods destined for consumption outside the territorial
border of the taxing authority; Sales to enterprises operating within the export processing zones
are export sales, which, under the Tax Code of 1977, as amended, were subject to 0% VAT. —
Such tax treatment of goods brought into the export processing zones are only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres.
According to the Destination Principle, goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of VAT, while those destined for use or
consumption within the Philippines shall be imposed with 10% VAT. Export processing zones are
to be managed as a separate customs territory from the rest of the Philippines and, thus, for tax
purposes, are effectively considered as foreign territory. For this reason, sales by persons from the
Philippine customs territory to those inside the export processing zones are already taxed as
exports. Plainly, sales to enterprises operating within the export processing zones are export sales,
which, under the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground
that petitioner corporation is claiming refund/credit of the input VAT on its zero-rated sales to
PASAR and PHILPHOS.
Same; Same; Same; Same; Burden of Proof; The taxpayerclaimant has the burden of
proving the legal and factual bases of its claim for tax credit or refund, but once it has submitted
all the required documents, it is the function of the BIR to assess these documents with
purposeful dispatch.—There can be no dispute that the taxpayer-claimant has the burden of
proving the legal and factual bases of its claim for tax credit or refund, but once it has submitted
all the required documents, it is the function of the BIR to assess these documents with
purposeful dispatch. It therefore falls upon herein petitioner corporation to first establish that its
sales qualify for VAT zero-rating under the existing laws (legal basis), and then to present
sufficient evidence that said sales were actually made and resulted in refundable or creditable
input VAT in the amount being claimed (factual basis).
Same; Same; Same; Same; Same; Applications for refund/credit of input VAT with the BIR
must comply with the appropriate revenue regulations. —Applications for refund/credit of input
VAT with the BIR must comply with the appropriate revenue regulations. As this Court has already
ruled, Revenue Regulations No. 2-88 is not relevant to the applications for refund/credit of input
VAT filed by petitioner corporation; nonetheless, the said applications must have been in
accordance with Revenue Regulations No. 3-88, amending Section 16 of Revenue Regulations No.
5-87, which provided as follows—x x x In case the application for refund/credit of input VAT was
denied or remained unacted upon by the BIR, and before the lapse of the two-year prescriptive
period, the taxpayer-applicant may already file a Petition for Review before the CTA. If the
taxpayer’s
79
VOL. 524, JUNE 8, 2007 79
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
claim is supported by voluminous documents, such as receipts, invoices, vouchers or long
accounts, their presentation before the CTA shall be governed by CTA Circular No. 1-95, as
amended, reproduced in full below—In the interest of speedy administration of justice, the Court
hereby promulgates the following rules governing the presentation of voluminous documents
and/or long accounts, such as receipts, invoices and vouchers, as evidence to establish certain
facts pursuant to Section 3(c), Rule 130 of the Rules of Court and the doctrine enunciated
in Compania Maritima vs. Allied Free Workers Union  (77 SCRA 24), as well as Section 8 of Republic
Act No. 1125:1. The party who desires to introduce as evidence such voluminous documents
must, after motion and approval by the Court, present: (a) a Summary containing, among others,
a chronological listing of the numbers, dates and amounts covered by the invoices or receipts and
the amount/s of tax paid; and (b) a Certification of an independent Certified Public Accountant
attesting to the correctness of the contents of the summary after making an examination,
evaluation and audit of the voluminous receipts and invoices. The name of the accountant or
partner of the firm in charge must be stated in the motion so that he/she can be commissioned by
the Court to conduct the audit and, thereafter, testify in Court relative to such summary and
certification pursuant to Rule 32 of the Rules of Court. 2. The method of individual presentation of
each and every receipt, invoice or account for marking, identification and comparison with the
originals thereof need not be done before the Court or Clerk of Court anymore after the
introduction of the summary and CPA certification. It is enough that the receipts, invoices,
vouchers or other documents covering the said accounts or payments to be introduced in evidence
must be pre-marked by the party concerned and submitted to the Court in order to be made
accessible to the adverse party who desires to check and verify the correctness of the summary
and CPA certification. Likewise, the originals of the voluminous receipts, invoices or accounts must
be ready for verification and comparison in case doubt on the authenticity thereof is raised during
the hearing or resolution of the formal offer of evidence.
Same; Same; Same; Same; Questions of Law and Questions of Fact; Words and
Phrases; There 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, and there is a question of fact when the doubt or difference
arises as to the truth or falsehood of alleged facts. —The distinc-tion 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.” Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT
on these sales in the amount it had declared in its returns; whether all the input VAT subject of its
applications for refund/credit can be attributed to its zero-rated sales; and whether it had not
previously applied the input VAT against its output VAT liabilities, are all questions of fact which
could only be answered after reviewing, examining, evaluating, or weighing the probative value of
the evidence it presented, and which this Court does not have the jurisdiction to do in the present
Petitions for Review on Certiorari under Rule 45 of the revised Rules of Court.
Actions; Pleadings and Practice; New Trial; Affidavits of Merit; The facts which should
otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged and
incorporated in the motion itself, and this will be deemed a substantial compliance with the formal
requirements of the law, provided, of course, that the movant, or other individual with personal
knowledge of the facts, take oath as to the truth thereof, in effect converting the entire motion for
new trial into an affidavit; Where the ground for the motion was premised on said counsel’s
excusable negligence or mistake, then the obvious conclusion is that such counsel who prepared
and verified the motion for re-opening or new trial had personal knowledge of the facts relating to
such negligence or mistake.—On the matter of the denial of the motion of the petitioner
corporation for the re-opening of its cases and/or holding of new trial based on the technicality
that said motion was unaccompanied by an affidavit of merit, this Court rules in favor of the
petitioner corporation. The facts which should otherwise be set forth in a separate affidavit of
merit may, with equal effect, be alleged and incorporated in the motion itself; and this will be
deemed a substantial compliance with the formal requirements of the law, provided, of course,
that the movant, or other individual with personal knowledge of the facts, take oath as to the
truth thereof, in effect converting the entire motion for new trial into an affidavit. The motion of
petitioner corporation was prepared and verified by its counsel, and since the ground for the
motion was premised on said counsel’s excusable negligence or mistake, then the obvious
conclusion is that he had personal knowledge of the facts relating to such negligence or mistake.
Hence, it can be said that the motion of petitioner corporation for the re-opening of its cases
and/or holding of new trial was in substantial compliance with the formal requirements of the
revised Rules of Court.
Court of Tax Appeals; The rule that the grant or denial of motions for new trial rests on the
discretion of the trial court, may likewise be extended to the CTA. —In G.R. No. 141104, petitioner
corporation invokes the Resolution, dated 20 July 1998, by the CTA in another case, CTA Case No.
5296, involving the claim of petitioner corporation for refund/credit of input VAT for the third
quarter of 1993. The said Resolution allowed the re-opening of CTA Case No. 5296, earlier
dismissed by the CTA, to give the petitioner corporation the opportunity to present the missing
export documents. The rule that the grant or denial of motions for new trial rests on the discretion
of the trial court, may likewise be extended to the CTA. When the denial of the motion rests upon
the discretion of a lower court, this Court will not interfere with its exercise, unless there is proof
of grave abuse thereof. That the CTA granted the motion for re-opening of one case for the
presentation of additional evidence and, yet, deny a similar motion in another case filed by the
same party, does not necessarily demonstrate grave abuse of discretion or arbitrariness on the
part of the CTA. Although the cases involve identical parties, the causes of action and the
evidence to support the same can very well be different.
Same; Attorneys; Under Section 1, Rule 37 of the Revised Rules of Court, the “negligence”
must be excusable and generally imputable to the party because if it is imputable to the counsel,
it is binding on the client.—Assuming for the sake of argument that the nonpresentation of the
required documents was due to the fault of the counsel of petitioner corporation, this Court finds
that it does not constitute excusable negligence or mistake which would warrant the re-opening of
the cases and/or holding of new trial. Under Section 1, Rule 37 of the Revised Rules of Court, the
“negligence” must be excusable and generally imputable to the party because if it is imputable to
the counsel, it is binding on the client. To follow a contrary rule and allow a party to disown his
counsel’s conduct would render proceedings indefinite, tentative, and subject to re-opening by the
mere subterfuge of replacing the counsel. What the aggrieved litigant should do is seek
administrative sanctions against the erring counsel and not ask for the reversal of the court’s
ruling.
Same; Same; Blunders and mistakes made in the conduct of the proceedings in the trial
court as a result of the ignorance, inexperience or incompetence of counsel do not qualify as a
ground for new trial.—As elucidated by this Court in another case, the general rule is that the
client is bound by the action of his counsel in the conduct of his case and he cannot therefore
complain that the result of the litigation might have been otherwise had his counsel proceeded
differently. It has been held time and again that blunders and mistakes made in the conduct of
the proceedings in the trial court as a result of the ignorance, inexperience or incompetence of
counsel do not qualify as a ground for new trial. If such were to be admitted as valid reasons for
re-opening cases, there would never be an end to litigation so long as a new counsel could be
employed to allege and show that the prior counsel had not been sufficiently diligent, experienced
or learned.
 Words and Phrases; Negligence, to be “excusable,” must be one which ordinary diligence
and prudence could not have guarded against—a judgment call made by the counsel as to which
evidence to present in support of his client’s cause, which later proved to be unwise, is not
necessarily negligent.—Negligence, to be “excusable,” must be one which ordinary diligence and
prudence could not have guarded against. Revenue Regulations No. 3-88, which was issued on 15
February 1988, had been in effect more than two years prior to the filing by petitioner corporation
of its earliest application for refund/credit of input VAT involved herein on 21 August 1990. CTA
Circular No. 1-95 was issued only on 25 January 1995, after petitioner corporation had filed its
Petitions before the CTA, but still during the pendency of the cases of petitioner corporation
before the tax court. The counsel of petitioner corporation does not allege ignorance of the
foregoing administrative regulation and tax court circular, only that he no longer deemed it
necessary to present the documents required therein because of the presentation of alleged
unrebutted evidence of the zero-rated sales of petitioner corporation. It was a judgment call made
by the counsel as to which evidence to present in support of his client’s cause, later proved to be
unwise, but not necessarily negligent.
83
VOL. 524, JUNE 8, 2007 83
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
Same; “Mistake,” as it is referred to in Section 1, Rule 37, must be a mistake of fact, not of
law, which relates to the case.—Neither is there any merit in the contention of petitioner
corporation that the non-presentation of the required documentary evidence was due to the
excusable mistake of its counsel, a ground under Section 1, Rule 37 of the revised Rules of Court
for the grant of a new trial. “Mistake,” as it is referred to in the said rule, must be a mistake of
fact, not of law, which relates to the case. In the present case, the supposed mistake made by the
counsel of petitioner corporation is one of law, for it was grounded on his interpretation and
evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as amended, did not
apply to his client’s cases and that there was no need to comply with the documentary
requirements set forth therein. And although the counsel of petitioner corporation advocated an
erroneous legal position, the effects thereof, which did not amount to a deprivation of his client’s
right to be heard, must bind petitioner corporation. The question is not whether petitioner
corporation succeeded in establishing its interests, but whether it had the opportunity to present
its side.
Litigation is a not a “trial and error” proceeding—a party who moves for a new trial on the
ground of mistake must show that ordinary prudence could not have guarded against it; A new
trial is not a refuge for the obstinate.—Litigation is a not a “trial and error” proceeding. A party
who moves for a new trial on the ground of mistake must show that ordinary prudence could not
have guarded against it. A new trial is not a refuge for the obstinate. Ordinary prudence in these
cases would have dictated the presentation of all available evidence that would have supported
the claims for refund/credit of input VAT of petitioner corporation. Without sound legal basis,
counsel for petitioner corporation concluded that Revenue Regulations No. 3-88, and later on, CTA
Circular No. 1-95, as amended, did not apply to its client’s claims. The obstinacy of petitioner
corporation and its counsel is demonstrated in their failure, nay, refusal, to comply with the
appropriate administrative regulations and tax court circular in pursuing the claims for
refund/credit, now subject of G.R. Nos. 141104 and 148763, even though these were separately
instituted in a span of more than two years. It is also evident in the failure of petitioner
corporation to address the issue and to present additional evidence despite being given the
opportunity to do so by the Court of Appeals.
84
84 SUPREME COURT REPORTS ANNOTATED
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
PETITIONS for review on certiorari of the decisions of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Siguion Reyna, Montecillo and Ongsiako for petitioner.
     The Solicitor General for respondent.
CHICO-NAZARIO, J.:
Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner
Atlas Consolidated Mining and Development Corporation (petitioner corporation) for the
refund/credit of the input Value Added Tax (VAT) on its purchases of capital goods and on its
zero-rated sales in the taxable quarters of the years 1990 and 1992, the denial of which by the
Court of Tax Appeals (CTA), was affirmed by the Court of Appeals.
Petitioner corporation is engaged in the business of mining, production, and sale of various
mineral products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. It
was initially issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to
register anew with the appropriate revenue district office (RDO) of the Bureau of Internal Revenue
(BIR) when it moved its principal place of business, and it was re-issued VAT Registration No. 32-
0-004622, dated 15 August 1990.1
G.R. No. 141104
Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992.2 It alleged
that it likewise filed with the BIR the corresponding application for the re-fund/credit of its input
VAT on its purchases of capital goods and on its zero-rated sales in the amount of
P26,030,460.00.3 When its application for refund/credit remained unresolved by the BIR,
petitioner corporation filed on 20 April 1994 its Petition for Review with the CTA, docketed as CTA
Case No. 5102. Asserting that it was a “zero-rated VAT person,” it prayed that the CTA order
herein respondent Commissioner of Internal Revenue (respondent Commissioner) to refund/credit
petitioner corporation with the amount of P26,030,460.00, representing the input VAT it had paid
for the first quarter of 1992. The respondent Commissioner opposed and sought the dismissal of
the petition for review of petitioner corporation for failure to state a cause of action. After due
trial, the CTA promulgated its Decision4 on 24 November 1997 with the following disposition—
“WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the
ground of prescription, insufficiency of evidence and failure to comply with Section 230 of the Tax
Code, as amended. Accordingly, the petition at bar is hereby DISMISSED for lack of merit.”
The CTA denied the motion for reconsideration of petitioner corporation in a Resolution 5 dated 15
April 1998.
When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate
court, in its Decision,6 dated
6 July 1999, dismissed the appeal of petitioner corporation, finding no reversible error in the CTA
Decision, dated 24 November 1997. The subsequent motion for reconsideration of petitioner
corporation was also denied by the Court of Appeals in its Resolution,7 dated 14 December 1999.
 Thus, petitioner corporation comes before this Court, via a Petition for Review Atlas Consolidated Mining and Development Corporation vs.
on Certiorari under Rule 45 of the Revised Rules of Court, assigning the following errors
committed by the Court of Appeals— Commissioner of Internal Revenue
Commissioner and in its Decision,9 dated 30 October 1997, dismissed the Petitions mainly on the
I ground that the prescriptive periods for filing the same had expired. In a Resolution, 10 dated 15
January 1998, the CTA denied the motion for reconsideration of petitioner corporation since the
latter presented no new matter not already discussed in the court’s prior Decision. In the same
THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE REGULATIONS
Resolution, the CTA also denied the alternative prayer of petitioner corporation for a new trial
NO. 2-88 THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF INVESTMENTS (BOI)]-
since it did not fall under any of the grounds cited under Section 1, Rule 37 of the Revised Rules
REGISTERED FIRM MUST CONSIST OF EXPORTS FOR ZERO-RATING TO APPLY.
of Court, and it was not supported by affidavits of merits required by Section 2 of the same Rule.
Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as  CA-
II
G.R. SP No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision, 11 finding
that although petitioner corporation timely filed its Petitions for Review with the CTA, it still failed
THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT to substantiate its claims for the refund/credit of its input VAT for the last three quarters of 1990.
SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES AND In its Resolution,12 dated 27 June 2001, the appellate court denied the motion for reconsideration
RECEIPTS IS NOT A FATAL DEFECT. of petitioner corporation, finding no cogent reason to reverse its previous Decision.
Aggrieved, petitioner corporation filed with this Court another Petition for Review
III on Certiorari under Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising
the following issues—
THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED BEYOND
THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN TWO (2) YEARS A.
FROM THE FILING OF THE VAT RETURN.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER’S CLAIM IS
IV BARRED UNDER REVENUE REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR FAILURE TO PTOVE [ sic]
THE 70% THRESHOLD FOR ZERO-RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE
THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF FACTUAL BASIS FOR THE INSTANT CLAIM.
THE CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE.8
B.
G.R. No. 148763
G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above, WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO BASIS
except that it relates to the claims of petitioner corporation for refund/credit of input VAT on its TO GRANT PETITIONER’S MOTION FOR NEW TRIAL.
purchases of capital goods and on its zero-rated sales made in the last three taxable quarters of
1990. There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were
Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling
quarters of 1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It of this Court in these cases hinges on how it will resolve the following key issues: (1) prescription
submitted separate applications to the BIR for the refund/credit of the input VAT paid on its of the claims of petitioner corporation for input VAT refund/credit; (2) validity and applicability of
purchases of capital goods and on its zero-rated sales, the details of which are presented as Revenue Regulations No. 2-88 imposing upon petitioner corporation, as a requirement for the VAT
follows— zero-rating of its sales, the burden of proving that the buyer companies were not just BOI-
Date of Application Period Covered Amount Applied For registered but also exporting 70% of their total annual production; (3) sufficiency of evidence
presented by petitioner corporation to establish that it is indeed entitled to input VAT
21 August 1990 2nd Quarter, 1990 P 54,014,722.04     
refund/credit; and (4) legal ground for granting the motion of petitioner corporation for re-opening
21 November 1990 3rd Quarter, 1990 75,304,774.77      of its cases or holding of new trial before the CTA so it could be given the opportunity to present
19 February 1991 4th Quarter, 1990 43,829,766.10      the required evidence.
When the BIR failed to act on its applications for refund/ credit, petitioner corporation filed with Prescription
the CTA the following petitions for review— The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated
Date Filed Period Covered CTA Case No. sales made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977, as
amended, which provided that—
20 July 1992 2nd Quarter, 1990           4831
90
9 October 1992 3rd Quarter, 1990           4859
90 SUPREME COURT REPORTS ANNOTATED
14 January 1993 4th Quarter, 1990           4944
which were eventually consolidated. The respondent Commissioner contested the foregoing
Atlas Consolidated Mining and Development Corporation vs.
Petitions and prayed for the dismissal thereof. The CTA ruled in favor of respondent Commissioner of Internal Revenue
88 “SEC. 106. Refunds or tax credits of input tax.—x x x.
88 SUPREME COURT REPORTS ANNOTATED
 (b) Zero-rated or effectively zero-rated sales .—Any person, except those covered by
paragraph (a) above, whose sales are zerorated may, within two years after the close of the
quarter when such sales were made, apply for the issuance of a tax credit certificate or refund of
the input taxes attributable to such sales to the extent that such input tax has not been applied
against output tax.
xxxx
(e) Period within which refund of input taxes may be made by the Commissioner .—The
Commissioner shall refund input taxes within 60 days from the date the application for refund was
filed with him or his duly authorized representative. No refund of input taxes shall be allowed
unless the VAT-registered person files an application for refund within the period prescribed in
paragraphs (a), (b) and (c) as the case may be.”
By a plain reading of the foregoing provision, the two-year prescriptive period for filing the
application for refund/credit of input VAT on zero-rated sales shall be determined from the close of
the quarter when such sales were made.
Petitioner contends, however, that the said two-year prescriptive period should be counted,
not from the close of the quarter when the zero-rated sales were made, but from the date of filing
of the quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with
Section 110(b) of the Tax Code of 1977, as amended, quoted as follows—
“SEC. 110. Return and payment of value-added tax.—x x x.
(b) Time for filing of return and payment of tax.—The return shall be filed and the tax paid
within 20 days following the end of each quarter specifically prescribed for a VAT-registered
person under regulations to be promulgated by the Secretary of Finance: Provided, however, That
any person whose registration is cancelled in accordance with paragraph (e) of Section 107 shall
file a return within 20 days from the cancellation of such registration.”
It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding
for recovery of corporate income tax erroneously or illegally paid under Section
91
VOL. 524, JUNE 8, 2007 91
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
23013 of the Tax Code of 1977, as amended, was to be counted from the filing of the final
adjustment return. This Court already set out in ACCRA Investments Corporation v. Court of
Appeals,14 the rationale for such a rule, thus—
“Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as
the respondent Commissioner by his own rules and regulations mandates that the corporate
taxpayer opting to ask for a refund must show in its final adjustment return the income it received
from all sources and the amount of withholding taxes remitted by its withholding agents to the
Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981
taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner
of Internal Revenue v. Asia Australia Express, Ltd.  (G.R. No. 85956), we ruled that the
two-year prescriptive period within which to claim a refund commences to run, at the earliest, on
the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until
April 15, 1984 within which to file its claim for refund.
Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the
respondent Commissioner who failed to take any action thereon and considering further that the
nonresolution of its claim for refund with the said Commissioner prompted ACCRAIN to reiterate
its claim before the Court of Tax Appeals through a petition for review on April 13, 1984, the
respondent appellate court manifestly committed a reversible error in affirming the holding of the
tax court that ACCRAIN’s claim for refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive period
with respect to the petitioner corporation’s claim for refund from the time it filed its final
adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made
profits or incurred losses in its business operations. The “date of payment”, therefore, in
ACCRAIN’s case was when its tax liability, if any, fell due upon its filing of its final adjustment
return on April 15, 1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc. ,15 this Court further
expounded on the same matter—
“A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is
warranted under the circumstances to lay down a categorical pronouncement on the question as
to when the two-year prescriptive period in cases of quarterly corporate income tax commences to
run. A full-blown decision in this regard is rendered more imperative in the light of the reversal by
the Court of Tax Appeals in the instant case of its previous ruling in the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in
relation to the other provisions of the Tax Code in order to give effect the legislative intent and to
avoid an application of the law which may lead to inconvenience and absurdity. In the case
of People vs. Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive a sensible
construction, such as will give effect to the legislative intention and so as to avoid an unjust or an
absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR
INCONVENIENS ET ABSURDUM. Where there is ambiguity, such interpretation as will avoid
inconvenience and absurdity is to be adopted. Furthermore, courts must give effect to the general
legislative intent that can be discovered from or is unraveled by the four corners of the statute,
and in order to discover said intent, the whole statute, and not only a particular provision thereof,
should be considered. (Manila Lodge No. 761, et al. vs. Court of Appeals, et al. , 73 SCRA
162 [1976]) Every section, provision or clause of the statute must be expounded by reference to
each other in order to arrive at the effect contemplated by the legislature. The intention of the
legislator must be ascertained from the whole text of the law and every part of the act is to be
taken into view. (Chartered Bank vs. Imperial, 48 Phil. 931 [1921]; Lopez vs. El Hoger Filipino , 47
Phil. 249, cited in Aboitiz Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now
Section 230) of the National Internal Revenue Code but also the other provisions of the Tax Code,
particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70)
and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment and Section 321
(now Section 232) on keeping of books of accounts. All these provisions of the Tax Code should
be harmonized with each other.
xxxx
Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68)
and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be
considered mere installments of the annual tax due. These quarterly tax payments which are
computed based on the cumulative figures of gross receipts and deductions in order to arrive at a
net taxable income, should be treated as advances or portions of the annual income tax due, to be
adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now Section
69) which provides for the filing of adjustment returns and final payment of income tax.
Consequently, the two-year prescriptive period provided in Section 292
94
94 SUPREME COURT REPORTS ANNOTATED date of filing of the return and payment of the tax due which, according to the law then existing,
should be made within 20 days from the end of each quarter. Having established thus, the
Atlas Consolidated Mining and Development Corporation vs. relevant dates in the instant cases are summarized and reproduced below—
Commissioner of Internal Revenue Date of Filing      Date of Filing Date of Filing
(now Section 230) of the Tax Code should be computed from the time of filing the Adjustment
Return or Annual Income Tax Return and final payment of income tax. (Return w/BIR) (Application (Case w/CTA)
Period Covered w/BIR)
In the case of Collector of Internal Revenue vs. Antonio Prieto  (2 SCRA 1007 [1961]), this 2nd Quarter, 20 July 1990 21 August 1990 20 July 1992
Court held that when a tax is paid in installments, the prescriptive period of two years provided in 1990
Section 306 (Section 292) of the National Internal Revenue Code should be counted from the date
of the final payment. This ruling is reiterated in Commissioner of Internal Revenue vs. Carlos 3rd Quarter, 18 October 21 November 9 October 1992
Palanca (18 SCRA 496 [1966]), wherein this Court stated that where the tax account was paid on 1990 1990 1990
installment, the computation of the two-year prescriptive period under Section 306 (Section 292) 4th Quarter, 20 January 19 February 1991 14 January
of the Tax Code, should be from the date of the last installment.
1990 1991 1993
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two- 1st Quarter, 1992 20 April 1992                - 20 April 1994
year prescriptive period should be counted from the filing of the Adjustment Return on April 15, The above table readily shows that the administrative and judicial claims of petitioner corporation
1982, TMX Sales, Inc. is not yet barred by prescription.” for refund of its input VAT on its zero-rated sales for the last three quarters of 1990 were all filed
within the prescriptive period.
The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive However, the same cannot be said for the claim of petitioner corporation for refund of its input
period for claims for refund of illegally or erroneously collected income tax may also apply to the VAT on its zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner
Petitions at bar involving the same prescriptive period for claims for refund/credit of input VAT on corporation filed in time its judicial claim with the CTA, there is no showing that it had previously
zero-rated sales. filed an administrative claim with the BIR. Section 106(e) of the Tax Code of 1977, as amended,
It is true that unlike corporate income tax, which is reported and paid on installment every explicitly provided that no refund of input VAT shall be allowed unless the VAT-registered taxpayer
quarter, but is eventually subjected to a final adjustment at the end of the taxable year, VAT is filed an application for refund with respondent Com-
computed and paid on a purely quarterly basis without need for a final adjustment at the end of 97
the taxable year. However, it is also equally true that until and unless the VAT-registered taxpayer VOL. 524, JUNE 8, 2007 97
prepares and submits to the BIR its quarterly VAT return, there is no way of knowing with
Atlas Consolidated Mining and Development Corporation vs.
certainty just how much input VAT16 the taxpayer may apply against its output VAT;17 how much
output VAT it is due to pay for the quarter or how much excess input VAT it may carry-over to the Commissioner of Internal Revenue
following quarter; or how much of its input VAT it may claim as refund/credit. It should be recalled missioner within the two-year prescriptive period. The application of petitioner corporation for
that not only may a VAT-registered taxpayer directly apply against his output VAT due the input refund/credit of its input VAT for the first quarter of 1992 was not only unsigned by its supposed
VAT it had paid on its importation or local purchases of goods and services during the quarter; the authorized representative, Ma. Paz R. Semilla, Manager-Finance and Treasury, but it was not
taxpayer is also given the option to either (1) carry over any excess input VAT to the succeeding dated, stamped, and initialed by the BIR official who purportedly received the same. The CTA, in
quarters for application against its future output VAT liabilities, or (2) file an application for refund its Decision,19 dated 24 November 1997, in CTA Case No. 5102, made the following observations
or issuance of a tax credit certificate covering the amount of such input VAT.18 Hence, even in the —
absence of a final adjustment return, the determination of any output VAT payable necessarily “This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of VAT
requires that the VAT-registered taxpayer make adjustments in its VAT return every quarter, Paid (BIR Form No. 2552) [Exhibit “B’] formally offered in evidence by the petitioner on account of
taking into consideration the input VAT which are creditable for the present quarter or had been the fact that it does not bear the BIR stamp showing the date when such application was filed
carried over from the previous quarters. together with the signature or initial of the receiving officer of respondent’s Bureau. Worse still, it
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish does not show the date of application and the signature of a certain Ma. Paz R. Semilla indicated
that it does have refundable or creditable input VAT, and the same has not been applied against in the form who appears to be petitioner’s authorized filer.
its output VAT liabilities—information which are supposed to be reflected in the taxpayer’s VAT
returns. Thus, an application for refund/credit must be accompanied by copies of the taxpayer’s A review of the records reveal that the original of the aforecited application was lost during the
VAT return/s for the taxable quarter/s concerned. time petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994). Attempt was made
Lastly, although the taxpayer’s refundable or creditable input VAT may not be considered as to prove that petitioner exerted efforts to recover the original copy, but to no avail. Despite this,
illegally or erroneously collected, its refund/credit is a privilege extended to qualified and however, We observe that petitioner completely failed to establish the missing dates and
registered taxpayers by the very VAT system adopted bythe Legislature. Such input VAT, the same signatures abovementioned. On this score, said application has no probative value in
as any illegally or erroneously collected national internal revenue tax, consists of monetary demonstrating the fact of its filing within two years after the [filing of the VAT return for the
amounts which are currently in the hands of the government but must rightfully be returned to quarter] when petitioner’s sales of goods were made as prescribed under Section 106(b) of the
the taxpayer. Therefore, whether claiming refund/credit of illegally or erroneously collected Tax Code. We believe thus that petitioner failed to file an application for refund in due form and
national internal revenue tax, or input VAT, the taxpayer must be given equal opportunity for filing within the legal period set by law at the administrative level. Hence, the case at bar has failed to
and pursuing its claim. satisfy the requirement on the prior filing of an application for refund with the respondent before
For the foregoing reasons, it is more practical and reasonable to count the two-year the commencement of a judicial claim for refund, as prescribed under Section 230 of the Tax
prescriptive period for filing a claim for refund/credit of input VAT on zero-rated sales from the
Code. This fact constitutes another one of the many reasons for not granting petitioner’s judicial
claim.”
As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation
timely filed its administrative claim for refund of its input VAT for the first quarter of 1992, but also
whether petitioner corporation actually filed such administrative claim in the first place. For failing
to prove that it had earlier filed with the BIR an application for refund/credit of its input VAT for
the first quarter of 1992, within the period prescribed by law, then the case instituted by petitioner
corporation with the CTA for the refund/credit of the very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement
Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the
gross selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same
provision subjected the following sales made by VATregistered persons to 0% VAT—
. (1)Export sales; and
. (2)Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to
zero-rate.
“Export Sales” means the sale and shipment or exportation of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported, or foreign currency
denominated sales. “Foreign currency denominated sales,” means sales to nonresidents of goods
assembled or manufactured in the Philippines, for delivery to residents in the Philippines and paid
for in convertible foreign currency remitted through the banking system in the Philippines.
These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for
VAT purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods
and/or services taxed at 0% shall not result in any output VAT, while the input VAT on its
purchases of
99
VOL. 524, JUNE 8, 2007 99
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
goods or services related to such zero-rated sale shall be available as tax credit or refund.20
Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the
said regulations imposed additional requirements, not found in the law itself, for the zero-rating of
its sales to Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc.
(PHILPHOS), both of which are registered not only with the BOI, but also with the then Export
Processing Zone Authority (EPZA).21
The contentious provisions of Revenue Regulations No. 2-88 read—
“SEC. 2. Zero-rating.—(a) Sales of raw materials to BOIregistered exporters.—Sales of raw
materials to export-oriented BOIregistered enterprises whose export sales, under rules and
regulations of the Board of Investments, exceed seventy percent (70%) of total annual
production, shall be subject to zero-rate under the following conditions:
. “(1)The seller shall file an application with the BIR, ATTN.: Division, applying for zero-
rating for each and every separate buyer, in accordance with Section 8(d) of Revenue
Regulations No. 5-87. The application should be accompanied with a favorable
recommendation from the Board of Investments.”
. “(2)The raw materials sold are to be used exclusively by the buyer in the manufacture,
processing or repacking of his own registered export product;
. “(3)The words “Zero-Rated Sales” shall be prominently indicated in the sales invoice.
The exporter (buyer) can no longer claim from the Bureau of Internal Revenue or any
other government office tax credits on their zero-rated purchases;
(b) Sales of raw materials to foreign buyer.—Sales of raw materials to a nonresident foreign buyer
for delivery to a resident local export-oriented BOI-registered enterprise to be used in
manufacturing, processing or repacking of the said buyer’s goods and paid for in foreign currency,
inwardly remitted in accordance with Central Bank rules and regulations shall be subject to zero-
rate.”
It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals,
that Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar; and to be
entitled to the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-
registered seller, must be able to prove not only that PASAR and PHILPHOS are BOI-registered
corporations, but also that more than 70% of the total annual production of these corporations
are actually exported. Revenue Regulations No. 2-88 merely echoed the requirement imposed by
the BOI on exportoriented corporations registered with it.
While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it
finds that its application must be limited and placed in the proper context. Note that Section 2 of
Revenue Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-
oriented BOIregistered enterprises whose export sales, under BOI rules and regulations, should
exceed seventy percent (70%) of their total annual production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of
the sales made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be
emphasized that PASAR and PHILPHOS, in addition to being registered with the BOI, were also
registered with the EPZA and located within an export-processing zone. Petitioner corporation
does not claim that its sales to PASAR and PHILPHOS are zero-rated on the basis that said sales
were made to export-oriented BOI-registered corporations, but rather, on the basis that the sales
were made to EPZAregistered enterprises operating within export processing
101
VOL. 524, JUNE 8, 2007 101
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
zones. Although sales to export-oriented BOI-registered enterprises and sales to EPZA-registered
enterprises located within export processing zones were both deemed export sales, which, under
Section 100(a) of the Tax Code of 1977, as amended, shall be subject to 0% VAT distinction must
be made between these two types of sales because each may have different substantiation
requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: “The sale
and shipment or exportation of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported, or foreign currency denominated sales.” Executive Order No.
226, otherwise known as the Omnibus Investments Code of 1987—which, in the years concerned
(i.e., 1990 and 1992), governed enterprises registered with both the BOI and EPZA, provided a
more comprehensive definition of export sales, as quoted below:
“ART. 23. “Export sales” shall mean the Philippine port F.O.B. value, determined from invoices,
bills of lading, inward letters of credit, landing certificates, and other commercial documents, of
export products exported directly by a registered export producer or the net selling price of export
product sold by a registered export producer or to an export trader that subsequently exports the
same: Provided, That sales of export products to another producer or to an export trader shall
only be deemed export sales when actually exported by the latter, as evidenced by landing
certificates of similar commercial documents: Provided, further, That without actual
exportation the following shall be considered constructively exported for purposes of this
provision: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers;
(2) sales to export processing zones ; (3) sales to registered export traders operating bonded
trading warehouses supplying raw materials used in the manufacture of export products under
guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and the
Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other agencies
and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked
products whether paid
102
102 SUPREME COURT REPORTS ANNOTATED
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
for in foreign currency or not: Provided, further, That export sales of registered export trader may
include commission income; and Provided, finally, That exportation of goods on consignment shall
not be deemed export sales until the export products consigned are in fact sold by the consignee.
Sales of locally manufactured or assembled goods for household and personal use to Filipinos
abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the
Internal Export Program of the government and paid for in convertible foreign currency inwardly
remitted through the Philippine banking systems shall also be considered export sales.” (Italics
ours.)
The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the
sales of export products to another producer or to an export trader, provided that the export
products are actually exported. For purposes of VAT zero-rating, such producer or export trader
must be registered with the BOI and is required to actually export more than 70% of its annual
production.
Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also
considers constructive exportation as export sales. Among other types of constructive exportation
specifically identified by the said provision are sales to export processing zones. Sales to export
processing zones are subjected to special tax treatment. Article 77 of the same Code establishes
the tax treatment of goods or merchandise brought into the export processing zones. Of particular
relevance herein is paragraph 2, which provides that “Merchandise purchased by a registered zone
enterprise from the customs territory and subsequently brought into the zone, shall be considered
as export sales and the exporter thereof shall be entitled to the benefits allowed by law for such
transaction.”
Such tax treatment of goods brought into the export processing zones are only consistent with
the Destination Principle and Cross Border Doctrine to which the Philippine VAT
103
VOL. 524, JUNE 8, 2007 103
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
system adheres. According to the Destination Principle,22 goods and services are taxed only in the
country where these are consumed. In connection with the said principle, the Cross Border
Doctrine23 mandates that no VAT shall be imposed to form part of the cost of the goods destined
for consumption outside the territorial border of the taxing authority. Hence, actual export of
goods and services from the Philippines to a foreign country must be free of VAT, while those
destined for use or consumption within the Philippines shall be imposed with 10% VAT.24 Export
processing zones25 are to be managed as a separate customs territory from the rest of the
Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For this
reason, sales by persons from the Philippine customs territory to those inside the export
processing zones are already taxed as exports.
Plainly, sales to enterprises operating within the export processing zones are export sales,
which, under the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground
that petitioner corporation is claiming refund/credit of the input VAT on its zero-rated sales to
PASAR and PHIL-PHOS.
The distinction made by this Court in the preceding paragraphs between the zero-rated sales
to export-oriented BOI-
registered enterprises and zero-rated sales to EPZAregistered enterprises operating within export
processing zones is actually supported by subsequent development in tax laws and regulations. In
Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as amended,26 the BIR defined
with more precision what are zero-rated export sales—
. “(1)The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence
or determine the transfer of ownership of the goods so exported paid for in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
. (2)The sale of raw materials or packaging materials to a nonresident buyer for delivery
to a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer’s goods and paid for in
acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
. (3)The sale of raw materials or packaging materials to an export-oriented enterprise
whose export sales exceed seventy percent (70%) of total annual production;
Any enterprise whose export sales exceed 70% of the total annual production of the
preceding taxable year shall be considered an export-oriented enterprise upon
accreditation as such under the provisions of the Export Development Act (R.A. 7844)
and its implementing rules and regulations;
. (4)Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
. (5)Those considered export sales under Articles 23 and 77 of Executive Order No. 226,
otherwise known as the Omnibus Investments Code of 1987, and other special
laws, e.g. Republic Act No. 7227, otherwise known as the Bases Conversion and
Development Act of 1992.”
The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export sales,
which are subject to 0% VAT.
This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88,
which applied to zero-rated export sales to export-oriented BOI-registered enterprises, should not
be applied to the applications for refund/credit of input VAT filed by petitioner corporation since it
based its applications on the zero-rating of export sales to enterprises registered with the EPZA
and located within export processing zones.
Sufficiency of evidence
There can be no dispute that the taxpayer-claimant has the burden of proving the legal and
factual bases of its claim for tax credit or refund, but once it has submitted all the required
documents, it is the function of the BIR to assess these documents with purposeful dispatch.28 It
therefore falls upon herein petitioner corporation to first establish that its sales qualify for VAT
zero-rating under the existing laws (legal basis), and then to present sufficient evidence that said
sales were actually made and resulted in refundable or creditable input VAT in the amount being
claimed (factual basis).
It would initially appear that the applications for refund/credit filed by petitioner corporation
cover only input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a
more thorough perusal of its applications, VAT returns, pleadings, and other records of these
cases would reveal that it is also claiming refund/credit of its input
VAT on purchases of capital goods and sales of gold to the Central Bank of the Philippines (CBP).
This Court finds that the claims for refund/credit of input VAT of petitioner corporation have
sufficient legal bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2)
of the Tax Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to
enterprises operating within export processing zones and registered with the EPZA, since such
export sales were deemed to be effectively zero-rated sales.29 The fact that PASAR and
PHILPHOS, to whom petitioner corporation sold its products, were operating inside an export
processing zone and duly registered with EPZA, was never raised as an issue herein. Moreover,
the same fact was already judicially recognized in the case Atlas Consolidated Mining &
Development Corporation v. Commissioner of Internal Revenue. 30 Section 106(c) of the same
Code likewise permitted a VAT-registered taxpayer to apply for refund/credit of the input VAT paid
on capital goods imported or locally purchased to the extent that such input VAT has not been
applied against its output VAT. Meanwhile, the effective zero-rating of sales of gold to the CBP
from 1989 to 199131 was already affirmed by this Court in Commissioner of Internal Revenue v.
Benguet Corporation,32 wherein it ruled that—
“At the time when the subject transactions were consummated, the prevailing BIR regulations
relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. The BIR
interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed
that gold sold to the Central Bank shall be considered export and therefore shall be subject to the
export and premium duties. In coming out with this interpretation, the BIR also considered Sec.
169 of Central Bank Circular No. 960 which states that all sales of gold to the Central Bank are
considered constructive exports. x x x.”
This Court now comes to the question of whether petitioner corporation has sufficiently
established the factual bases for its applications for refund/credit of input VAT. It is in this regard
that petitioner corporation has failed, both in the administrative and judicial level.
Applications for refund/credit of input VAT with the BIR must comply with the appropriate
revenue regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant
to the applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the
said applications must have been in accordance with Revenue Regulations No. 3-88, amending
Section 16 of Revenue Regulations No. 5-87, which provided as follows—
“SECTION 16. Refunds or tax credits of input tax.—
xxxx
(c) Claims for tax credits/refunds.—Application for Tax Credit/Refund of Value-Added Tax Paid
(BIR Form No. 2552) shall be filed with the Revenue District Office of the city or municipality
where the principal place of business of the applicant is located or directly with the Commissioner,
Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be
submitted together with the application. The original copy of the said invoice/receipt, however,
shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. In
addition, the following documents shall be attached whenever applicable:
xxxx
“3. Effectively zero-rated sale of goods and services.
. “i)photo copy of approved application for zero-rate if filing for the first time.
. “ii)sales invoice or receipt showing name of the person or entity to whom the sale of
goods or services were delivered, date of delivery, amount of consideration, and
description of goods or services delivered.
. “iii)evidence of actual receipt of goods or services.
“4. Purchase of capital goods.
. “i)original copy of invoice or receipt showing the date of purchase, purchase price,
amount of value-added tax paid and description of the capital equipment locally
purchased.
. “ii)with respect to capital equipment imported, the photo copy of import entry document
for internal revenue tax purposes and the confirmation receipt issued by the Bureau of
Customs for the payment of the value-added tax.
“5. In applicable cases,
where the applicant’s zero-rated transactions are regulated by certain government agencies, a
statement therefrom showing the amount and description of sale of goods and services, name of
persons or entities (except in case of exports) to whom the goods or services were sold, and date
of transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the
amount of the value-added tax (VAT)
109
VOL. 524, JUNE 8, 2007 109
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
paid directly and entirely attributable to the zero-rated transaction during the period covered by
the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods
and services, and the VAT paid (inputs) on purchases of goods and services cannot be directly
attributed to any of the aforementioned transactions, the following formula shall be used to
determine the creditable or refundable input tax for zerorated sale:
Amount of Zero-rated Sale
Total Sales
x
Total Amount of Input Taxes
= Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by
the BIR, and before the lapse of the two-year prescriptive period, the taxpayerapplicant may
already file a Petition for Review before the CTA. If the taxpayer’s claim is supported by
voluminous documents, such as receipts, invoices, vouchers or long accounts, their presentation
before the CTA shall be governed by CTA Circular No. 1-95, as amended, reproduced in full below
—
“In the interest of speedy administration of justice, the Court hereby promulgates the following
rules governing the presentation of voluminous documents and/or long accounts, such as receipts,
invoices and vouchers, as evidence to establish certain facts pursuant to Section 3(c), Rule 130 of
the Rules of Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers
Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:
. 1.The party who desires to introduce as evidence such voluminous documents must,
after motion and approval by the Court, present:
. (a)a Summary containing, among others, a chronological listing of the numbers, dates
and amounts covered by the invoices or receipts and the amount/s of
 110
110 SUPREME COURT REPORTS ANNOTATED
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
. tax paid; and (b) a Certification of an independent Certified Public Accountant attesting
to the correctness of the contents of the summary after making an examination,
evaluation and audit of the voluminous receipts and invoices. The name of the
accountant or partner of the firm in charge must be stated in the motion so that he/she
can be commissioned by the Court to conduct the audit and, thereafter, testify in Court
relative to such summary and certification pursuant to Rule 32 of the Rules of Court.
. 2.The method of individual presentation of each and every receipt, invoice or account
for marking, identification and comparison with the originals thereof need not be done
before the Court or Clerk of Court anymore after the introduction of the summary and
CPA certification. It is enough that the receipts, invoices, vouchers or other documents
covering the said accounts or payments to be introduced in evidence must be pre-
marked by the party concerned and submitted to the Court in order to be made
accessible to the adverse party who desires to check and verify the correctness of the
summary and CPA certification. Likewise, the originals of the voluminous receipts,
invoices or accounts must be ready for verification and comparison in case doubt on the
authenticity thereof is raised during the hearing or resolution of the formal offer of
evidence.”
Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA when
the said Circular was issued, then petitioner corporation must have complied therewith during the
course of the trial of the said cases.
In Commissioner of Internal Revenue v. Manila Mining Corporation ,35 this Court denied the
claim of therein respondent, Manila Mining Corporation, for refund of the input VAT on its
supposed zero-rated sales of gold to the CBP because it was unable to substantiate its claim. In
the same case, this Court emphasized the importance of complying with the substantiation
requirements for claiming refund/credit of input VAT on zero-rated sales, to wit—
“For a judicial claim for refund to prosper, however, respondent must not only prove that it is a
VAT registered entity and that it filed its claims within the prescriptive period. It
must substantiate the input VAT paid by purchase invoices or official receipts.
This respondent failed to do.
Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the
requirements in claiming tax credits/refunds.
xxxx
Under Section 8 of RA 1125, the CTA is described as a court of record. As cases filed before it
are litigated de novo, party litigants should prove every minute aspect of their cases. No
evidentiary value can be given the purchase invoices or receipts submitted to the BIR as the rules
on documentary evidence require that these documents must be formally offered before the CTA.
This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but this
does not ipso facto mean that [the seller] is entitled to the amount of refund sought as it is
required by law to present evidence showing the input taxes it paid during the year in
question. What is being claimed in the instant petition is the refund of the input taxes paid by the
herein petitioner on its purchase of goods and services. Hence, it is necessary for the Petitioner to
show proof that it had indeed paid the input taxes during the year 1991. In the case at bar,
Petitioner failed to discharge this duty. It did not adduce in evidence the sales invoice, receipts or
other documents showing the input value added tax on the purchase of goods and services.
xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides
categorically that the Court of Tax Appeals shall be a court of record and as such it is
required to conduct a formal trial (trial de novo) where the parties must present
112
112 SUPREME COURT REPORTS ANNOTATED
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
their evidence accordingly if they desire the Court to take such evidence into consideration .
(Emphasis and italics supplied)
A “sales or commercial invoice” is a written account of goods sold or services rendered
indicating the prices charged therefor or a list by whatever name it is known which is used in the
ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods
and services.
A “receipt” on the other hand is a written acknowledgment of the fact of payment in money or
other settlement between seller and buyer of goods, debtor or creditor, or person rendering
services and client or customer.
These sales invoices or receipts issued by the supplier are necessary to substantiate the actual
amount or quantity of goods sold and their selling price, and taken collectively are the best means
to prove the input VAT payments.”36
Although the foregoing decision focused only on the proof required for the applicant for
refund/credit to establish the input VAT payments it had made on its purchases from suppliers,
Revenue Regulations No. 3-88 also required it to present evidence proving actual zero-rated
VAT sales to qualified buyers, such as (1) photocopy of the approved application for zero-rate if
filing for the first time; (2) sales invoice or receipt showing the name of the person or entity to
whom the goods or services were delivered, date of delivery, amount of consideration, and
description of goods or services delivered; and (3) the evidence of actual receipt of goods or
services.
Also worth noting in the same decision is the weight given by this Court to the certification by
the independent certified public accountant (CPA), thus—
“Respondent contends, however, that the certification of the independent CPA attesting to the
correctness of the contents of the summary of suppliers’ invoices or receipts which were
examined, evaluated and audited by said CPA in accordance with CTA Circular
No. 1-95 as amended by CTA Circular No. 10-97 should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97,
which either expressly or impliedly suggests that summaries and schedules of input VAT
payments, even if certified by an independent CPA, suffice as evidence of input VAT payments.
xxxx
 The circular, in the interest of speedy administration of justice, was promulgated to avoid the
time-consuming procedure of presenting, identifying and marking of documents before the Court.
It does not relieve respondent of its imperative task of pre-marking photocopies of sales receipts
and invoices and submitting the same to the court  after the independent CPA shall have examined
and compared them with the originals. Without presenting these pre-marked documents as
evidence—from which the summary and schedules were based, the court cannot verify the
authenticity and veracity of the independent auditor’s conclusions.
There is, moreover, a need to subject these invoices or receipts to examination by the CTA in
order to confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation, No. 5-
87, all purchases covered by invoices other than a VAT invoice shall not be entitled to a refund of
input VAT.
xxxx
While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are
not ends in themselves but are primarily intended as tools in the administration of justice, the
presentation of the purchase receipts and/or invoices is not mere procedural technicality which
may be disregarded considering that it is the only means by which the CTA may ascertain and
verify the truth of the respondent’s claims.
The records further show that respondent miserably failed to substantiate its claims for input
VAT refund for the first semester of 1991. Except for the summary and schedules of input VAT
payments prepared by respondent itself, no other evidence was adduced in support of its claim.
As for respondent’s claim for input VAT refund for the second semester of 1991, it employed
the services of Joaquin Cunanan & Co.
114
114 SUPREME COURT REPORTS ANNOTATED
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
on account of which it (Joaquin Cunanan & Co.) executed a certification that:
We have examined the information shown below concerning the input tax payments made by the
Makati Office of Manila Mining Corporation for the period from July 1 to December 31, 1991. Our
examination included inspection of the pertinent suppliers’ invoices and official receipts and such
other auditing procedures as we considered necessary in the circumstances. x x x
As the certification merely stated that it used “auditing procedures considered necessary” and
not auditing procedures which are in accordance with generally accepted auditing principles and
standards, and that the examination was made on “input tax payments by the Manila Mining
Corporation,” without specifying that the said input tax payments are attributable to the sales of
gold to the Central Bank, this Court cannot rely thereon and regard it as sufficient proof of the
respondent’s input VAT payments for the second semester.”37
As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its
zero-rated sales in the first quarter of 1992, this Court already found that the petitioner
corporation failed to comply with Section 106(b) of the Tax Code of 1977, as amended, imposing
the two-year prescriptive period for the filing of the application for refund/credit thereof. This bars
the grant of the application for refund/credit, whether administratively or judicially, by express
mandate of Section 106(e) of the same Code.
Granting arguendo that the application of petitioner corporation for the refund/credit of the
input VAT on its zero-rated sales in the first quarter of 1992 was actually and timely filed,
petitioner corporation still failed to present together with its application the required supporting
documents, whether before the BIR or the CTA. As the Court of Appeals ruled—
“In actions involving claims for refund of taxes assessed and collected, the burden of proof rests
on the taxpayer. As clearly discussed in the CTA’s decision, petitioner failed to substantiate its
claim for tax refunds. Thus:
“We note, however, that in the cases at bar, petitioner has relied totally on Revenue Regulations
No. 2-88 in determining compliance with the documentary requirements for a successful refund or
issuance of tax credit. Unmentioned is the applicable and specific amendment later introduced by
Revenue Regulations No. 3-88 dated April 7, 1988 (issued barely after two months from the
promulgation of Revenue Regulations No. 2-88 on February 15, 1988), which amended Section 16
of Revenue Regulations No. 5-87 on refunds or tax credits of input tax. x x x.
xxxx
“A thorough examination of the evidence submitted by the petitioner before this court reveals
outright the failure to satisfy documentary requirements laid down under the above-cited
regulations. Specifically, petitioner was not able to present the following documents , to wit:
. “a)sales invoices or receipts;
. “b)purchase invoices or receipts;
. “c)evidence of actual receipt of goods;
. “d)BOI statement showing the amount and description of sale of goods, etc.
. “e)original or attested copies of invoice or receipt on capital equipment locally
purchased; and
. “f)photocopy of import entry document and confirmation receipt on imported capital
equipment.
“There is the need to examine the sales invoices or receipts in order to ascertain the actual
amount or quantity of goods sold and their selling price.  Without them, this Court cannot verify
the correctness of petitioner’s claim inasmuch as the regulations require that the input taxes being
sought for refund should be limited to the portion that is directly and entirely attributable to the
particular zero-rated transaction. In
116
116 SUPREME COURT REPORTS ANNOTATED
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
this instance, the best evidence of such transaction are the said sales invoices or receipts.
 “Also, even if sales invoices are produced, there is the further need to submit evidence that
such goods were actually received by the buyer, in this case, by CBP, Philp[h]os and PASAR.
xxxx
“Lastly, this Court cannot determine whether there were actual local and imported purchase of
capital goods as well as domestic purchase of non-capital goods without the required purchase
invoice or receipt, as the case may be, and confirmation receipts.
“There is, thus, the imperative need to submit before this Court the original or attested
photocopies of petitioner’s invoices or receipts, confirmation receipts and import entry documents
in order that a full ascertainment of the claimed amount may be achieved.
“Petitioner should have taken the foresight to introduce in evidence all of the missing
documents abovementioned. Cases filed before this Court are litigated de novo. This means that
party litigants should endeavor to prove at the first instance every minute aspect of their cases
strictly in accordance with the Rules of Court, most especially on documentary evidence.” (pp. 37-
42, Rollo)
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the
sovereign authority, and should be construed in strictissimi juris against the person or entity
claiming the exemption. The taxpayer who claims for exemption must justify his claim by the
clearest grant of organic or statute law and should not be permitted to stand on vague
implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil. Tobacco Corp. v. Mun. of
Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA 968; Asturias Sugar Central,
Inc. v. Commissioner of Customs , 29 SCRA 617; Davao Light and Power Co., Inc. v. Commissioner
of Customs, 44 SCRA 122).
There is no cogent reason to fault the CTA’s conclusion that the SGV’s certificate is “self-
destructive,” as it finds comfort in the very SGV’s stand, as follows:
117
VOL. 524, JUNE 8, 2007 117
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
“It is our understanding that the above procedure are sufficient for the purpose of the Company.
We make no presentation regarding the sufficiency of these procedures for such purpose. We did
not compare the total of the input tax claimed each quarter against the pertinent VAT returns and
books of accounts. The above procedures do not constitute an audit made in accordance with
generally accepted auditing standards. Accordingly, we do not express an opinion on the
company’s claim for input VAT refund or credit. Had we performed additional procedures, or had
we made an audit in accordance with generally accepted auditing standards, other matters might
have come to our attention that we would have accordingly reported on.”
The SGV’s “disclaimer of opinion” carries much weight as it is petitioner’s independent auditor.
Indeed, SGV expressed that it “did not compare the total of the input tax claimed each quarter
against the VAT returns and books of accounts.”38
Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation
on its zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court
likewise found that petitioner corporation failed to sufficiently establish its claims. Already
disregarding the declarations made by the Court of Appeals on its erroneous application of
Revenue Regulations No. 2-88, quoted hereunder is the rest of the findings of the appellate court
after evaluating the evidence submitted in accordance with the requirements under Revenue
Regulations No. 3-88—
“The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to Sec.
245 of the National Internal Revenue Code, which recognized his power to “promulgate all needful
rules and regulations for the effective enforcement of the provisions of this Code.” Thus, it is
incumbent upon a taxpayer intending to file a claim for refund of input VATs or the issuance of a
tax credit certificate with the BIR x x x to prove sales to such buyers as required by Revenue
Regulations No. 3-98. Logically, the same evidence should be presented in support of an action to
recover taxes which have been paid.
x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing
sales of gold, copper concentrates, and pyrite to the CBP, [PASAR], and [PHILPHOS], respectively,
and the dates and amounts of the same, nor any evidence of actual receipt by the said buyers of
the mineral products. It merely presented receipts of purchases from suppliers on which input
VATs were allegedly paid. Thus, the Court of Tax Appeals correctly denied the claims for refund of
input VATs or the issuance of tax credit certificates of petitioner [corporation]. Significantly, in the
resolution, dated 7 June 2000, this Court directed the parties to file memoranda discussing,
among others, the submission of proof for “its [petitioner’s] sales of gold, copper concentrates,
and pyrite to buyers.” Nevertheless, the parties, including the petitioner, failed to address this
issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this
point.”39
This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-
settled is the general rule that the jurisdiction of this Court in cases brought before it from the
Court of Appeals, by way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules
of Court, is limited to reviewing or revising errors of law; findings of fact of the latter are
conclusive.40 This Court is not a trier of facts. It is not its function to review, examine and
evaluate or weigh the probative value of the evidence presented.41
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.”42
Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on
these sales in the amount it had declared in its returns; whether all the input VAT subject of its
applications for refund/credit can be attributed to its zero-rated sales; and whether it had not
previously applied the input VAT against its output VAT liabilities, are all questions of fact which
could only be answered after reviewing, examining, evaluating, or weighing the probative value of
the evidence it presented, and which this Court does not have the jurisdiction to do in the present
Petitions for Review on Certiorari under Rule 45 of the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into questions
of fact under particular circumstances,43 none of these exist in the instant cases. The Court of
Appeals, in both cases, found a dearth of evidence to support the claims for refund/credit of the
input VAT of petitioner corporation, and the records bear out this finding. Peti-
tioner corporation itself cannot dispute its non-compliance with the requirements set forth in
Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as amended. It concentrated its
arguments on its assertion that the substantiation requirements under Revenue Regulations No. 2-
88 should not have applied to it, while being conspicuously silent on the evidentiary requirements
mandated by other relevant regulations.
Re-opening of cases/holding of new trial before the CTA
This Court now faces the final issue of whether the prayer of petitioner corporation for the re-
opening of its cases or holding of new trial before the CTA for the reception of additional evidence,
may be granted. Petitioner corporation prays that the Court exercise its discretion on the matter in
its favor, consistent with the policy that rules of procedure be liberally construed in pursuance of
substantive justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a judgment already
rendered in accordance with Section 1, Rule 37 of the revised Rules of Court, which provides—
“SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. —Within the
period for taking an appeal, the aggrieved party may move the trial court to set aside the
judgment or final order and grant a new trial for one or more of the following causes materially
affecting the substantial rights of said party:
. (a)Fraud, accident, mistake or excusable negligence which ordinary prudence could not
have guarded against and by reason of which such aggrieved party has probably been
impaired in his rights; or
. (b)Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial, and which if presented would probably alter the
result.
121
VOL. 524, JUNE 8, 2007 121
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
Within the same period, the aggrieved party may also move fore reconsideration upon the
grounds that the damages awarded are excessive, that the evidence is insufficient to justify the
decision or final order, or that the decision or final order is contrary to law.”
In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its
cases and/or holding of new trial before the CTA by contending that the “[f]ailure of its counsel to
adduce the necessary evidence should be construed as excusable negligence or mistake which
should constitute basis for such re-opening of trial as for a new trial, as counsel was of the belief
that such evidence was rendered unnecessary by the presentation of unrebutted evidence
indicating that respondent [Commissioner] has acknowledged the sale of [ sic] PASAR and
[PHILPHOS] to be zero-rated.”44 The CTA denied such motion on the ground that it was not
accompanied by an affidavit of merit as required by Section 2, Rule 37 of the revised Rules of
Court. The Court of Appeals affirmed the denial of the motion, but apart from this technical defect,
it also found that there was no justification to grant the same.
On the matter of the denial of the motion of the petitioner corporation for the re-opening of its
cases and/or holding of new trial based on the technicality that said motion was unaccompanied
by an affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which
should otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged
and incorporated in the motion itself; and this will be deemed a substantial compliance with the
formal requirements of the law, provided, of course, that the movant, or other individual with
personal knowledge of the facts, take oath as to the truth thereof, in effect converting the entire
motion for new trial into an affidavit.45 The motion
of petitioner corporation was prepared and verified by its counsel, and since the ground for the
motion was premised on said counsel’s excusable negligence or mistake, then the obvious
conclusion is that he had personal knowledge of the facts relating to such negligence or mistake.
Hence, it can be said that the motion of petitioner corporation for the re-opening of its cases
and/or holding of new trial was in substantial compliance with the formal requirements of the
revised Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation
for the re-opening of its cases and/or holding of new trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution,46 dated 20 July 1998, by
the CTA in another case, CTA Case No. 5296, involving the claim of petitioner corporation for
refund/credit of input VAT for the third quarter of 1993. The said Resolution allowed the re-
opening of CTA Case No. 5296, earlier dismissed by the CTA, to give the petitioner corporation the
opportunity to present the missing export documents.
The rule that the grant or denial of motions for new trial rests on the discretion of the trial
court,47 may likewise be extended to the CTA. When the denial of the motion rests upon the
discretion of a lower court, this Court will not interfere with its exercise, unless there is proof of
grave abuse thereof.48
That the CTA granted the motion for re-opening of one case for the presentation of additional
evidence and, yet, deny a
similar motion in another case filed by the same party, does not necessarily demonstrate grave
abuse of discretion or arbitrariness on the part of the CTA. Although the cases involve identical
parties, the causes of action and the evidence to support the same can very well be different. As
can be gleaned from the Resolution, dated 20 July 1998, in CTA Case No. 5296, petitioner
corporation was claiming refund/credit of the input VAT on its zero-rated sales, consisting
of actual export sales, to Mitsubishi Metal Corporation in Tokyo, Japan. The CTA took into account
the presentation by petitioner corporation of inward remittances of its export sales for the quarter
involved, its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual Report showing its
sales to the said foreign corporation, and its application for refund. In contrast, the present
Petitions involve the claims of petitioner corporation for refund/credit of the input VAT on
its purchases of capital goods  and on its effectively zero-rated sales  to CBP and EPZA-registered
enterprises PASAR and PHILPHOS for the second, third, and fourth quarters of 1990 and first
quarter of 1992. There being a difference as to the bases of the claims of petitioner corporation
for refund/credit of input VAT in CTA Case No. 5926 and in the Petitions at bar, then, there are
resulting variances as to the evidence required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by
petitioner corporation, emphasizes that the decision of the CTA to allow petitioner corporation to
present evidence “is applicable pro hac vice or in this occasion only as it is the finding of [the
CTA] that petitioner [corporation] has established a few of the aforementioned material
points regarding the possible existence of the export documents together with the prior and
succeeding returns for the quarters involved, x x x” [Emphasis supplied.] Therefore, the CTA, in
the present cases, cannot be bound by its ruling in CTA Case No. 5296, when these cases do not
involve the exact same circumstances that compelled it to
124
124 SUPREME COURT REPORTS ANNOTATED
Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue
grant the motion of petitioner corporation for re-opening of CTA Case No. 5296.
Finally, assuming for the sake of argument that the nonpresentation of the required
documents was due to the fault of the counsel of petitioner corporation, this Court finds that it
does not constitute excusable negligence or mistake which would warrant the re-opening of the
cases and/or holding of new trial.
Under Section 1, Rule 37 of the Revised Rules of Court, the “negligence” must be excusable
and generally imputable to the party because if it is imputable to the counsel, it is binding on the
client. To follow a contrary rule and allow a party to disown his counsel’s conduct would render
proceedings indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing
the counsel. What the aggrieved litigant should do is seek administrative sanctions against the
erring counsel and not ask for the reversal of the court’s ruling.49
As elucidated by this Court in another case,50 the general rule is that the client is bound by
the action of his counsel in the conduct of his case and he cannot therefore complain that the
result of the litigation might have been otherwise had his counsel proceeded differently. It has
been held time and again that blunders and mistakes made in the conduct of the proceedings in
the trial court as a result of the ignorance, inexperience or incompetence of counsel do not qualify
as a ground for new trial. If such were to be admitted as valid reasons for re-opening cases, there
would never be an end to litigation so long as a new counsel could be employed to allege and
show that the prior counsel had not been sufficiently diligent, experienced or learned.
Moreover, negligence, to be “excusable,” must be one which ordinary diligence and prudence WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and
could not have guarded against.51 Revenue Regulations No. 3-88, which was issued on 15 the Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP
February 1988, had been in effect more than two years prior to the filing by petitioner corporation Nos. 47607 and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.
of its earliest application for refund/credit of input VAT involved herein on 21 August 1990. CTA
Circular No. 1-95 was issued only on 25 January 1995, after petitioner corporation had filed its
Petitions before the CTA, but still during the pendency of the cases of petitioner corporation
before the tax court. The counsel of petitioner corporation does not allege ignorance of the
foregoing administrative regulation and tax court circular, only that he no longer deemed it
necessary to present the documents required therein because of the presentation of alleged
unrebutted evidence of the zero-rated sales of petitioner corporation. It was a judgment call made
by the counsel as to which evidence to present in support of his client’s cause, later proved to be
unwise, but not necessarily negligent.
Neither is there any merit in the contention of petitioner corporation that the non-presentation
of the required documentary evidence was due to the excusable mistake of its counsel, a ground
under Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. “Mistake,” as it
is referred to in the said rule, must be a mistake of fact, not of law, which relates to the
case.52 In the present case, the supposed mistake made by the counsel of petitioner corporation
is one of law, for it was grounded on his interpretation and evaluation that Revenue Regulations
No. 3-88 and CTA Circular No. 1-95, as amended, did not apply to his client’s cases and that there
was no need to comply with the documentary requirements set forth therein. And although the
counsel of petitioner corporation advocated an erroneous legal position,
the effects thereof, which did not amount to a deprivation of his client’s right to be heard, must
bind petitioner corporation. The question is not whether petitioner corporation succeeded in
establishing its interests, but whether it had the opportunity to present its side.53
Besides, litigation is a not a “trial and error” proceeding. A party who moves for a new trial on
the ground of mistake must show that ordinary prudence could not have guarded against it. A
new trial is not a refuge for the obstinate.54 Ordinary prudence in these cases would have
dictated the presentation of all available evidence that would have supported the claims for
refund/credit of input VAT of petitioner corporation. Without sound legal basis, counsel for
petitioner corporation concluded that Revenue Regulations No. 3-88, and later on, CTA Circular
No. 1-95, as amended, did not apply to its client’s claims. The obstinacy of petitioner corporation
and its counsel is demonstrated in their failure, nay, refusal, to comply with the appropriate
administrative regulations and tax court circular in pursuing the claims for refund/credit, now
subject of G.R. Nos. 141104 and 148763, even though these were separately instituted in a span
of more than two years. It is also evident in the failure of petitioner corporation to address the
issue and to present additional evidence despite being given the opportunity to do so by the Court
of Appeals. As pointed out by the appellate court, in its Decision, dated 15 September 2000,
in CA-G.R. SP No. 46718—
“x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file
memoranda discussing, among others, the submission of proof for “its [petitioner’s] sales of gold,
copper concentrates, and pyrite to buyers.” Nevertheless, the parties, including the petitioner,
failed to address this issue, thereby necessitating the affirmance of the ruling of the Court of Tax
Appeals on this point.”55
Summary
Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive
period for the filing of claims for refund/credit of input VAT must be counted from the date of
filing of the quarterly VAT return, and that sales to EPZA-registered enterprises operating within
economic processing zones were effectively zero-rated and were not covered by Revenue
Regulations No. 2-88, it still denies the claims of petitioner corporation for refund of its input VAT
on its purchases of capital goods and effectively zero-rated sales during the second, third, and
fourth quarters of 1990 and the first quarter of 1992, for not being established and substantiated
by appropriate and sufficient evidence. Petitioner corporation is also not entitled to the re-opening
of its cases and/or holding of new trial since the non-presentation of the required documentary
evidence before the BIR and the CTA by its counsel does not constitute excusable negligence or
mistake as contemplated in Section 1, Rule 37 of the revised Rules of Court.
 No. L-22814. August 28, 1968. It is true that the uniformity essential to the valid exercise of the power of taxation does not
require identity or equality under all circumstances, or negate the authority to classify the objects
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant, vs. CITY OF BUTUAN, of taxation. The classification made in the exercise of this authority, to be valid, must, however,
MEMBERS OF THE MUNICIPAL BOARD, THE ClTY MAYOR and THE ClTY TREASURER, all of the be reasonable and this requirement is not deemed satisfied unless: (1) it is based upon substantial
CITY OF BUTUAN, defendants-appellees. distinctions which make the real differences; (2) these are germane to the purpose of the
legislation or ordinance; (3) the classification applies, not only to present con-
Constitutional law; Double taxation, in general, is not forbidden by our fundamental law;
Delegation of legislative powers to local governments.—Independently of whether or not a tax 791
imposed pursuant to section 2 of Republic Act No. 2264, when considered in relation to the sales
tax prescribed by Acts of Congress, amounts to double taxation, on which we do not express any VOL. 24, AUGUST 28, 1968 791
opinion—double taxation, in general, is not forbidden by our fundamental law. We have not Pepsi-Cola Bottling Co. of the Phil., Inc. vs. City of Butuan
adopted, as part thereof, the injunction against double taxation found in the Constitution of the ditions, but, also, to future conditions substantially identical to those of the present; and (4)
United States and of some States of the Union (De Villata v. Stanley, 32 Phil. 541; City of the classification applies equally to all those who belong to the same class.
Manila v. Inter-Island Gas Service, 99 Phil. 847, 854; Syjuco v. Municipality of Paranaque, L-
11265, Nov. 27, 1959; City of Bacolod v. Gruet, L-18290, Jan. 31, 1963). Then, again, the general
These conditions are not f fully met by the ordinance in question. Indeed, if its purpose were
principle against delegation of legislative powers, in consequence of the theory of separation of
merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason
powers (U.S. v. Bull, 15 Phil. 7, 27; Kilbourn v. Thompson, 103 U.S. 168, 26 L. ed. 377) is subject
why sales thereof by dealers other than agents or consignees  of producers or merchants
to one well-established exception, namely: legislative powers may be delegated to local
established outside the City of Butuan should be exempt from the tax.
governments—to which said theory does not apply (State v. City of Mankato, 136 N.W. 264;
People v. Provinces, 34 Cal. 520; Stoutenburgh v. Hennick, 129 U.S. 141, 32 L. ed. 637)—in
DIRECT APPEAL, from a decision of the Court of First Instance of Agusan. Ortiz, J.
respect of matters of local concern.
The facts are stated in the opinion of the Court.
     Sabido, Sabido & Associates for plaintiff-appellant.
Same; Tax of "fO.lO per case of 24 bottles" of soft drinks or carbonated drinks is not
     The City Attorney of Butuan City for defendants-appellees.
oppressive or confiscatory.—The tax of "P0.10 per case of 24 bottles" of soft drinks or carbonated
drinks—in the production and sale of which the Pepsi-Cola BottlinR Company is engaged—or less
CONCEPCION, C.J.:
than F0.0042 per bottle, is manifestly too small to be excessive, oppressive, or confiscatory.

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing
Same; Conditions for a valid classification of the objects of taxation; Municipal Ordinance
plaintiff's complaint, with costs.
No. 122 of the City of Butuan is null and void; Case at bar. —In the present case the tax prescribed
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices
in section 3 of Ordinance No. 110 of the City of Butuan, as originally approved, was imposed upon
and principal place of business in Quezon City. The defendants are the City of Butuan, its City
dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that the intent
Mayor, the members of its municipal board and its City Treasurer. Plaintiff seeks to recover the
was then to levy of tax upon the sale of said merchandise. As amended by Ordinance No. 122, the
sums paid by it to the City of Butuan—hereinafter referred to as the City—and collected by the
tax is, however, imposed oriLy upon "any agent and/or consignee of any person, association,
latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122,
partnership, company or corporation engaged in selling x x x soft drinks or carbonated drinks."
both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement
thereof. Both parties submitted the case for decision in the lower court upon a stipulation to the
As a consequence, merchants engaged in the sale of soft drinks or carbonated drinks,
effect:
are not subject to the tax, unless they are agents and/or consignees of another dealer,  who, in
the very nature of things, must be one engaged in business outside the City. Besides, the tax
. "1.That plaintiff's warehouse in the City of Butuan serves as a storage for its products
would not be applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are
the "Pepsi-Cola" soft drinks. for sale to customers in the City of Butuan and all the
consigned or shipped to him every month. When we consider, also, that the tax "shall be based
municipalities in the Province of Agusan. These "Pepsi-Cola" soft drinks are bottled in
and computed from the cargo manifest or bill of lading x x x showing the number of cases"—
Cebu City and shipped to the Butuan City warehouse of plaintiff for distribution and sale
not sold—but "received" by the taxpayer, the intention to limit the application of the ordinance to
in the City of Butuan and all municipalities of Agusan.
soft drinks and carbonated drinks brought into the City from outside thereof becomes apparent.
Viewed from this angle, the tax partakes of the nature of an import duty, which is beyond
defendant's authority to impose by express provision of law (Sec. 2[1], Rep. Act 2264; . "2.That on August 16, 1960, the City of Butuan enacted Ordinance No, 110 which was
Panaligan v. City of Tacloban, L-9319, Sept. 27, 1957, 102 Phil. 1162; East Asiatic Co. v. City of subsequently amended by Ordin
Davao, L-16253, Aug. 21, 1962).
792
Even, however, if the burden in question were regarded as a tax on the sale of said 792 SUPREME COURT REPORTS ANNOTATED
beverages, it would still be invalid, as discriminatory, and hence, violative of the uniformity Pepsi-Cola Bottling Co. of the Phil., Inc. vs. City of Butuan
required by the Constitution and the law therefor, since only sales by "agents or consignees"
of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of
. ance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110, Series of
other merchants, regardless of the volume of their sales, and even if the same exceeded those
1960 and Ordinance No. 122 are incorporated herein as Exhibits "A" and "B",
made by said agents or consignees of producers or merchants established outside the City of
respectively.
Butuan, would be exempt from the disputed tax.
 . "3.That Ordinance No. 110 as amended, imposes a tax on any person, association, etc.,
of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the
amount of P4,926.63 from August 16 to December 31, 1960 and the amount of
P9,250.40 from January 1 to July 30, 1961.
. "4.That the plaintiff filed the foregoing complaint for the recovery of the total amount of
P14,177.03 paid under protest and those that if may later on pay until the termination
of this case on the ground that Ordinance No. 110 as amended of the City of Butuan is
illegal, that the tax imposed is excessive and that it is unconstitutional.
. "5.That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City,
has prepared a form to be accomplished by the plaintiff for the computation of the tax.
A cop(y) of the form is enclosed herewith as Exhibit "C".
. "6.That the Profit and Loss Statement of the plaintiff for the period from January 1,
1961 to July 30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits
"D" to "D-l" to "D-5". In this Profit and Loss Statement, the defendants claim that the
plaintiff is not entitled to a depreciation of P3,052.63 but only Pl,202.55 in which case
the profit of plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff differs
only on the claim of depreciation which the company claims to be F3,052.62. This is in
accordance with the findings of the representative of the undersigned City Attorney who
verified the records of the plaintiff.
. "7.That beginning November 21, 1960, the price of PepsiCola per case of 24 bottles was
increased to f 1.92 which price is uniform throughout the Philippines. Said increa&e was
made due to the increase in the production cost of its manufacture.
. "8.That the parties reserve the right to submit arguments on the constitutionality and
illegality of Ordinance No. 110, as amended of the City of Butuan in their respecitive
memoranda.
"x      x      x      x      x."
Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the
purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any
dealer "engaged in selling liquors, imported or local, in the City," of taxes at specified rates.
Section 3 prescribes a tax of FO.10 per case of 24 bottles of the sof t drinks and carbonated
beverages therein named, w
793
VOL. 24, AUGUST 28, 1968 793
Pepsi-Cola Bottling Co. of the Phil., Inc. vs. City of Butuan
and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning of the term
"consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be
paid at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based and
computed from the cargo manifest or bill of lading or any other record showing the number of
cases of soft drinks, liquors or all other soft drinks or carbonated drinks received within the
month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the taxes within
the period prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax
mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of
the bill of lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in
the City." Section 9 makes the ordinance applicable to soft drinks, liquors or carbonated drinks
"received outside" but "sold within" the City. Section 10 of the ordinance provides that the
revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for
the General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the
nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and
confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264,
upon the authority of which it was enacted, is an unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed—independently of
whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts
of Congress, amounts to double taxation, on which we need not and do not express any opinion—
double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as
part thereof, the injunction against double taxation found in the Constitution of the United States
and of some States of the Union.1 Then, again, the general principle against delegation of
legislative powers, in consequence of the theory of separation of powers- is subject to one
wellestablished exception, namely: legislative powers may be delegated to local governments—to
which said theory does not apply3—in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles" of soft
drinks or carbonated drinks—in the production and sale of which plaintiff is engaged—or less than
P0.0042 per bottle, is manifestly too small to be excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this connection, it
is noteworthy that the tax prescribed in section 3 of Ordinanoe No. 110, as originally approved,
was imposed upon dealers "engaged in selling" soft drinks or carborated drinks. Thus, it would
seem that the intent was then to levy a tax upon the sale of said merchandise. As amended by
Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee of any
person, association, partnership, company or corporation engaged in selling x x soft drinks or
carbonated drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No. 122:
"x x—Definition of the Term Consignee or Agent.—For purposes of this Ordinance, a consignee of
agent shall mean any person, association, partnership, company or corporation who acts in the
place of another by authority from him or one entrusted with the business of another or to whom
is consigned or shipped no less than 1,000 cases of hard liquors or soft drinks every month
for resale, either retail or wholesale."
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks,
are not subject to the tax, unless they are agents and/or consignees of another dealer,  who, in
the very nature of things, must be one engaged
in business outside the City. Besides, the tax would not be applicable to such agent and/or
consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every month.
When we consider, also, that the tax "shall be based and computed from the cargo
manifest or bill of lading x x showing the number of cases"—not sold—but "received" by the
taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated
drinks brought into the City from outside thereof becomes apparent. Viewed from this angle, the
tax partakes of the nature of an import duty, which is beyond defendant's authority to impose by
express provision of law.4
Even, however, if the burden in question were regarded as a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and hence, violative of the uniformity
required by the Constitution and the law therefor, since only sales by "agents or consignees"
of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of
other merchants, regardless of the volume of their sales, and even if the same exceeded those
made by said agents or consignees of producers or merchants established outside the City of
Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does not
require identity or equality under all circumstances, or negate the authority to classify the objects
of taxation.5 The classification made in the exercise of this authority, to be valid, must, however,
be reasonable6 and this requirement is not deemed satisfied unless: (1) it is based upon
substantial distinctions which make real differences; (2) these are germane to the purpose of the
legislation or ordinance; (3) the
classification applies, not only to present conditions, but, also, to future conditions substantially
identical to those of the present; and (4) the classification applies equally all those who belong to
the same class.7
 These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were
merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason
why sales thereof by dealers other than agents or consignees of producers or merchants
established outside the City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be
entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City
of Butuan to refund to plaintiff herein the amounts collected from and paid under protest by the
latter, with interest thereon at the legal rate from the date of the promulgation of this decision, in
addition to the costs, and defendants herein are, accordingly, restrained and prohibited
permanently from enforcing said Ordinance, as amended. It is so ordered.

     Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando,
JJ., concur.

Decision reversed.
 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., defendants-
appellees.
Taxation; Delegation of Powers; Power of taxation may be delegated to local governments
on matters of local concern.—The power of taxation x x x may be delegated to local governments
in respect of matters of local concern. This is sanctioned by immoral practice. 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. x x x 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 to the exact meassure 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
taxes 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.
Same; Due process; Taking of property without due process of law may not be passed over
under the guise of taxing power, except when the latter is exercised lawfully. —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.
Same; Same; Delegation of powers; Delegation of taxing power to local governments may
not be assailed on the ground of double taxation.—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. x x x 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. Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit
of the same governmental entity or by the same jurisdiction for the same purpose, but not in a
case where one tax is imposed by the State and the other by the city of municipality.
Taxation; A municipal ordinance which imposes a tax of P0.01 for every gallon of soft drinks
produced in the municipality does not partake of a percentage tax. —The imposition of “a tax of
one centavo (P0.01) on each gallon (128 flued 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 no set ratio between the volume of sales and the amount of the tax.
Same; A municipal tax on soft drinks is not a specific tax. —Nor can the tax levied be treated
as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits,
wines, x x x cigars and cigarettes, matches, x x x bunker fuel oil, diesel fuel oil, cinematographic
films, playing cards, saccharine, opium and other habit-forming drugs. Soft drinks is not one of
those specified.
Same; A municipal tax of P0.01 on each gallon of soft drinks produced is not unfair or
oppressive.—The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity on all soft drinks, produced or manufactured, or an equivalent of 1½ centavos per case,
cannot be considered unjust and unfair. 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 rates of imposable taxes. This is in line with the constitutional 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,
462
462 SUPREME COURT REPORTS ANNOTATED
Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of
Tanauan, Leyte
1973). Unless the amount is so excessive as to be prohibitive, courts will go slow in writing
off an ordinance as unreasonable.
Same; Licenses; Municipalities are empowered to impose not only municipal license but just
and uniform taxes for public purposes.—The municipal license tax of P1,000.00 per corking
machine with five but not more than ten crowners x x x imposed on manufacturers, producers,
importers and dealers of soft drinks and/or mineral waters x x x 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.
APPEAL from a decision of the Court of First Instance of Leyte. Garlitos, J.
The facts are stated in the opinion of the Court.
     Sabido, Sabido & Associates for appellant.
     Provincial Fiscal Zoila M. Redoña & Assistant Provincial Fiscal Bonifacio B.
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 tax 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, firm, 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
Ordinances Nos. 23 and 27 valid, legal and constitutional; ordering the plaintiff to pay the taxes
due under the oft-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 to 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., extra-territorial 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 entity15 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 Nos. 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 to 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. Constitution and Sec. 17 (1), Art. VIII, 1973 Constitution.
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,
excepting those which are mentioned therein.” As long as the tax 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 expresio unius est exclucio
alterius, and exceptio firmat regulum in casibus non excepti.19 The limitation applies, particularly,
to the prohibition against municipalities and municipal districts to 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.” 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 centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity
on all soft drinks, produced or manufactured, or an equivalent of 1-1/2 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 rates of imposable taxes.25 This is in line with the
constitutional 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, repealing 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 Conception Jr., JJ., concur.
     Fernando, J., concurs in a separate opinion.
FERNANDO, J., concurring:
The opinion of the Court penned by Justice Martin is impressed with a scholarly and
comprehensive character. Insofar as it shows adherence to tried and tested concepts of the law of
municipal taxation, I am certainly in agreement. If I limit myself to concurrence in the result, it is
primarily because with the article on Local Autonomy found in the present Constitution, I feel a
sense of reluctance in restating doctrines that arose from a different basic premise as to the scope
of such power in accordance with the 1935 Charter. Nonetheless, it is well-nigh unavoidable that I
do so as I am unable to share fully what for me are the nuances and implications that could arise
from the approach taken by my brethren. Likewise as to the constitutional aspect of the thorny
question of double taxation, I would limit myself to what has been set forth in City of Baguio
v. De Leon.1
1. The present Constitution is quite explicit as to the power of taxation vested in local and
municipal corporations. It is therein specifically provided: “Each local government unit shall have
the power to create its own sources of revenue and to levy taxes, subject to such limitations as
may be provided by law”2 That was not the case under the 1935 Charter, The only limitation then
on the authority, plenary in character of the national government, was that while the President of
the Philippines was vested with the power of control over all executive departments, bureaus, or
offices, he could only “exercise general supervision over all local governments as may be provided
by law * * *.”3 As far as legislative power over local government was concerned, no restriction
whatsoever was placed on the Congress of the Philippines. It would appear therefore that the
extent of the taxing power was solely for the legislative body to decide. It is true that in 1989,
there was a statute that enlarged the scope of the municipal taxing power.4 Thereafter, in 1959
such competence was further expanded in the Local Autonomy Act.5 Nevertheless, as late as
December of 1964, five years after its enactment of the Local Autonomy Act, this Court, through
Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan,6 reaffirmed the traditional concept
in these words; “The rule is well-settled that municipal corporations, unlike sovereign states, are
clothed with no power of taxation; that its charter or a statute must clearly show an intent to
confer that power or the municipal corporation cannot assume and exercise it, and that any such
power granted must be construed strictly, any doubt or ambiguity arising from the terms of the
grant to be resolved against the municipality.”7
Taxation, according to Justice Paredes in the earlier case of Tan v. Municipality of Pagbilao,8 “is an
attribute of sovereignty which municipal corporations do not enjoy.”9 That case left no doubt
either as to weakness of a claim “based merely by inferences, implications and deductions, [as
they] have no place in the interpretation of the power to tax of a municipal corporation.”10 As the
conclusion reached by the Court finds support in such grant of the municipal taxing power, I
concur in the result.
2. As to any possible infirmity based on an alleged double taxation, I would prefer to rely on
the doctrine announced by this Court in City of Baguio v. De Leon.11 Thus: “As to why double
taxation is not violative of due process, Justice Holmes made clear in this language: ‘The objection
to the taxation as double may be laid down on one side. * * * The 14th Amendment [the due
process clause] no more forbids double taxation than it does doubling the amount of a tax, short
of confiscation or proceedings unconstitutional on other grounds.’ With that decision rendered at a
time when American sovereignty in the Philippines was recognized, it possesses more than just a
persuasive effect. To some, it delivered the coup de grace to the bogey of double taxation as a
constitutional bar to the exercise of the taxing power. It would seem though that in the United
States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. In a 1947
decision, however, we quoted with approval this excerpt from a leading American decision:
‘Where, as here, Congress has clearly expressed its intention, the statute must be sustained even
though double taxation results.’ ”12
So I would view the issues in this suit and accordingly concur in the result.
Notes.—A municipal ordinance imposing a tax “for the selling and distribution of refined and
manufactured oils” based on the monthly allocation of the taxpayer is a sales tax ordinance.
(Arabay vs. Court of First Instance of Zamboanga,  66 SCRA 617).
 Pursuant to a proviso to Section 2 of R.A. 2264, municipalities “shall, in no case, impose any
percentage tax on sales or other taxes on articles subject to specific tax, except gasoline, under
the provisions of the National Internal Revenue Code.” Under the foregoing proviso, two courses
of action in the exercise of their taxing powers are denied to municipalities, to wit, (1) to levy any
sales tax in whatever form; and (2) to levy any tax on articles subject to specific tax under the
National Internal Revenue Code. It is not difficult to see that these two prohibitions overlap in the
sense that while the first clause of the said proviso forbids the levying of sales taxes of whatever
form or guise, the second clause of the same proviso forbids the levying of “taxes” without any
distinction as to the kind of tax, i.e., ‘whether percentage tax, sales tax, specific tax or license tax,
although this latter prohibition applies only to a limited class of articles, viz, those subject to the
specific tax under the Tax Code, Such overlap would probably carry or connote no legal
significance but for the exclusion of gasoline from the prohibition contained in the second clause
of the mentioned proviso. A reasonable and practical interpretation of the terms of the proviso in
question results in the conclusion that Congress, in excluding gasoline from the general disability
imposed on municipalities to exact any kind of taxes on articles subject to specific tax under the
Tax Code, deliberately and intentionally meant to put it within, the power of such local
governments to impose whatever type or form of taxes the latter may deem proper to levy on
gasoline, including a sales tax or one in that form. ( Arabay, Inc. vs. Court of First Instance of
Zamboanga, 66 SCRA 623).

Where a municipality which enacted a tax ordinance beyond its power is converted to a city,
the city becomes obligated to refund the tax illegally imposed by its predecessor, ( San Miguel
Corporation vs. The Municipal Council of Mandaue, Cebu,  52 SCRA 43; Laoag Producers’ Coop.
Mktg. Ass’n, vs. Municipality of Laoag, Ilocos Norte, 37 SCRA 594; City of Naga vs. Court of
Appeals, 24 SCRA 594).

——o0o——
 G.R. No. 155650. July 20, 2006.*
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF APPEALS, CITY OF
PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE,
CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE, respondents.
Manila International Airport Authority; Taxation; MIAA’s Airport Lands and Buildings are
exempt from real estate tax imposed by local governments .—We rule that MIAA’s Airport Lands
and Buildings are exempt from real estate tax imposed by local governments. First, MIAA is not a
government-owned or controlled corporation but an instrumentality of the National Government
and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.
Same; Same; While there is no dispute that a government-owned or controlled corporation
is not exempt from real estate tax, MIAA is not a government-owned or controlled corporation; A
government-owned or controlled corporation must be “organized as a stock or non-stock
corporation,” of which MIAA is neither; MIAA is not a stock corporation because it has no capital
stock divided into shares.—There is no dispute that a government-owned or controlled corporation
is not exempt from real estate tax. However, MIAA is not a government-owned or controlled
corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987
defines a government-owned or controlled corporation as follows: SEC. 2. General Terms Defined.
—x x x x (13) Government-owned or controlled corporation  refers to any agency organized as a
stock or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through its
instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the
extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied) A
government-owned or controlled corporation must be “ organized as a stock or non-stock
corporation.” MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares.
Same; Same; Manila International Airport Authority (MIAA) is not a non-stock corporation
because it has no members; Section 11 of the MIAA Charter which mandates MIAA to remit 20%
of its annual gross operating income to the National Treasury prevents it from qualifying as a non-
stock corporation.—MIAA is also not a non-stock corporation because it has no members. Section
87 of the Corporation Code defines a non-stock corporation as “one where no part of its income is
distributable as dividends to its members, trustees or officers.” A non-stock corporation must have
members. Even if we assume that the Government is considered as the sole member of MIAA, this
will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of
their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of
its annual gross operating income to the National Treasury. This prevents MIAA from qualifying as
a non-stock corporation.
Administrative Law; Manila International Airport Authority (MIAA) is a government
instrumentality vested with corporate powers to perform efficiently its governmental functions .—
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within the
National Government? MIAA is a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any other government instrumentality,
the only difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory
Provisions of the Administrative Code defines a government “ instrumentality” as follows: SEC. 2.
General Terms Defined.––x x x x (10) Instrumentality refers to any agency of the National
Government, not integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers, administering special
funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis
supplied)
Same; When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation—unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a government instrumentality exercising
not only governmental but also corporate powers .—When the law vests in a government
instrumentality corporate powers, the instrumentality does not become a corporation. Unless the
government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus,
MIAA exercises the governmental powers of eminent domain, police authority and the levying of
fees and charges. At the same time, MIAA exercises “all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive
Order.”
Same; When the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework .—Likewise, when the law makes a government
instrumentality operationally autonomous, the instrumentality remains part of the National
Government machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a “separate and autonomous body” will make
its operation more “financially viable.”
Same; Manila International Airport Authority; Taxation; Local Government Code; A
government instrumentality like MIAA falls under Section 133(o) of the Local Government Code,
which provision recognizes the basic principle that local governments cannot tax the national
government.—A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states: SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units.—Unless otherwise provided herein, the exercise of the taxing powers
of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following: x x x x (o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities  and local government units. (Emphasis and italics supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power “subject to such guidelines and limitations as the
Congress may provide.”
 Taxation; Local Government Code; Statutory Construction; When local governments invoke
the power to tax on national government instrumentalities, such power is construed strictly
against local governments, and when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality.—Section 133(o) recognizes the basic principle that local governments
cannot tax the national government, which historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes taxation as one of the powers of local
governments, local governments may only exercise such power “subject to such guidelines and
limitations as the Congress may provide.” When local governments in-
594
594 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
voke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt whether a person, article or activity is
taxable is resolved against taxation. This rule applies with greater force when local governments
seek to tax national government instrumentalities. Another rule is that a tax exemption is strictly
construed against the taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation, such exemption is
construed liberally in favor of the national government instrumentality. As this Court declared
in Maceda v. Macaraig, Jr.: The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In such case the practical effect of
an exemption is merely to reduce the amount of money that has to be handled by government in
the course of its operations. For these reasons, provisions granting exemptions to government
agencies may be construed liberally, in favor of non tax-liability of such agencies. There is,
moreover, no point in national and local governments taxing each other, unless a sound and
compelling policy requires such transfer of public funds from one government pocket to another.
Same; Same; Taxation; Local Government Code; There is also no reason for local
governments to tax national government instrumentalities for rendering essential public services
to inhabitants of local governments, the only exception being when the legislature clearly intended
to tax government instrumentalities for the delivery of essential services for sound and compelling
policy considerations.—There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local governments. The
only exception is when the legislature clearly intended to tax government instrumentalities for the
delivery of essential public services for sound and compelling policy considerations . There must be
express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.
Manila International Airport Authority; The Airport Lands and Buildings of the MIAA are
property of public dominion and therefore owned by the State or the Republic of the Philippines .—
The Airport Lands and Buildings of MIAA are property of public dominion and therefore
owned by the State or the Republic of the Philippines. The Civil Code provides: ARTICLE
419. Property is either of public dominion or of private ownership. ARTICLE 420. The following
things are property of public dominion: (1)Those intended for public use, such as roads,
canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads,
and others of similar character; (2) Those which belong to the State, without being for public use,
and are intended for some public service or for the development of the national wealth. (Emphasis
supplied) ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property. ARTICLE 422. Property of public dominion, when no
longer intended for public use or for public service, shall form part of the patrimonial property of
the State.
Same; Words and Phrases; The term “ports” in Article 420 (1) of the Civil Code includes
seaports and airports—the MIAA Airport Lands and Buildings constitute a “port” constructed by
the State.—No one can dispute that properties of public dominion mentioned in Article 420 of the
Civil Code, like “roads, canals, rivers, torrents, ports and bridges constructed by the
State,” are owned by the State. The term “ports” includes seaports and airports. The MIAA
Airport Lands and Buildings constitute a “port” constructed by the State. Under Article 420 of the
Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus
owned by the State or the Republic of the Philippines.
Same; Same; The Airport Lands and Buildings are devoted to public use because they are
used by the public for international and domestic travel and transportation; The charging of fees
to the public does not determine the character of the property whether it is of public dominion or
not.—The Airport Lands and Buildings are devoted to public use because they are used by the
public for international and domestic travel and transportation . The fact that the MIAA collects
terminal fees and other charges from the public does not remove the character of the Airport
Lands and Buildings as properties for public use. The operation by the government of a tollway
does not change the character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay the government,
or only those among the public who actually use the road through the toll fees they pay upon
using the road. The tollway system is even a more efficient and equitable manner of taxing the
public for the maintenance of public roads. The charging of fees to the public does not determine
the character of the property whether it is of public dominion or not. Article 420 of the Civil Code
defines property of public dominion as one “intended for public use.” Even if the government
collects toll fees, the road is still “intended for public use” if anyone can use the road under the
same terms and conditions as the rest of the public. The charging of fees, the limitation on the
kind of vehicles that can use the road, the speed restrictions and other conditions for the use of
the road do not affect the public character of the road.
Same; Taxation; User’s Tax; Words and Phrases; The terminal fees MIAA charges
passengers, as well as the landing fees MIAA charges airlines, are often termed user’s tax; A
user’s tax is more equitable—a principle of taxation mandated by the 1987 Constitution .—The
terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines,
constitute the bulk of the income that maintains the operations of MIAA. The collection of such
fees does not change the character of MIAA as an airport for public use. Such fees are often
termed user’s tax. This means taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the particular public facility. A user’s
tax is more equitable—a principle of taxation mandated in the 1987 Constitution.
 Same; The Airport Lands and Buildings of MIAA, as properties of public dominion, are
outside the commerce of man .—The Airport Lands and Buildings of MIAA are devoted to public
use and thus are properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are outside the commerce of man. The Court has ruled repeatedly that
properties of public dominion are outside the commerce of man. As early as 1915, this Court
already ruled in Municipality of Cavite v. Rojas  that properties devoted to public use are outside
the commerce of man, thus: According to article 344 of the Civil Code: “Property for public use in
provinces and in towns comprises the provincial and town roads, the squares, streets, fountains,
and public waters, the promenades, and public works of general service supported by said towns
or provinces.”
Same; Public Auctions; Property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale; Any encumbrance, levy on execution or auction sale of
any property of public dominion is void for being contrary to public policy .—Again in Espiritu v.
Municipal Council, the Court declared that properties of public dominion are outside the commerce
of man: x x x Town plazas are properties of public dominion, to be devoted to public use and
to be made available to the public in general. They are outside the commerce of man and
cannot be disposed of or even leased by the municipality to private parties. While in case of war
or during an emergency, town plazas may be occupied temporarily by private individuals, as was
done and as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased,
said temporary occupation or use must also cease, and the town officials should see to it that the
town plazas should ever be kept open to the public and free from encumbrances or illegal private
constructions. (Emphasis supplied) The Court has also ruled that property of public dominion,
being outside the commerce of man, cannot be the subject of an auction sale. Properties of public
dominion, being for public use, are not subject to levy, encumbrance or disposition through public
or private sale. Any encumbrance, levy on execution or auction sale of any property of public
dominion is void for being contrary to public policy. Essential public services will stop if properties
of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if
the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the
MIAA for non-payment of real estate tax.
Same; Unless the President issues a proclamation withdrawing the Airport Lands and
Buildings from public use, these properties remain properties of public dominion and are
inalienable.—Before MIAA can encumber the Airport Lands and Buildings, the President must
first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public
Land Law or Commonwealth Act No. 141, which “remains to this day the existing general law
governing the classification and disposition of lands of the public domain other than timber and
mineral lands,” provide: x x x Thus, unless the President issues a proclamation withdrawing the
Airport Lands and Buildings from public use, these properties remain properties of public dominion
and are inalienable. Since the Airport Lands and Buildings are inalienable in their present status as
properties of public dominion, they are not subject to levy on execution or foreclosure sale. As
long as the Airport Lands and Buildings are reserved for public use, their ownership remains with
the State or the Republic of the Philippines.
Same; Trusts; MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic.—MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic.
Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to
hold title to real properties owned by the Republic.
Same; The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation
to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA
—the Republic remains the beneficial owner of the Airport Lands and Buildings .—The transfer of
the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to
transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely
to reorganize a division in the Bureau of Air
598
598 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
Transportation into a separate and autonomous body . The Republic remains the beneficial
owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party
claims any ownership rights over MIAA’s assets adverse to the Republic. The MIAA Charter
expressly provides that the Airport Lands and Buildings “shall not be disposed through sale or
through any other mode unless specifically approved by the President of the Philippines .” This only
means that the Republic retained the beneficial ownership of the Airport Lands and Buildings
because under Article 428 of the Civil Code, only the “owner has the right to x x x dispose of a
thing.” Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the
Airport Lands and Buildings. At any time, the President can transfer back to the Republic title to
the Airport Lands and Buildings without the Republic paying MIAA any consideration. Under
Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and
Buildings belong to the Republic.
Taxation; Local Government Code; Section 234(a) of the Local Government Code exempts
from real estate tax any “real property owned by the Republic of the Philippines.” —Section 234(a)
of the Local Government Code exempts from real estate tax any “[r]eal property owned by the
Republic of the Philippines.” Section 234(a) provides: SEC. 234. Exemptions from Real Property
Tax.—The following are exempted from payment of the real property tax: (a) Real
property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person; x x x. (Emphasis supplied) This exemption should be read in relation with
Section 133(o) of the same Code, which prohibits local governments from imposing “[t]axes, fees
or charges of any kind on the National Government, its agencies and instrumentalities x x x.” The
real properties owned by the Republic are titled either in the name of the Republic itself or in the
name of agencies or instrumentalities of the National Government. The Administrative Code allows
real property owned by the Republic to be titled in the name of agencies or instrumentalities of
the national government. Such real properties remain owned by the Republic and continue to be
exempt from real estate tax.
Manila International Airport Authority; Local Government Code; The Republic may grant the
beneficial use of its real property to an agency or instrumentality of the national government, an
arrangement which does not result in the loss of the tax exemption; MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local Government Code .—The
Republic may grant the beneficial use of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code
states that real property owned by the Republic loses its tax exemption only if the “beneficial use
thereof has been granted, for consideration or otherwise, to a taxable person.” MIAA, as a
government instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial
use of the Airport Lands and Buildings, such fact does not make these real properties subject to
real estate tax.
Same; Same; Taxation; Portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax .—Portions of the Airport Lands and Buildings
that MIAA leases to private entities are not exempt from real estate tax. For example, the land
area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In
such a case, MIAA has granted the beneficial use of such land area for a consideration to
a taxable person and therefore such land area is subject to real estate tax. In Lung Center of
the Philippines v. Quezon City, 433 SCRA 119, 138 (2004), the Court ruled: Accordingly, we
hold that the portions of the land leased to private entities as well as those parts of the hospital
leased to private individuals are not exempt from such taxes. On the other hand, the portions of
the land occupied by the hospital and portions of the hospital used for its patients, whether paying
or non-paying, are exempt from real property taxes.
Same; Taxation; By express mandate of the Local Government Code, local governments
cannot impose any kind of tax on national government instrumentalities like the MIAA .—By
express mandate of the Local Government Code, local governments cannot impose any kind of
tax on national government instrumentalities like the MIAA. Local governments are devoid of
power to tax the national government, its agencies and instrumentalities.  The taxing powers of
local governments do not extend to the national government, its agencies and instrumentalities,
“[u]nless otherwise provided in this Code” as stated in the saving clause of Section 133. The
saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of
real property owned by the Republic.
600
600 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
Same; Same; The determinative test whether MIAA is exempt from local taxation is not
whether MIAA is a juridical person, but whether it is a national government instrumentality under
Section 133(o) of the Local Government Code .—The minority’s theory violates Section 133(o) of
the Local Government Code which expressly prohibits local governments from imposing any kind
of tax on national government instrumentalities. Section 133(o) does not distinguish between
national government instrumentalities with or without juridical personalities . Where the law does
not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national
government instrumentalities, with or without juridical personalities. The determinative
test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person,
but whether it is a national government instrumentality  under Section 133(o) of the Local
Government Code. Section 133(o) is the specific provision of law prohibiting local governments
from imposing any kind of tax on the national government, its agencies and instrumentalities.
Taxation; The saving clause in Section 133 of the Local Government Code refers to the
exception to the exemption in Section 234(a) of the Code, which makes the national government
subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity;
The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local
governments.—The saving clause in Section 133 refers to the exception to the exemption in
Section 234(a) of the Code, which makes the national government subject to real estate
tax when it gives the beneficial use of its real properties to a taxable entity. Section
234(a) of the Local Government Code provides: SEC. 234. Exemptions from Real Property Tax.—
The following are exempted from payment of the real property tax: (a) Real property
owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person. x x x. (Emphasis supplied) Under Section 234(a), real property owned by the
Republic is exempt from real estate tax. The exception to this exemption is when the government
gives the beneficial use of the real property to a taxable entity. The exception to the exemption in
Section 234(a) is the only instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local governments . The exception to the
exemption applies only to real estate tax and not to any other tax. The justification for the
exception to the exemption is that the real property, although owned by the Republic, is not
devoted to public use or public service but devoted to the private gain of a taxable person.
601
VOL. 495, JULY 20, 2006 601
Manila International Airport Authority vs. Court of Appeals
Same; Statutory Construction; When a provision of law grants a power but withholds such
power on certain matters, there is no conflict between the grant of power and the withholding of
power.—There is no conflict whatsoever between Sections 133 and 193 because Section 193
expressly admits its subordination to other provisions of the Code  when Section 193 states
“[u]nless otherwise provided in this Code. ” By its own words, Section 193 admits the superiority of
other provisions of the Local Government Code that limit the exercise of the taxing power in
Section 193. When a provision of law grants a power but withholds such power on certain
matters, there is no conflict between the grant of power and the withholding of power. The
grantee of the power simply cannot exercise the power on matters withheld from its power.
Same; Words and Phrases; By their very meaning and purpose, the “common limitations”
on the taxing power prevail over the grant or exercise of the taxing power .—Since Section 133
prescribes the “common limitations” on the taxing powers of local governments, Section 133
logically prevails over Section 193 which grants local governments such taxing powers. By their
very meaning and purpose, the “common limitations” on the taxing power prevail over the grant
or exercise of the taxing power . If the taxing power of local governments in Section 193 prevails
over the limitations on such taxing power in Section 133, then local governments can impose any
kind of tax on the national government, its agencies and instrumentalities—a gross absurdity.
Administrative Law; The Administrative Law is the governing law defining the status and
relationship of government departments, bureaus, offices, agencies and instrumentalities .—The
third whereas clause of the Administrative Code states that the Code “ incorporates in a unified
document the major structural, functional and procedural principles and rules of governance .”
Thus, the Administrative Code is the governing law defining the status and relationship of
government departments, bureaus, offices, agencies and instrumentalities. Unless a statute
expressly provides for a different status and relationship for a specific government unit or entity,
the provisions of the Administrative Code prevail.
Same; The government-owned or controlled corporations created through special charters
are those that meet the two conditions prescribed in Section 16, Article XII of the Constitution,
regarding their creation in the interest of common good and their being subject to the test of
economic viability.—The government-owned or controlled corporations created through
602
602 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
special charters are those that meet the two conditions prescribed in Section 16, Article XII
of the Constitution. The first condition is that the government-owned or controlled corporation
must be established for the common good. The second condition is that the government-owned or
controlled corporation must meet the test of economic viability . Section 16, Article XII of the 1987
Constitution provides: SEC. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations. Government-owned or
controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability .
Same; The test of economic viability applies only to government-owned or controlled
corporations that perform economic or commercial activities and need to compete in the market
place—government instrumentalities vested with corporate powers and performing governmental
or public functions need not meet the test of economic viability .—The Constitution expressly
authorizes the legislature to create “government-owned or controlled corporations” through
special charters only if these entities are required to meet the twin conditions of common good
and economic viability. In other words, Congress has no power to create government-owned or
controlled corporations with special charters unless they are made to comply with the two
conditions of common good and economic viability . The test of economic viability applies only to
government-owned or controlled corporations that perform economic or commercial activities and
need to compete in the market place. Being essentially economic vehicles of the State for the
common good—meaning for economic development purposes—these government-owned or
controlled corporations with special charters are usually organized as stock corporations just like
ordinary private corporations. In contrast, government instrumentalities vested with corporate
powers and performing governmental or public functions need not meet the test of economic
viability. These instrumentalities perform essential public services for the common good, services
that every modern State must provide its citizens. These instrumentalities need not be
economically viable since the government may even subsidize their entire operations. These
instrumentalities are not the “government-owned or controlled corporations” referred to in Section
16, Article XII of the 1987 Constitution.
Manila International Airport Authority; Administrative Law; The MIAA need not meet the
test of economic viability because the legislature did not create MIAA to compete in the market
place.—The MIAA need not meet the test of economic viability because the legislature did not
create MIAA to
603
VOL. 495, JULY 20, 2006 603
Manila International Airport Authority vs. Court of Appeals
compete in the market place. MIAA does not compete in the market place because there is
no competing international airport operated by the private sector. MIAA performs an essential
public service as the primary domestic and international airport of the Philippines.
Same; Words and Phrases; The terminal fees that MIAA charges every passenger are
regulatory or administrative fees and not income from commercial transactions .—MIAA performs
an essential public service that every modern State must provide its citizens. MIAA derives its
revenues principally from the mandatory fees and charges MIAA imposes on passengers and
airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative
fees and not income from commercial transactions.
TINGA, J., DISSENTING OPINION:
Courts; Supreme Court; Judgments; Decisions of the Supreme Court are expected to
provide clarity to the parties and to students of jurisprudence, as to what the law of the case is,
especially when the doctrines of long standing are modified or clarified .—The icing on this inedible
cake is the strained and purposely vague rationale used to justify the majority opinion. Decisions
of the Supreme Court are expected to provide clarity to the parties and to students of
jurisprudence, as to what the law of the case is, especially when the doctrines of long standing are
modified or clarified. With all due respect, the decision in this case is plainly so, so wrong on many
levels. More egregious, in the majority’s resolve to spare the Manila International Airport Authority
(MIAA) from liability for real estate taxes, no clear-cut rule emerges on the important question of
the power of local government units (LGUs) to tax government corporations, instrumentalities or
agencies. The majority would overturn sub silencio, among others, at least one dozen precedents.
Same; Same; Same; Only children should be permitted to subscribe to the theory that
something bad will go away if you pretend hard enough that it does not exist .—There are certainly
many other precedents affected, perhaps all previous jurisprudence regarding local government
taxation vis-a-vis government entities, as well as any previous definitions of GOCCs, and previous
distinctions between the exercise of governmental and proprietary functions (a distinction laid
down by this Court as far back as 1916). What is the reason offered by the majority for
overturning or modifying all these precedents and doctrines? None is given, for the majority takes
comfort instead in the pretense that these precedents never existed. Only children should be
permitted to subscribe to the theory that something bad will go away if you pretend hard enough
that it does not exist.
Same; Judgments; If Mactan-Cebu International Airport v. Marcos, 330 Phil. 392 (1996),
truly deserves to be discarded as precedent, it deserves a more honorable end than death by
amnesia or ignominous disregard—the majority could have devoted its discussion in explaining
why it thinks Mactan is wrong, instead of pretending that Mactan never existed at all .—Before I
dwell upon the numerous flaws of the majority, a brief comment is necessitated on the majority’s
studied murkiness vis-à-vis the Mactan precedent. The majority is obviously inconsistent
with Mactan and there is no way these two rulings can stand together. Following basic principles
in statutory construction, Mactan will be deemed as giving way to this new ruling. However, the
majority does not bother to explain why Mactan is wrong. The interpretation in Mactan of the
relevant provisions of the Local Government Code is elegant and rational, yet the majority refuses
to explain why this reasoning of the Court in Mactan is erroneous. In fact, the majority does not
even engage Mactan in any meaningful way. If the majority believes that Mactan may still stand
despite this ruling, it remains silent as to the viable distinctions between these two cases. The
majority’s silence on Mactan is baffling, considering how different this new ruling is with the
ostensible precedent. Perhaps the majority does not simply know how to dispense with the ruling
in Mactan. If Mactan truly deserves to be discarded as precedent, it deserves a more honorable
end than death by amnesia or ignonominous disregard. The majority could have devoted its
discussion in explaining why it thinks Mactan is wrong, instead of pretending that Mactan never
existed at all. Such an approach might not have won the votes of the minority, but at least it
would provide some degree of intellectual clarity for the parties, LGUs and the national
government, students of jurisprudence and practitioners. A more meaningful debate on the matter
would have been possible, enriching the study of law and the intellectual dynamic of this Court.
Manila International Airport Authority; Administrative Law; Based on the Administrative
Code, a GOCC may be an instrumentality or an agency of the National Government .—Based on
the Administrative Code, a GOCC may be an instrumentality or an agency of the National
Government. Thus, there actually is no point in the majority’s assertion that MIAA is not a GOCC,
since based on the majority’s premise of Section 133 as the key provision, the material question is
whether MIAA is either an instrumentality, an agency, or the National Government itself. The very
provisions of the Administrative Code provide that a GOCC can be either an instrumentality or an
agency, so why even bother to extensively discuss whether or not MIAA is a GOCC?
605
VOL. 495, JULY 20, 2006 605
Manila International Airport Authority vs. Court of Appeals
Same; Same; The majority effectively declassifies many entities created and recognized as
GOCCs and would give primacy to the Administrative Code of 1987 rather than their respective
charters as to the definition of these entities.—The inconsequential verbiage stewing in judicial
opinions deserve little rebuttal. However, the entire discussion of the majority on the definition of
a GOCC, obiter as it may ultimately be, deserves emphatic refutation. The views of the majority
on this matter are very dangerous, and would lead to absurdities, perhaps unforeseen by the
majority. For in fact, the majority effectively declassifies many entities created and recognized as
GOCCs and would give primacy to the Administrative Code of 1987 rather than their respective
charters as to the definition of these entities.
Taxation; It is sad, but not surprising that the majority is not willing to consider or even
discuss the general rule, but only the exemptions under Section 133 and Section 234 of the Local
Government Code—after all, if the majority is dead set in ruling for MIAA no matter what the law
says, why bother citing what the law does say .—The majority abjectly refuses to engage Section
232 of the Local Government Code although it provides the indubitable general rule that LGUs
“may levy an annual ad valorem tax on real property such as land, building, machinery, and other
improvements not hereafter specifically exempted.” The specific exemptions are provided by
Section 234. Section 232 comes sequentially after Section 133(o), and even if the sequencing is
irrelevant, Section 232 would fall under the qualifying phrase of Section 133, “Unless otherwise
provided herein.” It is sad, but not surprising that the majority is not willing to consider or even
discuss the general rule, but only the exemptions under Section 133 and Section 234. After all, if
the majority is dead set in ruling for MIAA no matter what the law says, why bother citing what
the law does say.
Manila International Airport Authority; If the distinction is to be blurred, as the majority
does, between the State/Republic/Government and a body corporate such as the MIAA, then the
MIAA charter showcases the remarkable absurdity of an entity transferring property to itself .—It is
the MIAA, and not either the State, the Republic of the Philippines or the national government that
asserts legal title over the Airport Lands and Buildings. There was an express transfer of
ownership between the MIAA and the national government. If the distinction is to be blurred, as
the majority does, between the State/Republic/Government and a body corporate such as the
MIAA, then the MIAA charter showcases the remarkable absurdity of an entity transferring
property to itself. Nothing in the Civil Code or the Condominion to an entity that it similarly owns.
It is just like a family transferring ownership over the properties its members own into a family
corporation. The family exercises effective control over the administration and disposition of these
properties. Yet for several purposes under the law, such as taxation, it is the corporation that is
deemed to own those properties. A similar situation obtains with MIAA, the State, and the Airport
Lands and Buildings.
 Same; The operation of an airport facility by the State may be imbued with public interest,
but it is by no means indispensable or obligatory on the national government .—The simple truth is
that, based on these accepted doctrinal tests, MIAA performs proprietary functions. The operation
of an airport facility by the State may be imbued with public interest, but it is by no means
indispensable or obligatory on the national government. In fact, as demonstrated in other
countries, it makes a lot of economic sense to leave the operation of airports to the private sector.
Same; International airlines take into account the quality and conditions of various
international airports in determining the number of flights it would assign to a particular airport, or
even in choosing a hub through which destinations necessitating connecting flights would pass
through.—The majority tries to becloud this issue by pointing out that the MIAA does not compete
in the marketplace as there is no competing international airport operated by the private sector;
and that MIAA performs an essential public service as the primary domestic and international
airport of the Philippines. This premise is false, for one. On a local scale, MIAA competes with
other international airports situated in the Philippines, such as Davao International Airport and
MCIAA. More pertinently, MIAA also competes with other international airports in Asia, at least.
International airlines take into account the quality and conditions of various international airports
in determining the number of flights it would assign to a particular airport, or even in choosing a
hub through which destinations necessitating connecting flights would pass through.
Same; Public Utilities; If the determinative point in distinguishing between sovereign
functions and proprietary functions is the vitality of the public service being performed, then it
should be noted that there is no more important public service performed than that engaged in by
public utilities.—If the determinative point in distinguishing between sovereign functions and
proprietary functions is the vitality of the public service being performed, then it should be noted
that there is no more important public service performed
607
VOL. 495, JULY 20, 2006 607
Manila International Airport Authority vs. Court of Appeals
than that engaged in by public utilities. But notably, the Constitution itself authorizes private
persons to exercise these functions as it allows them to operate public utilities in this country. If
indeed such functions are actually sovereign and belonging properly to the government, shouldn’t
it follow that the exercise of these tasks remain within the exclusive preserve of the State?
Same; Taxation; Administrative Law; There really is no prohibition against the government
taxing itself, and nothing obscene with allowing government entities exercising proprietary
functions to be taxed for the purpose of raising the coffers of LGUs .—There really is no prohibition
against the government taxing itself, and nothing obscene with allowing government entities
exercising proprietary functions to be taxed for the purpose of raising the coffers of LGUs. On the
other hand, it would be an even more noxious proposition that the government or the
instrumentalities that it owns are above the law and may refuse to pay a validly imposed tax.
MIAA, or any similar entity engaged in the exercise of proprietary, and not sovereign functions,
cannot avoid the adverse-effects of tax evasion simply on the claim that it is imbued with some of
the attributes of government.
Same; Same; Local Governent Code; While the Local Government Code withdrew all
previous local tax exemptions of the MIAA and other natural and juridical persons, it did not
similarly withdraw any previously enacted prohibitions on properties owned by GOCCs, agencies or
instrumentalities.—Despite the fact that the City of Parañaque ineluctably has the power to impose
real property taxes over the MIAA, there is an equally relevant statutory limitation on this power
that must be fully upheld. Section 3 of the MIAA charter states that “[a]ny portion [of the [lands
transferred, conveyed and assigned to the ownership and administration of the MIAA] shall not be
disposed through sale or through any other mode unless specifically approved by the President of
the Philippines.” Nothing in the Local Government Code, even with its wide grant of powers to
LGUs, can be deemed as repealing this prohibition under Section 3, even if it effectively forecloses
one possible remedy of the LGU in the collection of delinquent real property taxes. While the Local
Government Code withdrew all previous local tax exemptions of the MIAA and other natural and
juridical persons, it did not similarly withdraw any previously enacted prohibitions on properties
owned by GOCCs, agencies or instrumentalities. Moreover, the resulting legal effect, subjecting on
one hand the MIAA to local taxes but on the other hand shielding its properties from any form of
sale or disposition, is not contradictory or paradoxical, onerous as its effect may be on the LGU. It
simply means that the LGU has to find another way to collect the taxes due from MIAA, thus
paving the way for a mutually acceptable negotiated solution.
Same; Same; The prohibition in Section 3 of the MIAA Charter against the sale or
disposition of MIAA properties without the consent of the President prevents the peremptory
closure of the MIAA or the hampering of its operations on account of the demands of its creditors
—the airport is important enough to be sheltered by legislation from ordinary legal processes .—
There are several other reasons this statutory limitation should be upheld and applied to this case.
It is at this juncture that the importance of the Manila Airport to our national life and commerce
may be accorded proper consideration. The closure of the airport, even by reason of MIAA’s legal
omission to pay its taxes, will have an injurious effect to our national economy, which is ever
reliant on air travel and traffic. The same effect would obtain if ownership and administration of
the airport were to be transferred to an LGU or some other entity which were not specifically
chartered or tasked to perform such vital function. It is for this reason that the MIAA charter
specifically forbids the sale or disposition of MIAA properties without the consent of the President.
The prohibition prevents the peremptory closure of the MIAA or the hampering of its operations
on account of the demands of its creditors. The airport is important enough to be sheltered by
legislation from ordinary legal processes.
Same; Same; Had this petition been denied instead with Mactan as basis, but with the
caveat that the MIAA properties could not be subject of execution sale without the consent of the
President, I suspect that the parties would feel little distress—unfortunately, the majority will
cause precisely the opposite result of unremitting hostility, not only to the City of Parañaque, but
to the thousands of LGUs in the country .—Had this petition been denied instead with Mactan as
basis, but with the caveat that the MIAA properties could not be subject of execution sale without
the consent of the President, I suspect that the parties would feel little distress. Through such
action, both the Local Government Code and the MIAA charter would have been upheld. The
prerogatives of LGUs in real property taxation, as guaranteed by the Local Government Code,
would have been preserved, yet the concerns about the ruinous effects of having to close the
Manila International Airport would have been averted. The parties would then be compelled to try
harder at working out a compromise, a task, if I might add, they are all too willing to engage in.
Unfortunately, the majority will cause precisely the opposite result of unremitting hostility, not only
to the City of Parañaque, but to the thousands of LGUs in the country.
609
VOL. 495, JULY 20, 2006 609
Manila International Airport Authority vs. Court of Appeals
610
610 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
cannot be construed to promote an absurdity. But precisely the majority, and the faulty
reasoning it utilizes, opens itself up to all sorts of mischief, and certainly, a tax-exempt massage
parlor is one of the lesser evils that could arise from the majority ruling. This is indeed a very
strange and very wrong decision.
PETITION for review on certiorari of the resolutions of the Court of Appeals.
The facts are stated in the opinion of the Court.
     Gil V. Savedia, Roderick B. Morales and Gary Villanueva for respondents.

CARPIO, J.:
Local Government Code; Taxation; Bangko Sentral ng Pilipinas; If the BSP is already
preternaturally exempt from local taxation owing to its personality as a “government The Antecedents
instrumentality,” why then the need to make a new grant of exemption, which if the majority is to Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International
be believed, is actually a redundancy.—The New Central Bank Act was promulgated after the Local Airport (NAIA) Complex in Parañaque City under Executive Order No. 903, otherwise known as
Government Code if the BSP is already preternaturally exempt from local taxation owing to its the Revised Charter of the Manila International Airport Authority  (“MIAA Charter”). Executive
personality as an “government instrumentality,” why then the need to make a new grant of Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently,
exemption, which if the majority is to be believed, is actually a redundancy. But even more Executive Order Nos. 9091 and 2982 amended the MIAA Charter.
tellingly, does not this provision evince a clear intent that after the lapse of five (5) years, that the As operator of the international airport, MIAA administers the land, improvements and
Bangko Sentral will be liable for provincial, municipal and city taxes? This is the clear congressional equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600
intent, and it is Congress, not this Court which dictates which entities are subject to taxation and hectares of land,3 including the runways and buildings (“Airport Lands and Buildings”) then under
which are exempt. the Bureau of Air Transportation.4 The MIAA Charter further provides that no portion of the land
transferred to MIAA shall be disposed of through sale or any other mode unless specifically
approved by the President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No.
Courts; Supreme Court; Judgments; One might say, certainly a decision of the Supreme 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from
Court cannot be construed to promote an absurdity, but precisely the majority, and the faulty real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated
reasoning it utilizes, opens itself up to all sorts of mischief, and certainly, a tax-exempt massage with respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA then paid
parlor is one of the lesser evils that could arise from the majority ruling .—Consider further the some of the real estate tax already due.
example of the Philippine Institute of Traditional and Alternative Health Care (PITAHC), created by On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of
Republic Act No. 8243 in 1997. It has similar characteristics as MIAA in that it is established as a Parañaque for the taxable years 1992 to 2001. MIAA’s real estate tax delinquency is broken down
body corporate, and empowered with the attributes of a corporation, including the power to as follows:
purchase or acquire real properties. However the PITAHC has no capital stock and no members, TAX DECLARATION TAXABLEYEAR TAX DUE PENALTY TOTAL
thus following the majority, it is not a GOCC. The state policy that guides PITAHC is the E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
development of traditional and alternative health care, and its objectives include the promotion
and advocacy of alternative, preventive and curative health care modalities that have been proven E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
safe, effective and cost effective. “Alternative health care modalities” include “other forms of non- E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
allophatic, occasionally non-indigenous or imported healing methods” which include, among others
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
“reflexology, acupuncture, massage, acupressure” and chiropractics. Given these premises, there
is no impediment for the PITAHC to purchase land and construct thereupon a massage parlor that E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
would provide a cheaper alternative to the opulent spas that have proliferated around the E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
metropolis. Such activity is in line with the purpose of the PITAHC and with state policy. Is such
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
massage parlor exempt from realty taxes? For the majority, it is, for PITAHC is an instrumentality
or agency exempt from local government taxation, which does not fall under the exceptions under E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
Section 234 of the Local Government Code. Hence, this massage parlor would not just be a shelter *E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
for frazzled nerves, but for taxes as well. Ridiculous? One might say, certainly a decision of the
Supreme Court *E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P624,506,725.42
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.006
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Parañaque
threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real
estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The
OGCC pointed out that Section 206 of the Local Government Code requires persons exempt from
real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter
is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition
and injunction, with prayer for preliminary injunction or temporary restraining order. The petition
sought to restrain the City of Parañaque from imposing real estate tax on, levying against, and
auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R.
SP No. 66878. On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed
it beyond the 60-day reglementary period. The Court of Appeals also denied on 27 September
2002 MIAA’s motion for reconsideration and supplemental motion for reconsideration. Hence,
MIAA filed on 5 December 2002 the present petition for review.7
Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the
Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market
of Barangay La Huerta; and in the main lobby of the Parañaque City Hall. The City of Parañaque
published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a
newspaper of general circulation in the Philippines. The notices announced the public auction sale
of the Airport Lands and Buildings to the highest bidder on 7
February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this
Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining
Order. The motion sought to restrain respondents—the City of Parañaque, City Mayor of
Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City
Assessor of Parañaque (“respondents”)—from auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at public auction the
Airport Lands and Buildings. Respondents received the TRO on the same day that the Court issued
it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion
of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the
directive issued during the hearing, MIAA, respondent City of Parañaque, and the Solicitor General
subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in
the name of MIAA. However, MIAA points out that it cannot claim ownership over these properties
since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The
MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the
general public. Since the Airport Lands and Buildings are devoted to public use and public service,
the ownership of these properties remains with the State. The Airport Lands and Buildings are
thus inalienable and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the
payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section
234 of the Local Government Code because the Airport Lands and Buildings
614
614 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
are owned by the Republic. To justify the exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that the reason for tax exemption of public property
is that its taxation would not inure to any public advantage, since in such a case the tax debtor is
also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the
tax exemption privileges of “govern-ment-owned and-controlled corporations” upon the effectivity
of the Local Government Code. Respondents also argue that a basic rule of statutory construction
is that the express mention of one person, thing, or act excludes all others. An international
airport is not among the exceptions mentioned in Section 193 of the Local Government Code.
Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt
from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos8 where
we held that the Local Government Code has withdrawn the exemption from real estate tax
granted to international airports. Respondents further argue that since MIAA has already paid
some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands
and Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are
exempt from real estate tax under existing laws. If so exempt, then the real estate tax
assessments issued by the City of Parañaque, and all proceedings taken pursuant to such
assessments, are void. In such event, the other issues raised in this petition become moot.
The Court’s Ruling
We rule that MIAA’s Airport Lands and Buildings are exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.
. 1.MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not
exempt from real estate tax. Respondents claim that the deletion of the phrase “any government-
owned or controlled so exempt by its charter” in Section 234(e) of the Local Government Code
withdrew the real estate tax exemption of government-owned or controlled corporations. The
deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the
entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from
real estate tax. However, MIAA is not a government-owned or controlled corporation. Section
2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-
owned or controlled corporation as follows:
SEC. 2. General Terms Defined.—x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock
or non-stock corporation, vested with functions relating to public needs whether governmental
or proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be “organized as a stock or non-stock
corporation.” MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting
shares. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital.—The capital of the Authority to be contributed by the National Government
shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion
(P10,000,000,000.00) Pesos to consist of:
 . (a)The value of fixed assets including airport facilities, runways and equipment and such
other properties, movable and immovable[,] which may be contributed by the National
Government or transferred by it from any of its agencies, the valuation of which shall be
determined jointly with the Department of Budget and Management and the
Commission on Audit on the date of such contribution or transfer after making due
allowances for depreciation and other deductions taking into account the loans and
other liabilities of the Authority at the time of the takeover of the assets and other
properties;
. (b)That the amount of P605 million as of December 31, 1986 representing about
seventy per centum (70%) of the unremitted share of the National Government from
1983 to 1986 to be remitted to the National Treasury as provided for in Section 11 of E.
O. No. 903 as amended, shall be converted into the equity of the National Government
in the Authority. Thereafter, the Government contribution to the capital of the Authority
shall be provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as one whose “ capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends x x
x.” MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting
shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as “one where no part of its income is
distributable as dividends to its members, trustees or officers.” A non-stock corporation must have
members. Even if we assume that the Government is considered as the sole member of MIAA, this
will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of
their income to their members. Section 11 of the MIAA Charter man-
_______________
10 Batas Pambansa Blg. 68.
617
VOL. 495, JULY 20, 2006 617
Manila International Airport Authority vs. Court of Appeals
dates MIAA to remit 20% of its annual gross operating income to the National Treasury.11 This
prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are “organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers.” MIAA
is not organized for any of these purposes. MIAA, a public utility, is organized to operate an
international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is
that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government “instrumentality” as follows:
SEC. 2. General Terms Defined.––x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers. Thus, MIAA exercises the governmental powers of eminent
domain,12 police authority13 and the levying of fees and charges.14 At the same time, MIAA
exercises “all the powers of a corporation under the Corporation Law, insofar as these powers are
not inconsistent with the provisions of this Executive Order.”15
Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that transforming MIAA into a
“separate and autonomous body”16 will make its operation more “financially viable.”17
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas . All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. However, they are
not government-owned or controlled corporations in the strict sense as understood under the
Administrative Code, which is the governing law defining the legal relationship and status of
government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government
Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.— Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities and local government units. (Emphasis and italics supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power “subject to such guidelines and limitations as the
Congress may provide.”18
When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing the tax. Any doubt whether a
person, article or activity is taxable is resolved against taxation. This rule applies with greater
force when local governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
_______________
 18 CONSTITUTION, Art. X, Sec. 5.
620
620 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
The reason for the rule does not apply in the case of exemptions running to the benefit of the
government itself or its agencies. In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course of its
operations. For these reasons, provisions granting exemptions to government agencies may be
construed liberally, in favor of non tax-liability of such agencies.19
There is, moreover, no point in national and local governments taxing each other, unless a sound
and compelling policy requires such transfer of public funds from one government pocket to
another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is when
the legislature clearly intended to tax government instrumentalities for the delivery of essential
public services for sound and compelling policy considerations . There must be express language in
the law empowering local governments to tax national government instrumentalities. Any doubt
whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that “ unless otherwise provided” in
the Code, local governments cannot tax national government instrumentalities. As this Court held
in Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the
powers vested in the federal government. (Mc Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the “supremacy” of the National Government over local
governments.
“Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power
on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the
United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a way as to prevent it from
consummating its federal responsibilities, or even to seriously burden it in the accomplishment of
them.” (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what
local authorities may perceive to be undesirable activities or enterprise using the power to tax as
“a tool for regulation” (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the “power to destroy” ( Mc Culloch
v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it.20
. 2.Airport Lands and Buildings of MIAA are Owned by the Republic
. a.Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore
owned by the State or the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
. (1)Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
. (2)Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for
public service, shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code,
like “roads, canals, rivers, torrents, ports and bridges constructed by the State,” are owned by
the State. The term “ports” includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a “port” constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport
Lands and Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are  used by the public
for international and domestic travel and transportation . The fact that the MIAA collects terminal
fees and other charges from the public does not remove the character of the Airport Lands and
Buildings as properties for public use. The operation by the government of a tollway does not
change the character of the road as one for public use. Someone must pay for the maintenance of
the road, either the public indirectly through the taxes they pay the government, or only those
among the public who actually use the road through the toll fees they pay upon using the road.
The tollway system is even a more efficient and equitable manner of taxing the public for the
maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it
is of public dominion or not. Article 420 of the Civil Code defines property of public dominion as
one “intended for public use.” Even if the government collects toll fees, the road is still “intended
for public use” if anyone can use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not affect the public character of the
road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of
such fees does not change the character of MIAA as an airport for public use. Such fees are often
termed user’s tax. This means taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the particular public facility. A
623
VOL. 495, JULY 20, 2006 623
Manila International Airport Authority vs. Court of Appeals
user’s tax is more equitable—a principle of taxation mandated in the 1987 Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the “principal airport of the
Philippines for both international and domestic air traffic,”22 are properties of public dominion
because they are intended for public use. As properties of public dominion, they indisputably
belong to the State or the Republic of the Philippines .
. b.Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are outside the
commerce of man. The Court has ruled repeatedly that properties of public dominion are outside
the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v.
Rojas that properties devoted to public use are outside the commerce of man, thus:
“According to article 344 of the Civil Code: “Property for public use in provinces and in towns
comprises the provincial and town roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service supported by said towns or provinces.”
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite
could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the
sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the
defendant for private use the plaintiff municipality exceeded its authority in the exercise of its
powers by executing a contract over a thing of which it could not dispose, nor is it empowered so
to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of
man may be the object of a contract, and plazas and streets are outside of this commerce, as
was decided by the supreme court of Spain in its decision of February 12, 1895, which says:
“Communal things that cannot be sold because they are by their very nature
outside of commerce are those for public use, such as the plazas, streets, common
lands, rivers, fountains, etc.” (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are
outside the commerce of man:
“x x x Town plazas are properties of public dominion, to be devoted to public use and to be
made available to the public in general. They are outside the commerce of man and cannot be
disposed of or even leased by the municipality to private parties. While in case of war or during an
emergency, town plazas may be occupied temporarily by private individuals, as was done and as
was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said temporary
occupation or use must also cease, and the town officials should see to it that the town plazas
should ever be kept open to the public and free from encumbrances or illegal private
constructions.”24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.25
Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of
any property of public dominion is void for being contrary to public policy. Essential public services
will stop if properties of public dominion are subject to encumbrances, foreclosures and auction
sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the President must
first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public
Land Law or Common-
wealth Act No. 141, which “remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber and mineral
lands,”27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources,
the President may designate by proclamation any tract or tracts of land of the public domain as
reservations for the use of the Republic of the Philippines or of any of its branches, or of the
inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-public
uses or purposes when the public interest requires it, including reservations for highways, rights of
way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas
communales, public parks, public quarries, public fishponds, working men’s village and other
improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section
eighty-three shall be non-alienable and shall not be subject to occupation, entry, sale,
lease, or other disposition until again declared alienable under the provisions of this
Act or by proclamation of the President. (Emphasis and italics supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from
public use, these properties remain properties of public dominion and are inalienable. Since the
Airport Lands and Buildings are inalienable in their present status as properties of public dominion,
they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and
Buildings are reserved for public use, their ownership remains with the State or the Republic of the
Philippines.
The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
_______________
27 Chavez v. Public Estates Authority, 433 Phil. 506; 384 SCRA 152 (2002).
626
626 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government .—(1) The
President shall have the power to reserve for settlement or public use, and for specific
public purposes, any of the lands of the public domain, the use of which is not
otherwise directed by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law
or presidential proclamation from public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.
. c.MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section
48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title
to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property.—Whenever real property of the Government
is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the
government by the following:
. (1)For property belonging to and titled in the name of the Republic of the Philippines, by
the President, unless the authority therefor is expressly vested by law in another officer.
. (2)For property belonging to the Republic of the Philippines but titled in the
name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality. (Emphasis
supplied)
In MIAA’s case, its status as a mere trustee of the Airport Lands and Buildings is clearer because
even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the
President of the Republic can sign such deed of conveyance.28
. d.Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings
from the Bureau of Air Transportation of the Department of Transportation and Communications.
The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Author-ity.—x x x x
The land where the Airport is presently located as well as the surrounding land
area of approximately six hundred hectares, are hereby transferred, conveyed and
assigned to the ownership and administration of the Authority, subject to existing
rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake
an actual survey of the area transferred within one year from the promulgation of this Executive
Order and the corresponding title to be issued in the name of the Authority. Any portion thereof
shall not be disposed through sale or through any other mode unless specifically
approved by the President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets.—All existing public airport
facilities, runways, lands, buildings and other property, movable or immovable, belonging
to the Airport, and all assets, powers, rights, interests and privileges belonging to the Bureau
of Air Transportation relating to airport works or air operations, including all equipment which
are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the
Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air
Transportation and Transitory Provisions.—The Manila International Airport including the Manila
Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic
receiving cash, promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport
Lands and Buildings to MIAA, thus:
628
628 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
WHEREAS, the Manila International Airport as the principal airport of the Philippines for both
international and domestic air traffic, is required to provide standards of airport accommodation
and service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be
upgraded to meet the current and future air traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives of
providing high standards of accommodation and service within the context of a
financially viable operation, will best be achieved by a separate and autonomous body;
and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772,
the President of the Philippines is given continuing authority to reorganize the National
Government, which authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was
not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The
purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate
and autonomous body. The Republic remains the beneficial owner of the Airport Lands and
Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over
MIAA’s assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings “ shall not be
disposed through sale or through any other mode unless specifically approved by the President of
the Philippines.” This only means that the Republic retained the beneficial ownership of the Airport
Lands and Buildings because under Article 428 of the Civil Code, only the “owner has the right to x
x x dispose of a thing.” Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does
not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and
Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA
Charter, the President is the only one who can authorize the sale or disposition of
629
VOL. 495, JULY 20, 2006 629
Manila International Airport Authority vs. Court of Appeals
the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to
the Republic.
. e.Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any “[r]eal property
owned by the Republic of the Philippines.” Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment
of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing “[t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x.” The real properties owned by the Republic
are titled either in the name of the Republic itself or in the name of agencies or instrumentalities
of the National Government. The Administrative Code allows real property owned by the Republic
to be titled in the name of agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality
of the national government. This happens when title of the real property is transferred to an
agency or instrumentality even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its tax exemption only if
the “beneficial use thereof has been granted, for consideration or otherwise, to a  taxable person.”
MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted to
630
630 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real
properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are
not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases
to private corporations is subject to real estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a consideration to a taxable person and therefore such land
area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City , the Court
ruled:
"Accordingly, we hold that the portions of the land leased to private entities as well as those parts
of the hospital leased to private individuals are not exempt from such taxes. On the other hand,
the portions of the land occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, are exempt from real property taxes.”29
. 3.Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the
Local Government Code of 1991 withdrew the tax exemption of “ all persons, whether natural or
juridical” upon the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges .—Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since the
Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not
exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the
withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To repeat,
the provisions lay down the explicit proposition that the withdrawal of realty tax exemption applies
to all persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the
explicit provision.
The term “All persons” encompasses the two classes of persons recognized under
our laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus,
the determinative test is not just whether MIAA is a GOCC, but whether MIAA is a
juridical person at all. (Emphasis and underscoring in the original)
The minority posits that the “ determinative test” whether MIAA is exempt from local taxation
is its status—whether MIAA is a juridical person or not. The minority also insists that “Sections 193
and 234 may be examined in isolation from Section 133(o) to ascertain MIAA’s claim of
exemption.”
The argument of the minority is fatally flawed. Section 193 of the Local Government Code
expressly withdrew the tax exemption of all juridical persons “ [u]nless otherwise provided in this
Code.” Now, Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.—
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies
and instrumentalities, and local government units. (Emphasis and italics supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind of
tax on national government instrumentalities like the MIAA. Local governments are devoid of
power to tax the national government, its agencies and instrumentalities.  The
632
632 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
taxing powers of local governments do not extend to the national government, its agencies and
instrumentalities, “[u]nless otherwise provided in this Code” as stated in the saving clause of
Section 133. The saving clause refers to Section 234(a) on the exception to the exemption from
real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical
persons are subject to tax by local governments. The minority insists that the juridical persons
exempt from local taxation are limited to the three classes of entities specifically enumerated as
exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b)
cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-
profit hospitals and educational institutions. It would be belaboring the obvious why the
MIAA does not fall within any of the exempt entities under Section 193. (Emphasis supplied)
The minority’s theory directly contradicts and completely negates Section 133(o) of the Local
Government Code. This theory will result in gross absurdities. It will make the national
government, which itself is a juridical person , subject to tax by local governments since the
national government is not included in the enumeration of exempt entities in Section 193. Under
this theory, local governments can impose any kind of local tax, and not only real estate tax , on
the national government.
Under the minority’s theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax . Some of the
national government instrumentalities vested by law with juridical personalities  are: Bangko
Sentral ng Pilipinas,30 Philippine Rice Research Institute,31 Laguna Lake Development
Authority,32 Fisheries Develop-ment Authority,33 Bases Conversion Development
Authority,34 Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port
Authority,37 Cebu Port Authority,38 and Philippine National Railways.39
The minority’s theory violates Section 133(o) of the Local Government Code which expressly
prohibits local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between national government
instrumentalities with or without juridical personalities . Where the law does not distinguish, courts
should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities,
with or without juridical personalities. The determinative test whether MIAA is exempt from local
taxation is not whether MIAA is a juridical person, but whether it is a national government
instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the specific
provision of law prohibiting local governments from imposing any kind of tax on the national
government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause “ [u]nless otherwise
provided in this Code.” This means that unless the Local Government Code grants an express
authorization, local governments have no power to tax the national government, its agencies and
instrumentalities. Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule, local governments
may tax the national government, its agencies and instrumentalities only if the Local Government
Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the
Code, which makes the national government subject to real estate tax when it gives the beneficial
use of its real properties to a taxable entity. Section 234(a) of the Local Government Code
provides:
SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment
of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax.
The exception to this exemption is when the government gives the beneficial use of the real
property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real estate tax and not to any other
tax. The justification for the exception to the exemption is that the real property, although owned
by the Republic, is not devoted to public use or public service but devoted to the private gain of a
taxable person.
The minority also argues that since Section 133 precedes Sections 193 and 234 of the Local
Government Code, the later provisions prevail over Section 133. Thus, the minority asserts:
“x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted
rule of construction, in case of conflict the subsequent provisions should prevail.
Therefore, MIAA, as a juridical person, is subject to real property taxes, the general exemptions
attaching to instrumentalities under Section 133(o) of the Local Government Code being qualified
by Sections 193 and 234 of the same law.” (Emphasis supplied)
635
VOL. 495, JULY 20, 2006 635
Manila International Airport Authority vs. Court of Appeals
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand,
and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less
has any one presented a persuasive argument that there is such a conflict. The minority’s
assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two
reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193
expressly admits its subordination to other provisions of the Code  when Section 193 states
“[u]nless otherwise provided in this Code. ” By its own words, Section 193 admits the superiority of
other provisions of the Local Government Code that limit the exercise of the taxing power in
Section 193. When a provision of law grants a power but withholds such power on certain
matters, there is no conflict between the grant of power and the withholding of power. The
grantee of the power simply cannot exercise the power on matters withheld from its power.
Second, Section 133 is entitled “Common Limitations on the Taxing Powers of Local
Government Units.” Section 133 limits the grant to local governments of the power to tax, and not
merely the exercise of a delegated power to tax. Section 133 states that the taxing powers of local
governments “shall not extend to the levy ” of any kind of tax on the national government, its
agencies and instrumentalities. There is no clearer limitation on the taxing power than this.
Since Section 133 prescribes the “ common limitations” on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local governments such
taxing powers. By their very meaning and purpose, the “common limitations” on the taxing power
prevail over the grant or exercise of the taxing power . If the taxing power of local governments in
Section 193 prevails over the limitations on such taxing power in Section 133, then local
governments can impose any kind of tax on the national government, its agencies and
instrumentalities—a gross absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant to the
saving clause in Section 133 stating “[u]nless otherwise provided in this Code.” This excep-
636
636 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
tion—which is an exception to the exemption of the Republic from real estate tax imposed by local
governments—refers to Section 234(a) of the Code. The exception to the exemption in Section
234(a) subjects real property owned by the Republic, whether titled in the name of the national
government, its agencies or instrumentalities, to real estate tax if the beneficial use of such
property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase
“government-owned or controlled corporation” is not controlling. The minority points out that
Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions are
not controlling when it provides:
SEC. 2. General Terms Defined.—Unless the specific words of the text, or the context as a whole,
or a particular statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is “flawed.”
The minority’s argument is a non sequitur. True, Section 2 of the Administrative Code
recognizes that a statute may require a different meaning than that defined in the Administrative
Code. However, this does not automatically mean that the definition in the Administrative Code
does not apply to the Local Government Code. Section 2 of the Administrative Code clearly states
that “unless the specific words x x x of a particular statute shall require a different meaning ,” the
definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific
language in the Local Government Code defining the phrase “government-owned or controlled
corporation” differently from the definition in the Administrative Code, the definition in the
Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the
phrase “government-owned or controlled corporation” differently from the definition in the
Administrative Code. Indeed, there is none. The Local Government Code is silent on the definition
of the phrase “government-owned or controlled corpora-
637
VOL. 495, JULY 20, 2006 637
Manila International Airport Authority vs. Court of Appeals
tion.” The Administrative Code, however, expressly defines the phrase “government-owned or
controlled corporation.” The inescapable conclusion is that the Administrative Code definition of
the phrase “government-owned or controlled corporation” applies to the Local Government Code.
The third whereas clause of the Administrative Code states that the Code “ incorporates in a
unified document the major structural, functional and procedural principles and rules of
governance.” Thus, the Administrative Code is the governing law defining the status and
relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless a
statute expressly provides for a different status and relationship for a specific government unit or
entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase “government-owned or controlled corporation”
should apply only to corporations organized under the Corporation Code, the general incorporation
law, and not to corporations created by special charters. The minority sees no reason why
government corporations with special charters should have a capital stock. Thus, the minority
declares:
“I submit that the definition of “government-owned or controlled corporations” under the
Administrative Code refer to those corporations owned by the government or its instrumentalities
which are created not by legislative enactment, but formed and organized under the Corporation
Code through registration with the Securities and Exchange Commission. In short, these are
GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a capital structure for
GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not
empowered to declare dividends or alienate their capital shares.”
The contention of the minority is seriously flawed. It is not in accord with the Constitution and
existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase “government-owned or controlled
corporation” does not distinguish between
638
638 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
one incorporated under the Corporation Code or under a special charter. Where the law does not
distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned
corporations organized as stock corporations . Prime examples are the Land Bank of the Philippines
and the Development Bank of the Philippines. The special charter40 of the Land Bank of the
Philippines provides:
SECTION 81. Capital.—The authorized capital stock of the Bank shall be nine billion
pesos, divided into seven hundred and eighty million common shares with a par value
of ten pesos each, which shall be fully subscribed by the Government, and one hundred and
twenty million preferred shares with a par value of ten pesos each, which shall be issued in
accordance with the provisions of Sections seventy-seven and eighty-three of this Code.
(Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock—Par value.—The capital stock of the Bank shall be Five
Billion Pesos to be divided into Fifty Million common shares with par value of P100 per
share. These shares are available for subscription by the National Government. Upon the
effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common
shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the
Government with the net asset values of the Bank remaining after the transfer of assets and
liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special
charters are the Philippine Crop Insurance Corporation,42 Philippine International Trading
Corporation,43 and the
Philippine National Bank44 before it was reorganized as a stock corporation under the Corporation
Code. All these government-owned corporations organized under special charters as stock
corporations are subject to real estate tax on real properties owned by them. To rule that they are
not government-owned or controlled corporations because they are not registered with the
Securities and Exchange Commission would remove them from the reach of Section 234 of the
Local Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters are
those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The
first condition is that the government-owned or controlled corporation must be established for the
common good. The second condition is that the government-owned or controlled corporation
must meet the test of economic viability . Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be
created or established by special charters in the interest of the common good
and subject to the test of economic viability . (Emphasis and italics supplied)
The Constitution expressly authorizes the legislature to create “government-owned or controlled
corporations” through special charters only if these entities are required to meet the twin
conditions of common good and economic viability. In other words, Congress has no power to
create government-owned or controlled corporations with special charters unless they are made to
comply with the two conditions of common good and economic viability.  The test of economic
viability applies only to government-owned or controlled corporations that perform economic or
commercial activities and need to compete in the market place. Being essentially economic
vehicles of the State for the common good—meaning for economic development purposes—these
government-owned or controlled corporations with special charters are usually organized as stock
corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need not be economically viable
since the government may even subsidize their entire operations. These instrumentalities are not
the “government-owned or controlled corporations” referred to in Section 16, Article XII of the
1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities—known as “government-owned or
controlled corporations”—must meet the test of economic viability because they compete in the
market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the
Philippines and similar government-owned or controlled corporations, which derive their income to
meet operating expenses solely from commercial transactions in competition with the private
sector. The intent of the Constitution is to prevent the creation of government-owned or controlled
corporations that cannot survive on their own in the market place and thus merely drain the public
coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
641
VOL. 495, JULY 20, 2006 641
Manila International Airport Authority vs. Court of Appeals
MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test of
economic performance. We know what happened in the past. If a government corporation loses,
then it makes its claim upon the taxpayers’ money through new equity infusions from the
government and what is always invoked is the common good. That is the reason why this year,
out of a budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all taxpayers’
money which could have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees. And yet this is all going
down the drain.
Therefore, when we insert the phrase “ECONOMIC VIABILITY” together with the “common
good,” this becomes a restraint on future enthusiasts for state capitalism to excuse themselves
from the responsibility of meeting the market test so that they become viable. And so, Madam
President, I reiterate, for the committee’s consideration and I am glad that I am joined in this
proposal by Commissioner Foz, the insertion of the standard of “ECONOMIC VIABILITY OR THE
ECONOMIC TEST,” together with the common good.45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary :
The second sentence was added by the 1986 Constitutional Commission. The significant addition,
however, is the phrase “in the interest of the common good and subject to the test of
economic viability.” The addition includes the ideas that they must show capacity to
function efficiently in business and that they should not go into activities which the
private sector can do better. Moreover, economic viability is more than financial viability but
also includes capability to make profit and generate benefits not quantifiable in financial
terms.46 (Emphasis supplied)
Clearly, the test of economic viability does not apply to government entities vested with corporate
powers and performing essential public services. The State is obligated to render essential public
services regardless of the economic viability of providing such service. The non-economic viability
of rendering such essential public service does not excuse the State from withholding such
essential services from the public.
However, government-owned or controlled corporations with special charters, organized
essentially for economic or commercial objectives, must meet the test of economic viability. These
are the government-owned or controlled corporations that are usually organized under their
special charters as stock corporations, like the Land Bank of the Philippines and the Development
Bank of the Philippines. These are the government-owned or controlled corporations, along with
government-owned or controlled corporations organized under the Corporation Code, that fall
under the definition of “governmentowned or controlled corporations” in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create
MIAA to compete in the market place. MIAA does not compete in the market place because there
is no competing international airport operated by the private sector. MIAA performs an essential
public service as the primary domestic and international airport of the Philippines. The operation
of an international airport requires the presence of personnel from the following government
agencies:
. 1.The Bureau of Immigration and Deportation, to document the arrival and departure of
passengers, screening out those without visas or travel documents, or those with hold
departure orders;
. 2.The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;
. 3.The quarantine office of the Department of Health, to enforce health measures
against the spread of infectious diseases into the country;
643
VOL. 495, JULY 20, 2006 643
Manila International Airport Authority vs. Court of Appeals
. 4.The Department of Agriculture, to enforce measures against the spread of plant and
animal diseases into the country;
. 5.The Aviation Security Command of the Philippine National Police, to prevent the entry
of terrorists and the escape of criminals, as well as to secure the airport premises from
terrorist attack or seizure;
. 6.The Air Traffic Office of the Department of Transportation and Communications, to
authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off
from, the airport; and
. 7.The MIAA, to provide the proper premises—such as runway and buildings—for the
government personnel, passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an
international airport.
MIAA performs an essential public service that every modern State must provide its citizens.
MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on
passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or
administrative fees47 and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined.—x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying operational
autonomy, usually through a charter. x x x (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-
owned or controlled corporation. Without a change in its capital structure, MIAA remains a
government instrumentality under Section 2(10) of the Introductory Provisions of the
Administrative Code. More importantly, as long as MIAA renders essential public services, it need
not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase
“governmentowned or controlled corporations” under Section 16, Article XII of the 1987
Constitution.
The minority belittles the use in the Local Government Code of the phrase “government-
owned or controlled corporation” as merely “clarificatory or illustrative.” This is fatal. The 1987
Constitution prescribes explicit conditions for the creation of “government-owned or controlled
corporations.” The Administrative Code defines what constitutes a “government-owned or
controlled corporation.” To belittle this phrase as “clarificatory or illustrative” is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13)
of the Introductory Provisions of the Administrative Code because it is not organized as a stock or
non-stock corporation. Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested with corporate powers and
performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by
local governments under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under
the Local Government Code. Such exception applies only if the beneficial use of real property
owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus
are properties of public dominion. Properties of public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:
645
VOL. 495, JULY 20, 2006 645
Manila International Airport Authority vs. Court of Appeals
Art. 420. The following things are property of public dominion:
. (1)Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
. (2)Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth. (Emphasis
supplied)
The term “ports x x x constructed by the State” includes airports and seaports. The Airport Lands
and Buildings of MIAA are intended for public use, and at the very least intended for public
service. Whether intended for public use or public service, the Airport Lands and Buildings
are properties of public dominion . As properties of public dominion, the Airport Lands and
Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of
the Local Government Code.

. 4.Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which
governs the legal relation and status of government units, agencies and offices within the entire
government machinery, MIAA is a government instrumentality and not a government-owned or
controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to “[t]axes, fees or
charges of any kind” by local governments. The only exception is when MIAA leases its real
property to a “taxable person” as provided in Section 234(a) of the Local Government Code, in
which case the specific real property leased becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines. Article 420 specifically mentions “ports x x x constructed by the
646
646 SUPREME COURT REPORTS ANNOTATED
Manila International Airport Authority vs. Court of Appeals
State,” which includes public airports and seaports, as properties of public dominion and owned by
the Republic. As properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under
Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties
of public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of
Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the
Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real
estate tax imposed by the City of Parañaque. We declare VOID all the real estate tax assessments,
including the final notices of real estate tax delinquencies, issued by the City of Parañaque on the
Airport Lands and Buildings of the Manila International Airport Authority, except for the portions
that the Manila International Airport Authority has leased to private parties. We also declare VOID
the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila
International Airport Authority.
No costs.
SO ORDERED.
 G.R. No. 191109. July 18, 2012.*
REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE RECLAMATION AUTHORITY
(PRA), petitioner, vs. CITY OF PARAÑAQUE, respondent.
Government-Owned and Controlled Corporations (GOCC); Many government
instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a
Government-Owned and Controlled Corporations (GOCC); These government instrumentalities are
sometimes loosely called government corporate entities.—Many government instrumentalities are
vested with corporate powers but they do not become stock or non-stock corporations, which is a
necessary condition before an agency or instrumentality is deemed a GOCC. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority, the University of the
Philippines, and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. They are not,
however, GOCCs in the strict sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government entities.
Corporation Law; Stock Corporations, Defined; Non-Stock Corporations, Defined; Words and
Phrases; Section 3 of the Corporation Code defines a stock corporation as one whose “capital
stock is divided into shares and x x x authorized to distribute to the holders of such shares
dividends x x x.” Section 87 thereof defines a non-stock corporation as “one where no part of its
income is distributable as dividends to its members, trustees or officers.” —Section 3 of the
Corporation Code defines a stock corporation as one whose “capital stock is divided into shares
and x x x authorized to distribute to the holders of such shares dividends x x x.” Section 87
thereof defines a non-stock corporation as “one where no part of its income is distributable as
dividends to its members, trustees or officers.” Further, Section 88 provides that non-stock
corporations are “organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade,
industry, agriculture and like chambers.”
Same; Same; Two Requisites for a Corporation to be Classified as a Stock Corporation. —
Two requisites must concur before one may be classified as a stock corporation, namely: (1) that
it has capital stock divided into shares; and (2) that it is authorized to distribute dividends
and allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot
be properly classified
248
248 SUPREME COURT REPORTS ANNOTATED
Republic vs. City of Parañaque
as a stock corporation. As for non-stock corporations, they must have members and must
not distribute any part of their income to said members.
Government-Owned and Controlled Corporations (GOCC); Philippine Reclamation Authority
(PRA); The Philippine Reclamation Authority is not a Government-Owned and Controlled
Corporations (GOCC) because it is neither a stock nor a non-stock corporation. —In the case at
bench, PRA is not a GOCC because it is neither a stock nor a non-stock corporation. It cannot be
considered as a stock corporation because although it has a capital stock divided into no par value
shares as provided in Section 7 of P.D. No. 1084, it is not authorized to distribute dividends,
surplus allotments or profits to stockholders. There is no provision whatsoever in P.D. No. 1084 or
in any of the subsequent executive issuances pertaining to PRA, particularly, E.O. No. 525, E.O.
No. 654 and EO No. 798 that authorizes PRA to distribute dividends, surplus allotments or profits
to its stockholders. PRA cannot be considered a non-stock corporation either because it does not
have members. A non-stock corporation must have members. Moreover, it was not organized for
any of the purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created
to manage all government reclamation projects.
Philippine Reclamation Authority (PRA); Taxation; Real Property Taxes; Tax Exemptions;
Philippine Reclamation Authority (PRA) is a government instrumentality vested with corporate
powers and performing an essential public service pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. Being an incorporated government instrumentality, it is
exempt from payment of real property tax. —This Court is convinced that PRA is not a GOCC either
under Section 2(3) of the Introductory Provisions of the Administrative Code or under Section 16,
Article XII of the 1987 Constitution. The facts, the evidence on record and jurisprudence on the
issue support the position that PRA was not organized either as a stock or a non-stock
corporation. Neither was it created by Congress to operate commercially and compete in the
private market. Instead, PRA is a government instrumentality vested with corporate powers and
performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. Being an incorporated government instrumentality, it is exempt from
payment of real property tax.249
VOL. 677, JULY 18, 2012 249
Republic vs. City of Parañaque
Same; Same; Same; Same; Local Government Code; It is clear from Section 234 of the
Local Government Code that real property owned by the Republic of the Philippines (the Republic)
is exempt from real property tax unless the beneficial use thereof has been granted to a taxable
person.—It is clear from Section 234 that real property owned by the Republic of the Philippines
(the Republic) is exempt from real property tax unless the beneficial use thereof has been granted
to a taxable person. In this case, there is no proof that PRA granted the beneficial use of the
subject reclaimed lands to a taxable entity. There is no showing on record either that PRA leased
the subject reclaimed properties to a private taxable entity. This exemption should be read in
relation to Section 133(o) of the same Code, which prohibits local governments from imposing
“[t]axes, fees or charges of any kind on the National Government, its agencies and
instrumentalities x x x.” The Administrative Code allows real property owned by the Republic to be
titled in the name of agencies or instrumentalities of the national government. Such real properties
remain owned by the Republic and continue to be exempt from real estate tax.
Foreshore Lands; Public Domain; Foreshore and submerged areas irrefutably belonged to
the public domain and were inalienable unless reclaimed, classified as alienable lands open to
disposition and further declared no longer needed for public service. The fact that alienable lands
of the public domain were transferred to the Public Estates Authority (PEA) (now Philippine
Reclamation Authority [PRA]) and issued land patents or certificates of title in PEA’s name did not
automatically make such lands private.—The subject lands are reclaimed lands, specifically
portions of the foreshore and offshore areas of Manila Bay. As such, these lands remain public
lands and form part of the public domain. In the case of Chavez v. Public Estates Authority and
AMARI Coastal Development Corporation , 403 SCRA 1 (2002), the Court held that foreshore and
submerged areas irrefutably belonged to the public domain and were inalienable unless reclaimed,
classified as alienable lands open to disposition and further declared no longer needed for public
service. The fact that alienable lands of the public domain were transferred to the PEA (now PRA)
and issued land patents or certificates of title in PEA’s name did not automatically make such lands
private. This Court also held therein that reclaimed lands retained their inherent potential as areas
for public use or public service.
 250
250 SUPREME COURT REPORTS ANNOTATED
Republic vs. City of Parañaque
PETITION for review on certiorari of an order of the Regional Trial Court of Parañaque City, Br.
195.
   The facts are stated in the opinion of the Court.
  Office of the Solicitor General  for petitioner.
  Jose Torrefranca for respondent.
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
on pure questions of law, assailing the January 8, 2010 Order 1 of the Regional Trial Court, Branch
195, Parañaque City ( RTC), which ruled that petitioner Philippine Reclamation Authority ( PRA) is a
government-owned and controlled corporation ( GOCC), a taxable entity, and, therefore, not
exempt from payment of real property taxes. The pertinent portion of the said order reads:
“In view of the finding of this court that petitioner is not exempt from payment of real
property taxes, respondent Parañaque City Treasurer Liberato M. Carabeo did not act xxx without
or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or in excess of
jurisdiction in issuing the warrants of levy on the subject properties.
WHEREFORE, the instant petition is dismissed. The Motion for Leave to File and Admit
Attached Supplemental Petition is denied and the supplemental petition attached thereto is not
admitted.”
The Public Estates Authority ( PEA) is a government corporation created by virtue of
Presidential Decree (P.D.) No. 1084 (Creating the Public Estates Authority, Defining its Powers and
Functions, Providing Funds Therefor and For Other Purposes ) which took effect on February 4,
1977 to provide a coordinated, economical and efficient reclamation of lands, and the
administration and operation of lands belonging to, managed and/or operated by, the government
with the object of maximizing their utilization and hastening their development consistent with
public interest.
On February 14, 1979, by virtue of Executive Order (E.O.) No. 525 issued by then President
Ferdinand Marcos, PEA was designated as the agency primarily responsible for integrating,
directing and coordinating all reclamation projects for and on behalf of the National Government.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the PEA relating to
reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas
of Manila Bay, including those located in Parañaque City, and was issued Original Certificates of
Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559) and Transfer Certificates of Title (TCT
Nos. 104628, 7312, 7309, 7311, 9685, and 9686) over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer Liberato M. Carabeo (Carabeo) issued
Warrants of Levy on PRA’s reclaimed properties (Central Business Park and Barangay San Dionisio)
located in Parañaque City based on the assessment for delinquent real property taxes made by
then Parañaque City Assessor Soledad Medina Cue for tax years 2001 and 2002.
On March 26, 2003, PRA filed a petition for prohibition with prayer for temporary restraining
order (TRO) and/or writ of preliminary injunction against Carabeo before the RTC.
On April 3, 2003, after due hearing, the RTC issued an order denying PRA’s petition for the
issuance of a temporary restraining order.
On April 4, 2003, PRA sent a letter to Carabeo requesting the latter not to proceed with the
public auction of the subject
252
252 SUPREME COURT REPORTS ANNOTATED
Republic vs. City of Parañaque
reclaimed properties on April 7, 2003. In response, Carabeo sent a letter stating that the public
auction could not be deferred because the RTC had already denied PRA’s TRO application.
On April 25, 2003, the RTC denied PRA’s prayer for the issuance of a writ of preliminary
injunction for being moot and academic considering that the auction sale of the subject properties
on April 7, 2003 had already been consummated.
On August 3, 2009, after an exchange of several pleadings and the failure of both parties to
arrive at a compromise agreement, PRA filed a Motion for Leave to File and Admit Attached
Supplemental Petition which sought to declare as null and void the assessment for real property
taxes, the levy based on the said assessment, the public auction sale conducted on April 7, 2003,
and the Certificates of Sale issued pursuant to the auction sale.
On January 8, 2010, the RTC rendered its decision dismissing PRA’s petition. In ruling that PRA
was not exempt from payment of real property taxes, the RTC reasoned out that it was a GOCC
under Section 3 of P.D. No. 1084. It was organized as a stock corporation because it had an
authorized capital stock divided into no par value shares. In fact, PRA admitted its corporate
personality and that said properties were registered in its name as shown by the certificates of
title. Therefore, as a GOCC, local tax exemption is withdrawn by virtue of Section 193 of Republic
Act (R.A.) No. 7160 [Local Government Code (LGC)] which was the prevailing law in 2001 and
2002 with respect to real property taxation. The RTC also ruled that the tax exemption claimed by
PRA under E.O. No. 654 had already been expressly repealed by R.A. No. 7160 and that PRA failed
to comply with the procedural requirements in Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order
based on the following253
VOL. 677, JULY 18, 2012 253
Republic vs. City of Parañaque
GROUNDS
I
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE TO PAY
REAL PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS CONSIDERING THAT
PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE NATIONAL
GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT OF REAL PROPERTY TAX
UNDER SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT 7160 OR THE LOCAL
GOVERNMENT CODE VIS-À-VIS MANILA INTERNATIONAL AIRPORT AUTHORITY V.
COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT RECLAIMED
LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT FROM REAL
PROPERTY TAX.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the
Administrative Code. Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution
because it is not required to meet the test of economic viability. Instead, PRA is a government
instrumentality vested with corporate powers and performing an essential public service pursuant
to Section 2(10) of the Introductory Provisions of the Administrative Code. Although it has a
capital stock divided into shares, it is not authorized to distribute dividends and allotment of
surplus and profits to its stockholders. Therefore, it may not be classified as a stock corporation
because it lacks the second requisite of a stock corporation which is the distribution of dividends
and allotment of surplus and profits to the stockholders.
 It insists that it may not be classified as a non-stock corporation because it has no members
and it is not organized for charitable, religious, educational, professional, cultural, recreational,
fraternal, literary, scientific, social, civil service, or
254
254 SUPREME COURT REPORTS ANNOTATED
Republic vs. City of Parañaque
similar purposes, like trade, industry, agriculture and like chambers as provided in Section 88 of
the Corporation Code.
Moreover, PRA points out that it was not created to compete in the market place as there was
no competing reclamation company operated by the private sector. Also, while PRA is vested with
corporate powers under P.D. No. 1084, such circumstance does not make it a corporation but
merely an incorporated instrumentality and that the mere fact that an incorporated instrumentality
of the National Government holds title to real property does not make said instrumentality a
GOCC. Section 48, Chapter 12, Book I of the Administrative Code of 1987 recognizes a scenario
where a piece of land owned by the Republic is titled in the name of a department, agency or
instrumentality.
Thus, PRA insists that, as an incorporated instrumentality of the National Government, it is
exempt from payment of real property tax except when the beneficial use of the real property is
granted to a taxable person. PRA claims that based on Section 133(o) of the LGC, local
governments cannot tax the national government which delegate to local governments the power
to tax.
It explains that reclaimed lands are part of the public domain, owned by the State, thus,
exempt from the payment of real estate taxes. Reclaimed lands retain their inherent potential as
areas for public use or public service. While the subject reclaimed lands are still in its hands, these
lands remain public lands and form part of the public domain. Hence, the assessment of real
property taxes made on said lands, as well as the levy thereon, and the public sale thereof on
April 7, 2003, including the issuance of the certificates of sale in favor of the respondent
Parañaque City, are invalid and of no force and effect.
On the other hand, the City of Parañaque (respondent) argues that PRA since its creation
consistently represented itself to be a GOCC. PRA’s very own charter (P.D. No. 1084) declared it to
be a GOCC and that it has entered into several
255
VOL. 677, JULY 18, 2012 255
Republic vs. City of Parañaque
thousands of contracts where it represented itself to be a GOCC. In fact, PRA admitted in its
original and amended petitions and pretrial brief filed with the RTC of Parañaque City that it was a
GOCC.
Respondent further argues that PRA is a stock corporation with an authorized capital stock
divided into 3 million no par value shares, out of which 2 million shares have been subscribed and
fully paid up. Section 193 of the LGC of 1991 has withdrawn tax exemption privileges granted to
or presently enjoyed by all persons, whether natural or juridical, including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.
The Court’s Ruling  distribute dividends, surplus allotments or profits to stockholders. There is no provision
The Court finds merit in the petition.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a
GOCC as follows:
“SEC. 2. General Terms Defined.—x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or
non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities either
wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x.”
On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code
defines a government “instrumentality” as follows:
“SEC. 2. General Terms Defined.––x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with
256
256 SUPREME COURT REPORTS ANNOTATED
Republic vs. City of Parañaque
special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x”
From the above definitions, it is clear that a GOCC must be “organized as a stock or non-stock
corporation” while an instrumentality is vested by law with corporate powers. Likewise, when the
law makes a government instrumentality operationally autonomous, the instrumentality remains
part of the National Government machinery although not integrated with the department
framework.
When the law vests in a government instrumentality corporate powers, the instrumentality
does not necessarily become a corporation. Unless the government instrumentality is organized as
a stock or non-stock corporation, it remains a government instrumentality exercising not only
governmental but also corporate powers.
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a GOCC. Examples are the Mactan International Airport Authority, the
Philippine Ports Authority, the University of the Philippines, and Bangko Sentral ng Pilipinas. All
these government instrumentalities exercise corporate powers but they are not organized as stock
or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes loosely called
government corporate entities. They are not, however, GOCCs in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and
status of government entities.2
Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose “capital
stock is divided into shares and x x x authorized to distribute to the holders of such shares
dividends x x x.” Section 87 thereof defines a non-stock corporation as “one where no part of its
income is distributable as dividends to its members, trustees or officers.” Further, Section 88
provides that non-stock corporations are “organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers.”
Two requisites must concur before one may be classified as a stock corporation, namely: (1)
that it has capital stock divided into shares; and (2) that it is authorized to
distribute dividends and allotments of surplus and profits to its stockholders. If only one requisite
is present, it cannot be properly classified as a stock corporation. As for non-stock corporations,
they must have members and must not distribute any part of their income to said members. 3
In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock
corporation. It cannot be considered as a stock corporation because although it has a capital stock
divided into no par value shares as provided in Section 7 4 of P.D. No. 1084, it is not authorized to
whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances pertaining to PRA,
particularly, E.O. No. 525,5 E.O. No. 6546 and EO No. 7987 that authorizes PRA to distribute
dividends, surplus allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have members.
A non-stock corporation must have members. 8 Moreover, it was not organized for any of the
purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created to manage
all government reclamation projects.
_Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section
16, Article XII of the 1987 Constitution provides as follows:
“Section 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled corporations
may be created or established by special charters in the interest of the common good and subject
to the test of economic viability.”
The fundamental provision above authorizes Congress to create GOCCs through special
charters on two conditions: 1) the GOCC must be established for the common good; and 2) the
GOCC must meet the test of economic viability. In this case, PRA may have passed the first
condition of common good but failed the second one—economic viability. Undoubtedly, the
purpose behind the creation of PRA was not for economic or commercial activities. Neither was it
created to compete in the market place considering that there were no other competing
reclamation companies being operated by the private sector. As mentioned earlier, PRA was
created essentially to perform a public service considering that it was primarily responsible for a
coordinated, economical and efficient reclamation, administration and operation of lands belonging
to the government with the object of maximizing their utilization and hastening their development
consistent with the public interest. Sections 2 and 4 of P.D. No. 1084 reads, as follows:
“Section 2. Declaration of policy.—It is the declared policy of the State to provide for a
coordinated, economical and efficient reclamation of lands, and the administration and operation
of lands belonging to, managed and/or operated by the government, with the object of
maximizing their utilization and hastening their development consistent with the public interest.
Section 4. Purposes.—The Authority is hereby created for the following purposes:260
260 SUPREME COURT REPORTS ANNOTATED
Republic vs. City of Parañaque
(a) To reclaim land, including foreshore and submerged areas, by dredging, filling or other
means, or to acquire reclaimed land;
(b)  To develop, improve, acquire, administer, deal in, subdivide, dispose, lease and sell any
and all kinds of lands, buildings, estates and other forms of real property, owned, managed,
controlled and/or operated by the government.
(c) To provide for, operate or administer such services as may be necessary for the efficient,
economical and beneficial utilization of the above properties.”
The twin requirement of common good and economic viability was lengthily discussed in the
case of Manila International Airport Authority v. Court of Appeals ,9 the pertinent portion of which
reads:
“Third, the government-owned or controlled corporations created through special charters are
those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The
first condition is that the government-owned or controlled corporation must be established for
the common good. The second condition is that the government-owned or controlled
corporation must meet the test of economic viability. Section 16, Article XII of the 1987
Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
The Constitution expressly authorizes the legislature to create “government-owned or
controlled corporations” through special charters only if these entities are required to meet the
twin conditions of common good and economic viability. In other words, Congress has no power
to create government-owned or controlled corporations with special charters unless they are made
to comply with the two conditions of common good and economic viability. The test of
economic viability applies only to government-owned or controlled corporations that
perform economic or commercial activities and need to compete in the market place.
Being essentially economic vehicles of the State for the common good—meaning for
economic development purposes—these government-owned or controlled
corporations with special charters are usually organized as stock corporations just like
ordinary private corporations.
In contrast, government instrumentalities vested with corporate powers and
performing governmental or public functions need not meet the test of economic
viability. These instrumentalities perform essential public services for the common
good, services that every modern State must provide its citizens. These
instrumentalities need not be economically viable since the government may even
subsidize their entire operations. These instrumentalities are not the “government-owned or
controlled corporations” referred to in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities—known as “government-owned or
controlled corporations”—must meet the test of economic viability because they compete in the
market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the
Philippines and similar government- owned or controlled corporations, which derive their
income to meet operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution is to prevent the creation
of government-owned or controlled corporations that cannot survive on their own in the market
place and thus merely drain the public coffers.262
262 SUPREME COURT REPORTS ANNOTATED
Republic vs. City of Parañaque
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the
government creates a corporation, there is a sense in which this corporation becomes
exempt from the test of economic performance. We know what happened in the past. If a
government corporation loses, then it makes its claim upon the taxpayers’ money through
new equity infusions from the government and what is always invoked is the common
good. That is the reason why this year, out of a budget of P115 billion for the entire
government, about P28 billion of this will go into equity infusions to support a few
government financial institutions. And this is all taxpayers’ money which could have been
relocated to agrarian reform, to social services like health and education, to augment the
salaries of grossly underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase “ECONOMIC VIABILITY” together with the
“common good,” this becomes a restraint on future enthusiasts for state capitalism to
excuse themselves from the responsibility of meeting the market test so that they become
 viable. And so, Madam President, I reiterate, for the committee’s consideration and I am
glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of
“ECONOMIC VIABILITY OR THE ECONOMIC TEST,” together with the common good.
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his
textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant
addition, however, is the phrase “in the interest of the common good and subject to the
test of economic viability.” The addition includes the ideas that they must show capacity to
function efficiently in business and that they should not go into activities which the private
sector can do better. Moreover, economic viability is more than financial viability but also
includes capability to make profit and generate benefits not quantifiable in financial
terms.263
VOL. 677, JULY 18, 2012 263
Republic vs. City of Parañaque
Clearly, the test of economic viability does not apply to government entities vested
with corporate powers and performing essential public services. The State is obligated to
render essential public services regardless of the economic viability of providing such service. The
non-economic viability of rendering such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized
essentially for economic or commercial objectives, must meet the test of economic viability. These
are the government-owned or controlled corporations that are usually organized under their
special charters as stock corporations, like the Land Bank of the Philippines and the Development
Bank of the Philippines. These are the government- owned or controlled corporations, along with
government-owned or controlled corporations organized under the Corporation Code, that fall
under the definition of “government-owned or controlled corporations” in Section 2(10) of the
Administrative Code.” [Emphases supplied]
This Court is convinced that PRA is not a GOCC either under Section 2(3) of the Introductory
Provisions of the Administrative Code or under Section 16, Article XII of the 1987 Constitution.
The facts, the evidence on record and jurisprudence on the issue support the position that PRA
was not organized either as a stock or a non-stock corporation. Neither was it created by Congress
to operate commercially and compete in the private market. Instead, PRA is a government
instrumentality vested with corporate powers and performing an essential public service pursuant
to Section 2(10) of the Introductory Provisions of the Administrative Code. Being an incorporated
government instrumentality, it is exempt from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed
by PRA. On the other hand, Section 234(a) of the LGC, in relation to its Section 133(o), exempts
PRA from paying realty taxes and protects it from the taxing powers of local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:264
264 SUPREME COURT REPORTS ANNOTATED
Republic vs. City of Parañaque
“SEC. 234. Exemptions from Real Property Tax. —The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person.
x x x x
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. —Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
x x x x
(o)  Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units.” [Emphasis supplied]
It is clear from Section 234 that real property owned by the Republic of the Philippines (the
Republic) is exempt from real property tax unless the beneficial use thereof has been granted to a
taxable person. In this case, there is no proof that PRA granted the beneficial use of the subject
reclaimed lands to a taxable entity. There is no showing on record either that PRA leased the
subject reclaimed properties to a private taxable entity.
This exemption should be read in relation to Section 133(o) of the same Code, which prohibits
local governments from imposing “[t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x.” The Administrative Code allows real
property owned by the Republic to be titled in the name of agencies or instrumentalities of the
national government. Such real properties remain owned by the Republic and continue to be
exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when the title of the real property is
265
VOL. 677, JULY 18, 2012 265
Republic vs. City of Parañaque
transferred to an agency or instrumentality even as the Republic remains the owner of the real
property. Such arrangement does not result in the loss of the tax exemption, unless “the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person.” 10
The rationale behind Section 133(o) has also been explained in the case of the Manila
International Airport Authority,11  to wit:
“Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the power to
tax. While the 1987 Constitution now includes taxation as one of the powers of local governments,
local governments may only exercise such power “subject to such guidelines and limitations as the
Congress may provide.”
When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing the tax. Any doubt whether a
person, article or activity is taxable is resolved against taxation. This rule applies with greater
force when local governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
 The reason for the rule does not apply in the case of exemptions running to the benefit
of the government itself or its agencies. In such case the practical effect of an exemption is
merely to reduce the amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions to government
agencies may be construed liberally, in favor of non tax-liability of such agencies.
There is, moreover, no point in national and local governments taxing each other,
unless a sound and compelling policy requires such transfer of public funds from one
government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax
national government instrumentalities. Any doubt whether such power exists is resolved against
local governments.
Thus, Section 133 of the Local Government Code states that “unless otherwise provided” in
the Code, local governments cannot tax national government instrumentalities. As this Court held
in Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any
manner control the operation of constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government. ( MC Culloch v. Maryland, 4 Wheat
316, 4 L Ed. 579)
This doctrine emanates from the “supremacy” of the National Government over local
governments.
“Justice Holmes, speaking for the Supreme Court, made reference to the entire absence
of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal responsibilities, or even to seriously
burden it in the accomplishment of them.” (Antieau, Modern Constitutional Law, Vol. 2, p.
140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what
local authorities may perceive to
267
VOL. 677, JULY 18, 2012 267
Republic vs. City of Parañaque
be undesirable activities or enterprise using the power to tax as “a tool for regulation.” ( U.S. v.
Sanchez, 340 US 42)
The power to tax which was called by Justice Marshall as the “power to destroy” ( McCulloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity
which has the inherent power to wield it.” [Emphases supplied]
The Court agrees with PRA that the subject reclaimed lands are still part of the public domain,
owned by the State and, therefore, exempt from payment of real estate taxes.
Section 2, Article XII of the 1987 Constitution reads in part, as follows:
“Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna,
and other natural resources are owned by the State. With the exception of agricultural lands, all
other natural resources shall not be alienated. The exploration, development, and utilization of
natural resources shall be under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production, joint venture, or production-
sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of
whose capital is owned by such citizens. Such agreements may be for a period not exceeding
twenty-five years, renewable for not more than twenty-five years, and under such terms and
conditions as may provided by law. In cases of water rights for irrigation, water supply, fisheries,
or industrial uses other than the development of waterpower, beneficial use may be the measure
and limit of the grant.”
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:
“Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar character;268
268 SUPREME COURT REPORTS ANNOTATED
Republic vs. City of Parañaque
(2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth.” [Emphases supplied]
Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore
areas of Manila Bay. As such, these lands remain public lands and form part of the public domain.
In the case of Chavez v. Public Estates Authority and AMARI Coastal Development Corporation ,12 
the Court held that foreshore and submerged areas irrefutably belonged to the public domain and
were inalienable unless reclaimed, classified as alienable lands open to disposition and further
declared no longer needed for public service. The fact that alienable lands of the public domain
were transferred to the PEA (now PRA) and issued land patents or certificates of title in PEA’s
name did not automatically make such lands private. This Court also held therein that reclaimed
lands retained their inherent potential as areas for public use or public service.
“As the central implementing agency tasked to undertake reclamation projects nationwide,
with authority to sell reclaimed lands, PEA took the place of DENR as the government agency
charged with leasing or selling reclaimed lands of the public domain. The reclaimed lands being
leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes of
other alienable lands, does not dispose of private lands but alienable lands of the public domain.
Only when qualified private parties acquire these lands will the lands become private lands. In the
hands of the government agency tasked and authorized to dispose of alienable of disposable lands
of the public domain, these lands are still public, not private lands.
Furthermore, PEA’s charter expressly states that PEA “shall hold lands of the public domain” as
well as “any and all kinds of lands.” PEA can hold both lands of the public domain and private
lands. Thus, the mere fact that alienable lands of the public domain like the Freedom Islands are
transferred to PEA and issued land patents or certificates of title in PEA’s name does not
automatically make such lands private.”13 
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the Administrative
Code of 1987, thus:
 “SEC. 14. Power to Reserve Lands of the Public and Private Dominion of the Government. —

(1) The President shall have the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public domain, the use of which is not otherwise
directed by law. The reserved land shall thereafter remain subject to the specific public purpose
indicated until otherwise provided by law or proclamation.”

Reclaimed lands such as the subject lands in issue are reserved lands for public use. They are
properties of public dominion. The ownership of such lands remains with the State unless they are
withdrawn by law or presidential proclamation from public use.

“Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged areas of
Manila Bay are part of the “lands of the public domain, waters x x x and other natural resources”
and consequently “owned by the State.” As such, foreshore and submerged areas “shall not be
alienated,” unless they are classified as “agricultural lands” of the public domain. The mere
reclamation of these areas by PEA does not convert these inalienable natural resources of the
State into alienable or disposable lands of the public domain. There must be a law or presidential
proclamation officially classifying these reclaimed lands as alienable or disposable and open to
disposition or concession. Moreover, these reclaimed lands cannot be classified as alienable or
disposable if the law has reserved them for some public or quasi-public use.”

As the Court has repeatedly ruled, properties of public dominion are not subject to execution or
foreclosure sale.14  Thus, the assessment, levy and foreclosure made on the subject reclaimed
lands by respondent, as well as the issuances of certificates of title in favor of respondent, are
without basis.
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional Trial Court,
Branch 195, Parañaque City, is REVERSED and SET ASIDE. All reclaimed properties owned by the
Philippine Reclamation Authority are hereby declared EXEMPT from real estate taxes. All real
estate tax assessments, including the final notices of real estate tax delinquencies, issued by the
City of Parañaque on the subject reclaimed properties; the assailed auction sale, dated April 7,
2003; and the Certificates of Sale subsequently issued by the Parañaque City Treasurer in favor of
the City of Parañaque, are all declared VOID.
SO ORDERED.

Peralta (Actg. Chairperson), Del Castillo,** Abad and Perlas-Bernabe, JJ., concur. 

Petition granted, order reversed and set aside.

 G.R. No. 51593.November 5, 1992.*
NATIONAL DEVELOPMENT COMPANY, plaintiff-appellee, vs. CEBU CITY and AUGUSTO PACIS, as
Treasurer of Cebu City, defendant-appellants.
Taxation; Assessment Law; Section 3, par (c) of R.A. 470 did not distinguish between
properties possessed by the government in sovereign/governmental/political capacity and those in
private/proprietary/ patrimonial character. —NDC cites Board of Assessment Appeals, Province of
Laguna v. Court of Tax Appeals and National Waterworks and Sewerage Authority (NWSA) . In that
case, We held that properties of NWSA, a GOCC, were exempt from real estate tax because Sec.
3, par. (c), of R.A. 470 did not distinguish between those possessed by the government in
sovereign/governmental/political capacity and those in private/proprietary/patrimonial character.
Same; Same; Tax exemption of property owned by the Republic of the Philippines refers to
properties owned by the Government and by its agencies which do not have separate and distinct
personalities.—The Republic, like any individual, may form a corporation with personality and
existence distinct from its own. The separate personality allows a GOCC to hold and possess
properties in its own name and, thus, permit greater independence and flexibility in its operations.
It may, therefore, be stated that tax exemption of “property owned by the Republic of the
Philippines” refers to properties owned by the Government and by its agencies which do not have
separate and distinct personalities (unincorporated entities).
Same; Same; To come within the ambit of the exemption provided in Art. 3 par. (a) of the
Assessment Law, it is important to establish that the property is owned by the government or by
its unincorporated agency.—To come within the ambit of the exemption provided in Art. 3, par.
(a), of the Assessment Law, it is important to establish that the property is owned by the
government or by its unincorporated agency, and once government ownership is determined, the
nature of the use of the property, whether for proprietary or sovereign purposes, becomes
immaterial. What appears to have been ceded to NWC (later transferred to NDC), in the case
before Us, is merely the administration of the property while the government retains ownership of
what has been declared reserved for warehousing purposes under Proclamation No. 430.
Same; Same; Section 115 of the Public Land Act should be treated as an exemption to Art.
3, par (a) of the Assessment Law. —Section 115 of the Public Land Act should be treated as an
exception to Art. 3, par. (a), of the Assessment Law. While ordinarily public lands are tax exempt
because title thereto belongs to the Republic, Sec. 115 subjects them to real estate tax even
before ownership thereto is transferred in the name of the beneficiaries. Sec. 115 comprehends
three (3) modes of disposition of lands under the Public Land Act, to wit: homestead, concession,
and contract.
Same; Same; The exemption of public property from taxation does not extend to
improvements on the public lands made by preemptioners, homesteaders and other claimants or
occupants at their own expenses and these are taxable by the state. —However, as regards the
warehouse constructed on a public reservation, a different rule should apply because “[t]he
exemption of public property from taxation does not extend to improvements on the public lands
made by preemptioners, homesteaders and other claimants, or occupants, at their own expense,
and these are taxable by the state x x x x” Consequently, the warehouse constructed on the
reserved land by NWC (now under administration by NDC), indeed, should properly be assessed
real estate tax as such improvement does not appear to belong to the Republic.
APPEAL from the decision of the then Court of First Instance of Manila, Br. 22.
The facts are stated in the opinion of the Court.
     The Government Corporate Counsel for plaintiff-appellee .
     The City Attorney for defendant-appellants.
BELLOSILLO,J.:
Is a public land reserved by the President for warehousing purposes in favor of a government-
owned or controlled corporation,1 as well as the warehouse subsequently erected thereon,
On 4 October 1947, E.O. 93 dissolved NWC8 with NDC taking over its assets and functions.9
Commencing 1948, Cebu City (CEBU) assessed and collected from NDC real estate taxes on
the land and the warehouse thereon.10 By the first quarter of 1970, a total of P100,316.31 was
paid by NDC11 of which only P3,895.06 was under protest.12
On 20 March 1970, NDC wrote the City Assessor demanding full refund of the real estate taxes
paid to CEBU claiming that the land and the warehouse standing thereon belonged to the Republic
and therefore exempt from taxation.13 CEBU did not acquiesce in the demand, hence, the present
suit filed 25 October 1972 in the Court of First Instance of Manila.
On 29 May 1973, the Court of First Instance of Manila, Branch XXII, promulgated a
decision14 the dispositive portion of which reads—
“WHEREFORE, judgment is hereby rendered sentencing the City of Cebu, thru the Treasurer of
said City, to refund to the plaintiff, National Development Company, the real estate taxes paid by
it for the parcel of land covered by Presidential Proclamation No. 430 of August 10, 1939, and the
warehouse erected thereon from and after October 25, 1966, with interests thereon at the legal
rate from the date of the filing of the complaint and the costs of the suit.”
The defendants appealed to the Court of Appeals which however certified the case to Us as one
involving pure questions of law, pursuant to Sec. 17, R.A. 296.
In this appeal, CEBU assigns five (5) errors15 imputed to the trial court which may be synopsized
into whether NDC is exempt from payment of real estate taxes on the land reserved by the
President for warehousing purposes as well as the warehouse constructed thereon, and in the
affirmative, whether NDC may recover in refund unprotested real estate taxes it paid from 1948 to
1970.
On the first question, CEBU insists on taxability of the subject properties, claiming that no law
grants NDC exemption from real estate taxes, and that NDC, as recipient of the land reserved by
the President pursuant to Sec. 83 of the Public Land Act,16 is liable for payment of ordinary (real
estate) taxes
under Sec. 115 thereof. CEBU contends that the properties have ceased to be tax exempt under
the Assessment Law17 when the government disposed of them in favor of NDC, and even
assuming that title to the land remains with the government (ownership being the basis for real
estate taxability under the Assessment Law), the Supreme Court rulings establish increasing trend
in the application of “use” of property rather than “ownership” as basis for real estate tax liability.
On the other hand, NDC maintains that Sec. 3 of the Assessment Law, which exempts
properties owned by the Republic from real estate tax, includes subject properties in the
exemption. It invokes the ruling in Board of Assessment Appeals vs. CTA & NWSA  18 which held
that properties of NWSA, a GOCC, were exempt from real estate tax because Sec. 3 of the
Assessment Law applied to all government properties whether held in governmental or proprietary
capacity. NDC rejects the applicability of Sec. 115 of the Public Land Act to the subject land,
claiming that that provision contemplates dispositions of public land with eventual transfer of title.
In addition, NDC believes that it is neither a grantee of a public land nor an applicant within the
purview of the same provision.
As already adverted to, one of the principal issues before Us is the interpretation of a provision
of the Assessment Law, the precursor of the then Real Property Tax Code and the Local
Government Code, where “ownership” of the property and not “use” is the test of tax liability.19
Section 3, par. (a), of the Assessment Law, on which NDC claims real estate tax exemption,
provides—
“SEC.3.Property exempt from tax.—The exemptions shall be as follows: (a) Property owned by the
United States of America, the Commonwealth of the Philippines, any province, city, municipality or
municipal district x x x x”
The same opinion of NDC was passed upon in National Development Co. v. Province of Nueva
Ecija 20 where We held that its properties were not comprehended in Sec. 3, par. (a), of the
Assessment Law. In part, We stated:
“1.Commonwealth Act No. 182 which created NDC contains no provision exempting it from the
payment of real estate tax on properties it may acquire x x x x There is justification in the
contention of plaintiff-appellee that x x x x [I]t is undeniable that to any municipality the principal
source of revenue with which it would defray its operation will come from real property taxes. If
the National Development Company would be exempt from paying real property taxes over these
properties, the town of Gabaldon will be deprived of much needed revenues with which it will
maintain itself and finance the compelling needs of its inhabitants” (p. 6, Brief of Plaintiff-
Appellee).
2.Defendant-appellant NDC does not come under the classification of municipal or public
corporation in the sense that it may sue and be sued in the same manner as any other private
corporations, and in this sense, it is an entity different from the government. Unlike the
government, defendant corporation may be sued without its consent, and is subject to taxation. In
the case of NDC vs. Jose Yulo Tobias, 7 SCRA 692, it was held that ‘x x x plaintiff is neither the
Government of the Republic nor a branch or subdivision thereof, but a government owned and
controlled corporation which cannot be said to exercise a sovereign function (Associacion
Cooperativa de Credito Agricola de Miagao vs. Monteclaro, 74 Phil. 281), it is a business
corporation, and as such, its causes of action are subject to the statute of limitations. x x x That
plaintiff herein does not exercise sovereign powers—and, hence, cannot invoke the exemptions
thereof—but is an agency for the performance of purely corporate, proprietary or business
functions, is apparent from its Organic Act (Commonwealth Act 182, as amended by
Commonwealth Act 311) pursuant to Section 3 of which it ‘shall be subject to the provisions of the
Corporation Law insofar as they are not inconsistent’ with the provisions of said Commonwealth
Act, ‘and shall have the general powers mentioned in said’ Corporation Law, and, hence, ‘may
engage in commercial, industrial, mining, agricultural, and other enterprises which may be
necessary or contributory to the economic development of the country, or important in the public
interest,’ as well as ‘acquire, hold, mortgage, and alienate personal and real property in the
Philippines or elsewhere; x x x make contracts of any kind and description’, and ‘perform any and
all acts which a corporation or natural persons is authorized to perform under the laws now
existing or which may be enacted hereafter.”
We find no compelling reason why the foregoing ruling, although referring to lands which would
eventually be transferred to private individuals, should not apply equally to this case.
NDC cites Board of Assessment Appeals, Province of Laguna v. Court of Tax Appeals and
National Waterworks and Sewerage Authority (NWSA).  In that case, We held that properties of
NWSA, a GOCC, were exempt from real estate tax because Sec. 3, par. (c), of R.A. 470 did not
distinguish between those possessed by the government in sovereign/governmental/political
capacity and those in private/proprietary/patrimonial character.
The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, supra,  is more
superficial than real. The NDC decision speaks of properties owned by NDC, while the BAA ruling
concerns properties belonging to the Republic. The latter case appears to be exceptional because
the parties therein stipulated—
“1.That the petitioner National Waterworks and Sewerage Authority (NAWASA) is a public
corporation created by virtue of Republic Act No. 1383, and that it is owned by the Government of
the Philippines as well as all property comprising waterworks and sewerage systems placed under
it” (italics supplied).
390
390 SUPREMECOURTREPORTSANNOTATED
National Development Company vs. Cebu City
There, the Court observed: “It is conceded, in the stipulation of facts, that the property involved in
this case ‘is owned by the Government of the Philippines.’ Hence, it belongs to the Republic of the
Philippines and falls squarely within the letter of the above provision.”
In the case at bar, no similar statement appears in the stipulation of facts, hence, ownership
of subject properties should first be established. For, while it may be stated that the Republic
owns NDC, it does not necessarily follow that properties owned by NDC are also owned by the
Republic—in the same way that stockholders are not ipso facto owners of the properties of their
corporation.
The Republic, like any individual, may form a corporation with personality and existence
distinct from its own. The separate personality allows a GOCC to hold and possess properties in its
own name and, thus, permit greater independence and flexibility in its operations. It may,
therefore, be stated that tax exemption of “property owned by the Republic of the Philippines”
refers to properties owned by the Government and by its agencies which do not have separate
and distinct personalities (unincorporated entities). We find the separate opinion of Justice
Bautista-Angelo in Gonzales v. Hechanova, et al.,21 appropriate and enlightening—
“x x x The Government of the Republic of the Philippines under the Revised Administrative Code
refers to that entity through which the functions of government are exercised, including the
various arms through which political authority is made effective whether they be provincial,
municipal or other form of local government, whereas a government instrumentality refers to
corporations owned or controlled by the government to promote certain aspects of the economic
life of our people. A government agency, therefore, must necessarily refer to the government itself
of the Republic, as distinguished from any government instrumentality which has a personality
distinct and separate from it (Section 2).”
The foregoing discussion does not mean that because NDC, like most GOCC’s, engages in
commercial enterprises all properties of the government and its unincorporated agencies
possessed in proprietary character are taxable. Similarly, in the case at bar, NDC proceeded on the
premise that the BAA ruling declared all properties owned by GOCC’s as properties in the name of
the Republic, hence, exempt under Sec. 3 of the Assessment Law.22
To come within the ambit of the exemption provided in Art. 3, par. (a), of the Assessment
Law, it is important to establish that the property is owned by the government or by its
unincorporated agency, and once government ownership is determined, the nature of the use of
the property, whether for proprietary or sovereign purposes, becomes immaterial. What appears
to have been ceded to NWC (later transferred to NDC), in the case before Us, is merely the
administration of the property while the government retains ownership of what has been declared
reserved for warehousing purposes under Proclamation No. 430.
Incidentally, the parties never raised the issue of ownership from the court a quo to this Court.
A reserved land is defined as a “[p]ublic land that has been
withheld or kept back from sale or disposition.”23 The land remains “absolute property of the
government.”24 The government “does not part with its title by reserving them (lands), but simply
gives notice to all the world that it desires them for a certain purpose”.25 Absolute disposition of
land is not implied from reservation;26 it merely means “a withdrawal of a specified portion of the
public domain from disposal under the land laws and the appropriation thereof, for the time being,
to some particular use or purpose of the general government.”27 As its title remains with the
Republic, the reserved land is clearly covered by the tax exemption provision.
CEBU nevertheless contends that the reservation of the property in favor of NWC or NDC is a
form of disposition of public land which subjects the recipient (NDC) to real estate taxation under
Sec. 115 of the Public Land Act, as amended by R.A. 436,28 which states:
“Sec.115.All lands granted by virtue of this Act, including homesteads upon which final proof has
not been made or approved shall, even though and while the title remains in the State, be subject
to the ordinary taxes, which shall be paid by the grantee or the applicant, beginning with the year
next following the one in which the homestead application has been filed, or the concession has
been approved, or the contract has been signed, as the case may be, on the basis of the value
fixed in such filing, approval or signing of the application, concession or contract.”
The essential question then is whether lands reserved pursuant to Sec. 83 are comprehended in
Sec. 115 and, therefore, taxable.
Section 115 of the Public Land Act should be treated as an exception to Art. 3, par. (a), or the
Assessment Law. While ordinarily public lands are tax exempt because title thereto belongs to the
Republic, Sec. 115 subjects them to real estate tax even before ownership thereto is transferred in
the name of the beneficiaries. Sec. 115 comprehends three (3) modes of disposition of lands
under the Public Land Act, to wit: homestead, concession, and contract.
Liability to real property taxes under Sec. 115 is predicated on (a) filing of homestead
application, (b) approval of concession and, (c) signing of contract. Significantly, without these
words, the date of the accrual of the real estate tax would be indeterminate. Since NDC is not a
homesteader and no “contract” (bilateral agreement) was signed, it would appear, then, that
reservation under Sec. 83, being a unilateral act of the President, falls under “concession.”
“Concession” as a technical term under the Public Land Act is synonymous with “alienation”
and “disposition”, and is defined in Sec. 10 as “any of the methods authorized by this Act for the
acquisition, lease, use, or benefit of the lands of the public domain other than timber or mineral
lands.” Logically, where Sec. 115 contemplates authorized methods for acquisition, lease, use, or
benefit under the Act, the taxability of the land would depend on whether reservation under Sec.
83 is one such method of acquisition, etc. Tersely put, is reservation synonymous with alienation?
Or, are the two terms antithetical and mutually exclusive? Indeed, reservation connotes retention,
while concession (alienation) signifies cession.
Sections 8 and 88 of the Public Land Act provide that reserved lands are excluded from that
mass of public land that may be subject of disposition, to wit—
“Sec.8.Only those lands shall be declared open to disposition or concession which have been
officially delimited and classified and, when practicable, surveyed, and which have not been
reserved for public or quasi-public uses, nor appropriated by the Government, nor in any manner
become private property, nor those on which a private right authorized and recognized by this Act
or any valid law may be claimed, or which, having been reserved or appropriated, have ceased to
be so.”
394
394 SUPREME COURT REPORTS ANNOTATED
National Development Company vs. Cebu City
“Sec.88.The tract or tracts of land reserved under the provisions of section eighty-three shall
be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition
until again declared alienable under the provisions of this Act or by proclamation of the President”
(italics supplied).
As We view it, the effect of reservation under Sec. 83 is to segregate a piece of public land and
transform it into non-alienable or non-disposable under the Public Land Act. Section 115, on the
other hand, applies to disposable public lands. Clearly, therefore, Sec. 115 does not apply to lands
reserved under Sec. 83. Consequently, the subject reserved public land remains tax exempt.
However, as regards the warehouse constructed on a public reservation, a different rule
should apply because “[t]he exemption of public property from taxation does not extend to
improvements on the public lands made by preemptioners, home-steaders and other claimants, or
occupants, at their own expense, and these are taxable by the state x x x x” 29 Consequently, the
warehouse constructed on the reserved land by NWC (now under administration by NDC), indeed,
should properly be assessed real estate tax as such improvement does not appear to belong to the
Republic.
Since the reservation is exempt from realty tax, the erroneous tax payments collected by CEBU
should be refunded to NDC. This is in consonance with Sec. 40, par. (a) of the former Real
Property Tax Code which exempted from taxation real property owned by the Republic of the
Philippines or any of its political subdivisions, as well as any GOCC so exempt by its charter.30
As regards the requirement of paying under protest before judicial recourse, CEBU argues that in
any case NDC is not entitled to refund because Sec. 75 of R.A. 3857, the Revised Charter of the
City of Cebu,31 requires payment under protest before resorting to judicial action for tax refund;
that it could not have acted on the first demand letter of NDC of 20 May 1970 because it was sent
to the City Assessor and not to the City Treasurer; that, consequently, there having been no
appropriate prior demand, resort to judicial remedy is premature; and, that even on the premise
that there was proper demand, NDC has yet to exhaust administrative remedies by way of appeal
to the Department of Finance and/or Auditor General before taking judicial action.
NDC does not agree. It disputes the applicability of the payment-under-protest requirement
provided in Sec. 75 of the Revised Cebu City Charter because the issue is not the validity of tax
assessment but recovery of erroneous payments under Arts. 2154 and 2155 of the Civil Code.32 It
cites the case of East Asiatic Co., Ltd. v. City of Davao  33 which held that where the tax is
unauthorized, “it is not a tax assessed under the charter of the appellant City of Davao and for
that reason no protest is necessary for a claim or demand for its refund.” In Ramie Textiles, Inc.
vs. Mathay, Sr.,34 We held—
“x x x x Protest is not a requirement in order that a taxpayer who paid under a mistaken belief
that it is required by law, may claim for
a refund. Section 5435 of Commonwealth Act No. 470 does not apply to petitioner which could
conceivably not have been expected to protest a payment it honestly believed to be due. The
same refers only to the case where the taxpayer, despite his knowledge of the erroneous or illegal
assessment, still pays and fails to make the proper protest, for in such case, he should manifest an
unwillingness to pay, and failing so, the taxpayer is deemed to have waived his right to claim a
refund.
“In the case at bar, petitioner, therefore, cannot be said to have waived his right. He had no
knowledge of the fact that it was exempted from payment of the realty tax under Commonwealth
Act No. 470. Payment was made through error or mistake, in the honest belief that petitioner was
liable, and therefore could not have been made under protest, but with complete voluntariness. In
any case, a taxpayer should not be held to suffer loss by his good intention to comply with what
he believes is his legal obligation, where such obligation does not really exist x x x x The fact that
petitioner paid thru error or mistake, and the government accepted the payment, gave rise to the
application of the principle of solutio indebiti under Article 2154 of the New Civil Code, which
provides that ‘if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.’ There is, therefore, created a tie or
juridical relation in the nature of solutio indebiti, expressly classified as quasi-contract under
Section 2, Chapter I of Title XVII of the New Civil Code.
“The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient
principle that no one shall enrich himself unjustly at the expense of another x x x x Hence, it
would seem unedifying for the government, that knowing it has no right at all to collect or to
receive money for alleged taxes paid by mistake, it would be reluctant to return the same x x x x
Petitioner is not unsatisfied in the assessment of its property. Assessment having been made, it
paid the real estate taxes without knowing that it is exempt.”
As regards the claim for refund of tax payments spanning more than twenty (20) years, We also
said in Ramie Textiles that—
“Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio indebiti, the
claim for refund must be commenced within six (6) years from date of payment pursuant to Article
1145 (2) of the New Civil Code36 x x x x”
We sustain the appellate court to the extent that its decision covers improperly collected taxes on
the reserved land under Proclamation No. 430, thus—
“The defense of prescription invoked by the defendant which counsel for the plaintiff, however,
did not answer in its memorandum, is partly well-taken. Actions for refund of taxes illegally
collected must be commenced within six (6) years from the date of collection x x x x “The
stipulation of facts and the pleadings filed by the parties do not contain data specifying when and
how much were paid by the year, of the taxes sought to be refunded. Accordingly, the Court has
no other alternative but to order the refund of an undetermined amount based, however, on the
date of payment counted six (6) years backward from October 25, 1972, when the complaint in
this case was filed.”37
As regards exhaustion of administrative remedies, We agree with the trial court that the case
constitutes an exception to the rule, as it involves purely questions of law.38 Specifically, on the
requirement of appeal to the Secretary of Finance, We further held in the same Ramie
Textiles that “[E]qually not applicable is Section 17 of Commonwealth Act No. 47039 cited by
respondent in relation to the right of a property owner to contest the validity of assessment x x x
x”
 Respondent CEBU likewise invites Our attention to the availability of appeal to the Government
Auditing Office although no authority is cited to Us. We do not find any either to sustain the
procedure.
WHEREFORE, finding that National Development Company (NDC) is exempt from real estate
tax on the reserved land but liable for the warehouse erected thereon, the decision appealed from
is accordingly MODIFIED. Consequently, let this case be remanded to the court of origin, now the
Regional Trial Court of Manila, to determine the proper liability of NDC, particularly on its
warehouse, and effect the corresponding refund, payment or set-off, as the case may be,
conformably with this decision. No costs.
SO ORDERED.

     Cruz (Chairman), Padilla and Griño-Aquino, JJ., concur.

     Medialdea, J., On leave.

Decision modified.