Tax 2 Cases for FE Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

155541 January 27, 2004 ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No. 09107, dated September 30, 2002,1 which reversed the November 19, 1995 Order of Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled "Testate Estate of Juliana Diez Vda. De Gabriel". The petition was filed by the Estate of the Late Juliana Diez Vda. De Gabriel, represented by Prudential Bank as its duly appointed and qualified Administrator. As correctly summarized by the Court of Appeals, the relevant facts are as follows: During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (Philtrust). The decedent died on April 3, 1979. Two days after her death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed her Income Tax Return for 1978. The return did not indicate that the decedent had died. On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Administrator with the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The court a quo appointed one of the heirs as Special Administrator. Philtrusts motion for reconsideration was denied by the probate court. On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, and appointed Antonio Lantin to take over as Special Administrator. Subsequently, on July 30, 1981, Mr. Lantin was also relieved of his appointment, and Atty. Vicente Onosa was appointed in his stead. In the meantime, the Bureau of Internal Revenue conducted an administrative investigation on the decedents tax liability and found a deficiency income tax for the year 1977 in the amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a demand letter and Assessment Notice No. NARD-78-82-00501 addressed to the decedent "c/o Philippine Trust Company, Sta. Cruz, Manila" which was the address stated in her 1978 Income Tax Return. No response was made by Philtrust. The BIR was not informed that the decedent had actually passed away. In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the Commissioner and Auditor Tax Consultant of the Estate of the decedent.

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Tax 2 Cases for FE On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce collection of the decedents deficiency income tax liability, which were served upon her heir, Francisco Gabriel. On November 22, 1984, respondent filed a "Motion for Allowance of Claim and for an Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr. Ambrosio filed a letter of protest with the Litigation Division of the BIR, which was not acted upon because the assessment notice had allegedly become final, executory and incontestable. On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal opposition to the BIRs Motion for Allowance of Claim based on the ground that there was no proper service of the assessment and that the filing of the aforesaid claim had already prescribed. The BIR filed its Reply, contending that service to Philippine Trust Company was sufficient service, and that the filing of the claim against the Estate on November 22, 1984 was within the five-year prescriptive period for assessment and collection of taxes under Section 318 of the 1977 National Internal Revenue Code (NIRC). On November 19, 1985, the court a quo issued an Order denying respondents claim against the Estate,2 after finding that there was no notice of its tax assessment on the proper party.3 On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 09107,4 assailing the Order of the probate court dated November 19, 1985. It was claimed that Philtrust, in filing the decedents 1978 income tax return on April 5, 1979, two days after the taxpayers death, had "constituted itself as the administrator of the estate of the deceased at least insofar as said return is concerned."5 Citing Basilan Estate Inc. v. Commissioner of Internal Revenue,6 respondent argued that the legal requirement of notice with respect to tax assessments7 requires merely that the Commissioner of Internal Revenue release, mail and send the notice of the assessment to the taxpayer at the address stated in the return filed, but not that the taxpayer actually receive said assessment within the five-year prescriptive period.8 Claiming that Philtrust had been remiss in not notifying respondent of the decedents death, respondent therefore argued that the deficiency tax assessment had already become final, executory and incontestable, and that petitioner Estate was liable therefor. On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent. Although acknowledging that the bond of agency between Philtrust and the decedent was severed upon the latters death, it was ruled that the administrator of the Estate had failed in its legal duty to inform respondent of the decedents death, pursuant to Section 104 of the National Internal Revenue Code of 1977. Consequently, the BIRs service to Philtrust of the demand letter and Notice of Assessment was binding upon the Estate, and, upon the lapse of the statutory thirty-day period to question this claim, the assessment became final, executory and incontestable. The dispositive portion of said decision reads: WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET ASIDE. Another one is entered ordering the Administrator of the Estate to pay the Commissioner of Internal Revenue the following: a. The amount of P318,223.93, representing the deficiency income tax liability for the year 1978, plus 20% interest per annum from November 2, 1982 up to November 2, 1985 and in addition thereto 10% surcharge on the basic tax of P169,155.34 pursuant to Section 51(e)(2) and (3) of the Tax Code as amended by PD 69 and 1705; and b. The costs of the suit. Page 2 of 327

Tax 2 Cases for FE SO ORDERED.9 Hence, the instant petition, raising the following issues: 1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was a valid service in order to bind the Estate; 2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment and final demand was already final, executory and incontestable. Petitioner Estate denies that Philtrust had any legal personality to represent the decedent after her death. As such, petitioner argues that there was no proper notice of the assessment which, therefore, never became final, executory and incontestable.10 Petitioner further contends that respondents failure to file its claim against the Estate within the proper period prescribed by the Rules of Court is a fatal error, which forever bars its claim against the Estate.11 Respondent, on the other hand, claims that because Philtrust filed the decedents income tax return subsequent to her death, Philtrust was the de facto administrator of her Estate.12 Consequently, when the Assessment Notice and demand letter dated November 18, 1982 were sent to Philtrust, there was proper service on the Estate.13 Respondent further asserts that Philtrust had the legal obligation to inform petitioner of the decedents death, which requirement is found in Section 104 of the NIRC of 1977.14 Since Philtrust did not, respondent contends that petitioner Estate should not be allowed to profit from this omission.15 Respondent further argues that Philtrusts failure to protest the aforementioned assessment within the 30-day period provided in Section 319-A of the NIRC of 1977 meant that the assessment had already become final, executory and incontestable.16 The resolution of this case hinges on the legal relationship between Philtrust and the decedent, and, by extension, between Philtrust and petitioner Estate. Subsumed under this primary issue is the subissue of whether or not service on Philtrust of the demand letter and Assessment Notice No. NARD78-82-00501 was valid service on petitioner, and the issue of whether Philtrusts inaction thereon could bind petitioner. If both sub-issues are answered in the affirmative, respondents contention as to the finality of Assessment Notice No. NARD-78-82-00501 must be answered in the affirmative. This is because Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to protest an assessment. Failure to file such a protest within said period means that the assessment ipso jure becomes final and unappealable, as a consequence of which legal proceedings may then be initiated for collection thereof. We find in favor of the petitioner. The first point to be considered is that the relationship between the decedent and Philtrust was one of agency, which is a personal relationship between agent and principal. Under Article 1919 (3) of the Civil Code, death of the agent or principal automatically terminates the agency. In this instance, the death of the decedent on April 3, 1979 automatically severed the legal relationship between her and Philtrust, and such could not be revived by the mere fact that Philtrust continued to act as her agent when, on April 5, 1979, it filed her Income Tax Return for the year 1978. Since the relationship between Philtrust and the decedent was automatically severed at the moment of the Taxpayers death, none of Philtrusts acts or omissions could bind the estate of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was improperly done. Page 3 of 327

Tax 2 Cases for FE It must be noted that Philtrust was never appointed as the administrator of the Estate of the decedent, and, indeed, that the court a quo twice rejected Philtrusts motion to be thus appointed. As of November 18, 1982, the date of the demand letter and Assessment Notice, the legal relationship between the decedent and Philtrust had already been non-existent for three years. Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed the legal obligation on Philtrust to inform respondent of the decedents death. The said Section reads: SEC. 104. Notice of death to be filed. In all cases of transfers subject to tax or where, though exempt from tax, the gross value of the estate exceeds three thousand pesos, the executor, administrator, or any of the legal heirs, as the case may be, within two months after the decedents death, or within a like period after qualifying as such executor or administrator, shall give written notice thereof to the Commissioner of Internal Revenue. The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code of 1977, or the chapter on Estate Tax, and pertains to "all cases of transfers subject to tax" or where the "gross value of the estate exceeds three thousand pesos". It has absolutely no applicability to a case for deficiency income tax, such as the case at bar. It further lacks applicability since Philtrust was never the executor, administrator of the decedents estate, and, as such, never had the legal obligation, based on the above provision, to inform respondent of her death. Although the administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedents death, the consequences thereof, as provided in Section 119 of the National Internal Revenue Code of 1977, merely refer to the imposition of certain penal sanctions on the administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessments, or the waiver of the notice requirement for such assessments. Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice No. NARD-78-82-00501, there was absolutely no legal obligation on the part of Philtrust to either (1) respond to the demand letter and assessment notice, (2) inform respondent of the decedents death, or (3) inform petitioner that it had received said demand letter and assessment notice. This lack of legal obligation was implicitly recognized by the Court of Appeals, which, in fact, rendered its assailed decision on grounds of "equity".17 Since there was never any valid notice of this assessment, it could not have become final, executory and incontestable, and, for failure to make the assessment within the five-year period provided in Section 318 of the National Internal Revenue Code of 1977, respondents claim against the petitioner Estate is barred. Said Section 18 reads: SEC. 318. Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purpose of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. Page 4 of 327

Tax 2 Cases for FE Respondent argues that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released, mailed or sent to the taxpayer to effectuate the assessment, and there is no legal requirement that the taxpayer actually receive said notice within the five-year period.18 It must be noted, however, that the foregoing rule requires that the notice be sent to the taxpayer, and not merely to a disinterested party. Although there is no specific requirement that the taxpayer should receive the notice within the said period, due process requires at the very least that such notice actually be received. In Commissioner of Internal Revenue v. Pascor Realty and Development Corporation,19 we had occasion to say: An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. In Republic v. De le Rama,20 we clarified that, when an estate is under administration, notice must be sent to the administrator of the estate, since it is the said administrator, as representative of the estate, who has the legal obligation to pay and discharge all debts of the estate and to perform all orders of the court. In that case, legal notice of the assessment was sent to two heirs, neither one of whom had any authority to represent the estate. We said: The notice was not sent to the taxpayer for the purpose of giving effect to the assessment, and said notice could not produce any effect. In the case of Bautista and Corrales Tan v. Collector of Internal Revenue this Court had occasion to state that "the assessment is deemed made when the notice to this effect is released, mailed or sent to the taxpayer for the purpose of giving effect to said assessment." It appearing that the person liable for the payment of the tax did not receive the assessment, the assessment could not become final and executory. (Citations omitted, emphasis supplied.) In this case, the assessment was served not even on an heir of the Estate, but on a completely disinterested third party. This improper service was clearly not binding on the petitioner. By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2) Philtrust was remiss in its obligation to respond to the demand letter and assessment notice, (3) Philtrust was remiss in its obligation to inform respondent of the decedents death, and (4) the assessment notice is therefore binding on the Estate, respondent is arguing in circles. The most crucial point to be remembered is that Philtrust had absolutely no legal relationship to the deceased, or to her Estate. There was therefore no assessment served on the Estate as to the alleged underpayment of tax. Absent this assessment, no proceedings could be initiated in court for the collection of said tax,21 and respondents claim for collection, filed with the probate court only on November 22, 1984, was barred for having been made beyond the five-year prescriptive period set by law. WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 09107, dated September 30, 2002, is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated November 19, 1985, which denied the claim of the Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De Gabriel for the deficiency income tax of the decedent for the year 1977 in the amount of P318,223.93, is AFFIRMED. No pronouncement as to costs.

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Tax 2 Cases for FE SO ORDERED. Davide, Jr., C.J., (Chairman), Panganiban, and Carpio, JJ., concur. Azcuna, J., on official leave.

Footnotes

Rollo, pp. 111-117; penned by Associate Justice Portia Alio-Hormachuelos; concurred in by Associate Justices Elvi John S. Asuncion and Juan Q. Enriquez, Jr.
2

Id., pp. 27-29. Id., p. 29. Id., pp. 49-65. Id., p. 57. G.R. No. L-22492, 5 September 1967, 21 SCRA 17. National Internal Revenue Code of 1977, sec. 104. Rollo, p. 57. Id., pp. 116-117. Id., p. 19. Id., p. 21. Id., p. 146. Id. Id. Id. Id., pp. 149-150. Id., p. 115.

10

11

12

13

14

15

16

17

18

Collector of Internal Revenue v. Bautista, G.R. Nos. L-12250 & L-12259, 27 May 1959, cited in Basilan Estate Inc. v. Commissioner of Internal Revenue and Court of Tax Appeals, 128 Phil. 19 (1967).

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19

368 Phil. 714 (1999). 124 Phil. 1493 (1966). National Internal Revenue Code of 1977, sec. 318.

20

21

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Tax 2 Cases for FE Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 147361 March 23, 2004 COMPANIA GENERAL DE TABACOS DE FILIPINAS, petitioner, vs. HON. COURT OF APPEALS and THE COMMISSIONER OF INTERNAL REVENUE, respondents.

DECISION

QUISUMBING, J.: This petition for review on certiorari seeks to reverse the Decision,1 dated October 16, 2000, of the Court of Appeals in CA-G.R. SP No. 48797, which set aside the Decision2 of the Court of Tax Appeals (CTA), in CTA Case No. 5204. The tax court ordered the refund of specific taxes in the amount of P1,051,050 paid under protest by petitioner on the removal, transfer and sale of its stemmed leaf tobacco products to various cigar and cigarette manufacturers. Petitioner likewise assails the appellate courts Resolution3 dated March 6, 2001 which denied the Motion for Reconsideration. The facts, as culled from records, are as follows: Petitioner Compania General de Tabacos de Filipinas is engaged in the business of re-drying of tobacco leaves, for both the export and domestic markets. It purchases its tobacco leaves directly from local growers. Thereafter, petitioner cuts, re-dries, packs and sells in bulk the leaves for delivery to cigar and cigarette manufacturers. Said re-dried leaves then form the raw material for the manufacture of cigar and cigarettes. Prior to June 1993, petitioner sold its tobacco to cigar and cigarette manufacturers without prepayment of any excise tax, there being no notice of assessment from nor collection made by respondent Commissioner. Instead, what petitioner paid were inspection fees. Beginning June 1993, however, respondent Commissioner imposed upon petitioner a specific tax at the rate of 75 centavos per kilogram prior to any removal, sale or transfer of its tobacco products. Petitioner paid said taxes under protest up to August 22, 1994. On December 8, 1994, petitioner filed a written claim for refund of P1,051,050 as specific taxes paid on its tobacco leaves. It alleged that it was exempt from paying said taxes. Petitioner based its claim on Sections 1374 and 1415 of the National Internal Revenue Code and Section 20 of Revenue Regulations No. V-39,6 which exempted the transfer of stripped tobacco for use in the manufacture of other tobacco products from prepayment of excise tax.

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Tax 2 Cases for FE Receiving no response from respondent Commissioner, petitioner on February 22, 1995, filed a Petition for Review, docketed as CTA Case No. 5204 with the tax court, praying for refund of specific taxes it had paid since June 1993. The CTA granted the petition in its decision dated June 15, 1998, which decreed: WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby GRANTED. Accordingly, respondent is hereby ORDERED to REFUND the amount of P1,051,050.00 to the petitioner immediately. SO ORDERED.7 In finding for petitioner, the CTA cited Commissioner of Internal Revenue v. Fortune Tobacco Corporation, CA-G.R. SP Nos. 38219/40313, dated January 30, 1998. It held that the exemption from specific tax granted by Sections 137 and 141 of the Tax Code applies to stemmed leaf tobacco. The appellate court held that stemmed leaf tobacco is solely meant to be the raw material of cigarettes and other tobacco products which are subject to excise tax. The Court of Appeals also found that the Bureau of Internal Revenue (BIR) went beyond its rule-making power and arrogated legislative power unto itself when it issued both Revenue Regulations Nos. 17-67 and V-39 since by using the power to classify, the BIR actually amended and amplified the tax law. Inasmuch as petitioner herein was similarly situated as Fortune Tobacco, said the tax court, there was no reason why the appellate courts ruling in CA-G.R. SP Nos. 38219/40313 should not apply to petitioners case. Hence, no prepayment of excise tax was required and a refund was in order. Respondent Commissioner appealed the tax courts decision to the Court of Appeals in CA-G.R. SP No. 48797. On October 16, 2000, the appellate court ruled as follows: WHEREFORE, in view of the foregoing, the petition is GRANTED. The decision and resolution of the Court of Tax Appeals is hereby ANNULLED and SET ASIDE. SO ORDERED.8 The Court of Appeals reasoned that petitioner is not entitled to a refund since it was liable to pay the tobacco excise tax based on Sections 137 and 141 of the NIRC in relation to Revenue Regulations Nos. V-39 and 17-67. The CA noted that both Sections 137 and 141 contain the qualifying phrase "under such conditions as may be prescribed in the regulations of the Department of Finance" for certain tobacco products to avail of the tax exemption. Thus, Revenue Regulations No. V-39, which specifies the conditions under which stemmed tobacco may be transferred from one manufacturer to another without prepayment of specific tax and Revenue Regulations No. 17-67, which classifies stemmed leaf tobacco as "partially manufactured tobacco" were issued to provide the conditions and the framework to avail of the specific tax exemption. It held that there was nothing irregular or illegal in the issuance of said revenue regulations, as both had been issued under the authority provided by law. The established rule is that a tax refund is in the nature of exemption, said the appellate court. It is construed strictly against the taxpayer, who has the burden of proving his claim. Petitioner failed to discharge this burden, according to the appellate court. Petitioner then moved for reconsideration of the aforesaid decision, but this was denied by the appellate court on March 6, 2001. Hence, this petition alleging that the respondent Court of Appeals committed serious error:

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Tax 2 Cases for FE 1. .WHEN IT CONCLUDED THAT PETITIONER IS NOT ENTITLED TO ANY TAX REFUND ON THE BASIS OF REVENUE REGULATION NO. 17-67 AND REVENUE REGULATION NO. V-39 NOTWITHSTANDING THE CLEAR LANGUAGE OF SECTIONS 137 AND 141 OF THE NATIONAL INTERNAL REVENUE CODE; 2. .WHEN IT DENIED PETITIONERS CLAIM FOR REFUND CONTRARY TO THE WELL ESTABLISHED DOCTRINES ON STARE DECISIS.9 The only issue for our resolution is whether petitioner is entitled to the refund of the amount of P1,051,050 on specific taxes on stemmed tobacco which it paid under protest. Petitioner contends that it is exempt from paying the specific tax on its stemmed tobacco since its tobacco leaves are unfit for consumption and the cigar and cigarette manufacturers, who are the end users of its product, pay excise taxes thereon. Respondent Commissioner counters that under Revenue Regulations No. 17-67, stemmed leaf tobacco is classified as "partially manufactured tobacco", hence subject to specific tax under Section 141 of the NIRC. Stemmed leaf tobacco is exempt from specific tax only when sold as raw material by one L-710 directly to another L-7, as prescribed by Revenue Regulations No. V-39. Respondent Commissioner further points out that since petitioner is engaged in re-drying, Revenue Regulations No. 17-67 classifies it as either an L-3R11 or L-6,12 and not L-7. Thus, it cannot claim any exemption from specific tax. The issue raised in the instant case is not novel. We agree with petitioner that both Sections 137 and 141 of the former Tax Code allowed the sale of stemmed leaf tobacco without any pre-payment of tax. We must stress, however, that a careful reading of the aforementioned provisions show that such sale is qualified by and is subject to "such conditions as may be prescribed in the regulations of the Department of Finance." Said conditions were provided for in Revenue Regulations Nos. V-39 and 17-67, which were issued to clarify and implement the foregoing provisions of the Tax Code. Hence, said provisions of the Tax Code must be read and interpreted in accordance with said regulations. Section 20 of Revenue Regulations No. V-39, which specifically lays the rules for tax exemption on tobacco products states: Section 20. Exemption from tax of tobacco products intended for agricultural or industrial purposes. (a) Sale of stemmed leaf tobacco, etc., by one factory to another. Subject to the limitations herein established, products of tobacco entirely unfit for chewing or smoking may be removed free of tax for agricultural or industrial use; and stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, refuse, scraps, cuttings, clippings, and sweeping of tobacco may be sold in bulk as raw materials by one manufacturer directly to another without the prepayment of the specific tax. Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, scraps, cutting, clippings, and sweeping of leaf tobacco or partially manufactured tobacco or other refuse of tobacco may be transferred from one factory to another under an official L-7 invoice on which shall be entered the exact weight of the tobacco at the time of its removal, and entry shall be made in the L-7 register in the place provided on the page for removals. Corresponding debit entry will be made in Page 10 of 327

Tax 2 Cases for FE the L-7 register book of the factory receiving the tobacco under heading "Refuse, etc., received from other factory", showing date of receipt, assessment and invoice numbers, name and address of the consignor, form in which received, and the net weight of the tobacco. x x x (Emphasis and underscoring supplied.) Section 20 must be construed in relation to Section 2(m)(1) of Revenue Regulations No. 17-67, which classifies stemmed leaf tobacco as "partially manufactured tobacco", and Section 3 thereof which provides for the different designations for persons dealing with tobacco, to wit: L-3, L-4, L-6, L-7, etc. Section 3(h) of Revenue Regulations No. 17-67 describes an L-7 as a "manufacturer of tobacco products." The 2001 case of Commissioner of Internal Revenue v. La Campana Fabrica de Tabacos, Inc.13 held that the following conditions must be met for stemmed leaf tobacco to be transferred without prepayment of specific tax, to wit: (a) The transfer shall be made pursuant to an official L-7 invoice on which shall be entered the exact weight of the tobacco at the time of its removal; (b) Entry shall be made in the L-7 register in the place provided on the page removals; and (c) Corresponding debit entry shall be made in the L-7 register book of the factory receiving the tobacco under the heading "Refuse, etc., received from the other factory," showing the date of receipt, assessment and invoice numbers, name and address of the consignor, form in which received, and the weight of the tobacco.14 From the foregoing, it is clear that an entity claiming exemption from specific tax under Section 137, must prove that both the entity and the transferee are categorized as L-7 manufacturers since only an L-7 tobacco manufacturer has an L-7 invoice and an L-7 registry book.15 Here, petitioner is engaged in the export, domestic sale and re-drying of tobacco leaves, activities which are designated as falling either under L-3R or L-6 under Revenue Regulations No. 17-67. Thus, not being designated as an L-7 tobacco manufacturer, petitioner cannot claim any exemption from payment of the specific tax on its stemmed leaf tobacco. In other words, petitioner, as a non-L-7 tobacco dealer of stemmed leaf tobacco, is liable to pay the specific tax thereon. Hence, petitioner is not entitled to any refund of the specific taxes paid. Petitioners arguments impugning the validity of Revenue Regulations Nos. V-39 and 17-67 deserve scant consideration. First, both regulations were issued pursuant to Section 24516 (now Section 244) of the Tax Code. The authority of the Secretary of Finance, in conjunction with the Commissioner of Internal Revenue, to promulgate needful rules and regulations for the effective enforcement of internal revenue laws cannot be controverted. Such rules and regulations, as well as administrative opinions and rulings, ordinarily deserve to be given weight and respect by the courts.17 Second, our scrutiny of Revenue Regulations Nos. V-39 and 17-67 clearly shows that said regulations did not modify or deviate from the text of Sections 137 and 141 but merely implemented and clarified said two provisions by providing certain conditions under which stemmed leaf tobacco may be exempted from prepayment of specific tax. WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision and the Resolution of the Court of Appeals in CA-G.R. SP No. 48797 are AFFIRMED. SO ORDERED. Page 11 of 327

Tax 2 Cases for FE Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur. Puno, (Chairman), J., on leave.

Footnotes
1

Rollo, pp. 42-55. Per Associate Justice Eliezer R. De Los Santos, with Associate Justices Eugenio S. Labitoria and Eloy R. Bello, Jr., concurring.
2

Id. at 95-103. Id. at 56-59. Now Section 140, 1997 Tax Code. The provision reads: SEC. 137. Removal of tobacco products without prepayment of tax. Products of tobacco entirely unfit for chewing or smoking may be removed free of tax for agricultural or industrial use; under such conditions as may be prescribed in the regulations of the Department of Finance. Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems or midribs, and sweepings of tobacco may be sold in bulk as raw material by one manufacturer directly to another, without payment of the tax under such conditions as may be prescribed in the regulations of the Department of Finance. Stemmed leaf tobacco as herein used means leaf tobacco which has had the stem or midrib removed. The term does not include broken leaf tobacco.

Now Section 144, 1997 Tax Code. The text reads: SEC. 141. Tobacco Products. There shall be collected a tax of seventy-five centavos on each kilogram of the following products of tobacco: (a) tobacco twisted by hand or reduced into a condition to be consumed in any manner other than the ordinary mode of drying and curing; (b) tobacco prepared or partially prepared with or without the use of any machine or instruments or without being pressed or sweetened; and (c) fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco. Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco resulting from the handling or stripping of whole leaf tobacco may be transferred, disposed of, or otherwise sold, without prepayment of the specific tax herein provided for under such conditions as may be prescribed in the regulations promulgated by the Secretary of Finance upon recommendation of Page 12 of 327

Tax 2 Cases for FE the Commissioner if the same are to be exported or to be used in the manufacture of other tobacco products on which the excise tax will eventually be paid on the finished product. On tobacco specially prepared for chewing so as to be unsuitable for use in any other manner, on each kilogram, sixty centavos.
6

The Tobacco Products Regulations. Rollo, p. 103. Id. at 55. Rollo, p. 13.

10

L-7 Manufacturers of tobacco products. [L-7 1/4 designates an auxiliary registered book (bale books), for manufacturers of tobacco products.]
11

L-3R Wholesale leaf tobacco dealers. Issued only in favor of persons or entities having fully equipped Redrying Plants. [Revenue Regulations No. 17-67, Section 3(c).]
12

L-6 Wholesale leaf tobacco dealers who, exclusively for export, except as otherwise provided for in these regulations, perform the following functions: (1) Handstripped and/or thresh whole leaf tobacco for themselves or for other L-6 or L-7 permittees; (2) Re-process partially manufactured tobacco for themselves, or for other L6 or L-7 permittees; (3) Sell their partially manufactured tobacco to other L-6 permittees.
13

G.R. No. 145275, 15 November 2001, 369 SCRA 118. Id. at 122-123. Id. at 124.

14

15

16

SEC. 245. Authority of Secretary of Finance to promulgate rules and regulations. The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code.
17

Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 108358, 20 January 1995, 240 SCRA 368, 372.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 152675 April 28, 2004 BATANGAS POWER CORPORATION, petitioner, vs. BATANGAS CITY and NATIONAL POWER CORPORATION, respondents. x--------------------x G.R. No. 152771 April 28, 2004 NATIONAL POWER CORPORATION, petitioner, vs. HON. RICARDO R. ROSARIO, in his capacity as Presiding Judge, RTC, Br. 66, Makati City; BATANGAS CITY GOVERNMENT; ATTY. TEODULFO DEGUITO, in his capacity as Chief Legal Officer, Batangas City; and BENJAMIN PARGAS, in his capacity as City Treasurer, Batangas City, respondents. DECISION PUNO, J.: Before us are two (2) consolidated petitions for review under Rule 45 of the Rules of Civil Procedure, seeking to set aside the rulings of the Regional Trial Court of Makati in its February 27, 2002 Decision in Civil Case No. 00-205. The facts show that in the early 1990s, the country suffered from a crippling power crisis. Power outages lasted 8-12 hours daily and power generation was badly needed. Addressing the problem, the government, through the National Power Corporation (NPC), sought to attract investors in power plant operations by providing them with incentives, one of which was through the NPCs assumption of payment of their taxes in the Build Operate and Transfer (BOT) Agreement. On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner NPC entered into a Fast Track BOT Project. Enron agreed to supply a power station to NPC and transfer its plant to the latter after ten (10) years of operation. Section 11.02 of the BOT Agreement provided that NPC shall be responsible for the payment of all taxes that may be imposed on the power station, except income taxes and permit fees. Subsequently, Enron assigned its obligation under the BOT Agreement to petitioner Batangas Power Corporation (BPC). On September 13, 1992, BPC registered itself with the Board of Investments (BOI) as a pioneer enterprise. On September 23, 1992, the BOI issued a certificate of registration1 to BPC as a pioneer enterprise entitled to a tax holiday for a period of six (6) years. The construction of the power station in respondent Batangas City was then completed. BPC operated the station.

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Tax 2 Cases for FE On October 12, 1998, Batangas City (the city, for brevity), thru its legal officer Teodulfo A. Deguito, sent a letter to BPC demanding payment of business taxes and penalties, commencing from the year 1994 as provided under Ordinance XI or the 1992 Batangas City Tax Code.2 BPC refused to pay, citing its tax-exempt status as a pioneer enterprise for six (6) years under Section 133 (g) of the Local Government Code (LGC).3 On April 15, 1999, city treasurer Benjamin S. Pargas modified the citys tax claim4 and demanded payment of business taxes from BPC only for the years 1998-1999. He acknowledged that BPC enjoyed a 6-year tax holiday as a pioneer industry but its tax exemption period expired on September 22, 1998, six (6) years after its registration with the BOI on September 23, 1992. The city treasurer held that thereafter BPC became liable to pay its business taxes. BPC still refused to pay the tax. It insisted that its 6-year tax holiday commenced from the date of its commercial operation on July 16, 1993, not from the date of its BOI registration in September 1992.5 It furnished the city with a BOI letter6 wherein BOI designated July 16, 1993 as the start of BPCs income tax holiday as BPC was not able to immediately operate due to force majeure. BPC claimed that the local tax holiday is concurrent with the income tax holiday. In the alternative, BPC asserted that the city should collect the tax from the NPC as the latter assumed responsibility for its payment under their BOT Agreement. The matter was not put to rest. The city legal officer insisted7 that BPCs tax holiday has already expired, while the city argued that it directed its tax claim to BPC as it is the entity doing business in the city and hence liable to pay the taxes. The city alleged that it was not privy to NPCs assumption of BPCs tax payment under their BOT Agreement as the only parties thereto were NPC and BPC. BPC adamantly refused to pay the tax claims and reiterated its position.8 The city was likewise unyielding on its stand.9 On August 26, 1999, the NPC intervened.10 While admitting assumption of BPCs tax obligations under their BOT Agreement, NPC refused to pay BPCs business tax as it allegedly constituted an indirect tax on NPC which is a tax-exempt corporation under its Charter.11 In view of the deadlock, BPC filed a petition for declaratory relief12 with the Makati Regional Trial Court (RTC) against Batangas City and NPC, praying for a ruling that it was not bound to pay the business taxes imposed on it by the city. It alleged that under the BOT Agreement, NPC is responsible for the payment of such taxes but as NPC is exempt from taxes, both the BPC and NPC are not liable for its payment. NPC and Batangas City filed their respective answers. On February 23, 2000, while the case was still pending, the city refused to issue a permit to BPC for the operation of its business unless it paid the assessed business taxes amounting to close to P29M. In view of this supervening event, BPC, whose principal office is in Makati City, filed a supplemental petition13 with the Makati RTC to convert its original petition into an action for injunction to enjoin the city from withholding the issuance of its business permit and closing its power plant. The city opposed on the grounds of lack of jurisdiction and lack of cause of action.14 The Supplemental Petition was nonetheless admitted by the Makati RTC. On February 27, 2002, the Makati RTC dismissed the petition for injunction. It held that: (1) BPC is liable to pay business taxes to the city; (2) NPCs tax exemption was withdrawn with the passage of R.A. No. 7160 (The Local Government Code); and, (3) the 6-year tax holiday granted to pioneer business enterprises starts on the date of registration with the BOI as provided in Section 133 (g) of R.A. No. 7160, and not on the date of its actual business operations.15

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Tax 2 Cases for FE BPC and NPC filed with this Court a petition for review on certiorari16 assailing the Makati RTC decision. The petitions were consolidated as they impugn the same decision, involve the same parties and raise related issues.17 In G.R. No. 152771, the NPC contends: I RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY RULED THAT PETITIONER NPC HAS LOST ITS TAX EXEMPTION PRIVILEGE BECAUSE SECTION 193 OF R.A. 7160 (LOCAL GOVERNMENT CODE) HAS WITHDRAWN SUCH PRIVILEGE DESPITE THE SETTLED JURISPRUDENCE THAT THE ENACTMENT OF A LEGISLATION, WHICH IS A GENERAL LAW, CANNOT REPEAL A SPECIAL LAW AND THAT SECTION 13 OF R.A. 6395 (NPC LAW) WAS NOT SPECIFICALLY MENTIONED IN THE REPEALING CLAUSE IN SECTION 534 OF R.A. 7160, AMONG OTHERS. II RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY OMITTED THE CLEAR PROVISION OF SECTION 133, PARAGRAPH (O) OF R.A. 7160 WHICH EXEMPTS "NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES" FROM THE IMPOSITION OF "TAXES, FEES OR CHARGES OF ANY KIND." III RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ERRONEOUSLY AND CAPRICIOUSLY ADMITTED BPCs SUPPLEMENTAL PETITION FOR INJUNCTION NOTWITHSTANDING THAT IT HAD NO JURISDICTION OVER THE PARTY (CITY GOVERNMENT OF BATANGAS) SOUGHT TO BE ENJOINED. In G.R. No. 152675, BPC also contends that the trial court erred: 1) in holding it liable for payment of business taxes even if it is undisputed that NPC has already assumed payment thereof; and, 2) in ruling that BPCs 6-year tax holiday commenced on the date of its registration with the BOI as a pioneer enterprise. The issues for resolution are: 1. whether BPCs 6-year tax holiday commenced on the date of its BOI registration as a pioneer enterprise or on the date of its actual commercial operation as certified by the BOI; 2. whether the trial court had jurisdiction over the petition for injunction against Batangas City; and, 3. whether NPCs tax exemption privileges under its Charter were withdrawn by Section 193 of the Local Government Code (LGC). We find no merit in the petition.

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Tax 2 Cases for FE On the first issue, petitioners BPC and NPC contend that contrary to the impugned decision, BPCs 6year tax holiday should commence on the date of its actual commercial operations as certified to by the BOI, not on the date of its BOI registration. We disagree. Sec. 133 (g) of the LGC, which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration, applies specifically to taxes imposed by the local government, like the business tax imposed by Batangas City on BPC in the case at bar. Reliance of BPC on the provision of Executive Order No. 226,18 specifically Section 1, Article 39, Title III, is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOI-registered pioneer firms. Clearly, it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC. The 6-year tax exemption of BPC should thus commence from the date of BPCs registration with the BOI on July 16, 1993 and end on July 15, 1999. Anent the second issue, the records disclose that petitioner NPC did not oppose BPCs conversion of the petition for declaratory relief to a petition for injunction or raise the issue of the alleged lack of jurisdiction of the Makati RTC over the petition for injunction before said court. Hence, NPC is estopped from raising said issue before us. The fundamental rule is that a party cannot be allowed to participate in a judicial proceeding, submit the case for decision, accept the judgment only if it is favorable to him but attack the jurisdiction of the court when it is adverse.19 Finally, on the third issue, petitioners insist that NPCs exemption from all taxes under its Charter had not been repealed by the LGC. They argue that NPCs Charter is a special law which cannot be impliedly repealed by a general and later legislation like the LGC. They likewise anchor their claim of tax-exemption on Section 133 (o) of the LGC which exempts government instrumentalities, such as the NPC, from taxes imposed by local government units (LGUs), citing in support thereof the case of Basco v. PAGCOR.20 We find no merit in these contentions. The effect of the LGC on the tax exemption privileges of the NPC has already been extensively discussed and settled in the recent case of National Power Corporation v. City of Cabanatuan.21 In said case, this Court recognized the removal of the blanket exclusion of government instrumentalities from local taxation as one of the most significant provisions of the 1991 LGC. Specifically, we stressed that Section 193 of the LGC,22 an express and general repeal of all statutes granting exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the NPC under its Charter. We explained the rationale for this provision, thus: In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution, viz: Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the

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Tax 2 Cases for FE basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments. This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the countrys highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders. The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, x x x the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers x x x." To recall, prior to the enactment of the x x x Local Government Code x x x, various measures have been enacted to promote local autonomy. x x x Despite these initiatives, however, the shackles of dependence on the national government remained. Local government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel of national line agencies. Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws x x x. Neither can the NPC successfully rely on the Basco case23 as this was decided prior to the effectivity of the LGC, when there was still no law empowering local government units to tax instrumentalities of the national government. Consequently, when NPC assumed the tax liabilities of the BPC under their 1992 BOT Agreement, the LGC which removed NPCs tax exemption privileges had already been in effect for six (6) months. Thus, while BPC remains to be the entity doing business in said city, it is the NPC that is ultimately liable to pay said taxes under the provisions of both the 1992 BOT Agreement and the 1991 Local Government Code. IN VIEW WHEREOF, the petitions are DISMISSED. No costs. SO ORDERED. Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Footnotes
1

G.R. No. 152771 Rollo, p. 66.

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2

In the amount of P34, 551, 543.96; G.R. No. 152675 Rollo, p. 60.

Republic Act No. 7160 which took effect on January 1, 1992; See letter of BPC President Miguel T. Gaffud, Jr.; G.R. No. 152675 Rollo, p. 61.
4

Amount of business tax assessed was lowered to P28, 689, 732.41 as of July 1999, based on the gross receipt of every preceding year; G.R. No. 152675 Rollo, p. 62.
5

See BPC Letter, G.R. No. 152675 Rollo, p. 63.

G.R. No. 152771 Rollo, p. 67; BOI cited Article 7 (14) of Executive Order 226 to support its decision to designate a later date.
7

G.R. No. 152675 Rollo, p. 64. BPC Letter, dated July 21, 1999; G.R. No. 152675 Rollo, pp. 65-66. See Letter of City Legal Officer; G.R. No. 152675 Rollo, p. 67. See Letter of NPC OIC Comie P. Doromal, G.R. No. 152675 Rollo, pp. 68-70. Under Section 13, Republic Act No. 6395, as amended.

10

11

12

Docketed as Civil Case No. 00-205 and raffled to RTC Branch 66, Makati City, presided by public respondent Judge Ricardo R. Rosario; G.R. No. 152771 Rollo, pp. 58-65.
13

G.R. No. 152771 Rollo, pp. 89-94. G.R. No. 152771 Rollo, pp. 97-99. Decision, id., pp. 49-57. Docketed as G.R. No. 152675. October 2, 2002 Resolution, G.R. No. 152771 Rollo, p. 130.

14

15

16

17

18

Otherwise known as the 1987 Omnibus Investment Code, as amended in 1995 by Republic Act No. 7918.
19

Roxas vs. Court of Appeals, 391 SCRA 351 (2002). 197 SCRA 51 (1991). Promulgated April 9, 2003, G.R. No. 149110.

20

21

22

"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. Page 19 of 327

Tax 2 Cases for FE No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code." Section 534, the repealing clause of the LGC, also states that all general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations or parts thereof inconsistent with the provisions of this Code are repealed or modified accordingly.
23

Supra.

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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 144104 June 29, 2004 LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City Assessor of Quezon City, respondents. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and its hospital building constructed thereon are subject to assessment for purposes of real property tax. The Antecedents The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January 16, 1981 by virtue of Presidential Decree No. 1823.2 It is the registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central District, Quezon City. The lot has an area of 121,463 square meters and is covered by Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. The petitioner accepts paying and non-paying patients. It also renders medical services to outpatients, both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the government. On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4,554,860 by the City Assessor of Quezon City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and the hospital building, respectively.4 On August 25, 1993, the petitioner filed a Claim for Exemption5 from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The petitioners request was denied, and a petition was, thereafter, filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the reversal of the resolution Page 21 of 327

Tax 2 Cases for FE of the City Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as such, is exempt from real property taxes. The QC-LBAA rendered judgment dismissing the petition and holding the petitioner liable for real property taxes.6 The QC-LBAAs decision was, likewise, affirmed on appeal by the Central Board of Assessment Appeals of Quezon City (CBAA, for brevity)7 which ruled that the petitioner was not a charitable institution and that its real properties were not actually, directly and exclusively used for charitable purposes; hence, it was not entitled to real property tax exemption under the constitution and the law. The petitioner sought relief from the Court of Appeals, which rendered judgment affirming the decision of the CBAA.8 Undaunted, the petitioner filed its petition in this Court contending that: A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS NOT ENTITLED TO REALTY TAX EXEMPTIONS ON THE GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES. B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY TAX EXEMPT UNDER ITS CHARTER, PD 1823, SAID EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON PROPER APPLICATION. The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the 1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it admits paying patients and renders medical services to them, leases portions of the land to private parties, and rents out portions of the hospital to private medical practitioners from which it derives income to be used for operational expenses. The petitioner points out that for the years 1995 to 1999, 100% of its out-patients were charity patients and of the hospitals 282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients. It asserts that the fact that it receives subsidies from the government attests to its character as a charitable institution. It contends that the "exclusivity" required in the Constitution does not necessarily mean "solely." Hence, even if a portion of its real estate is leased out to private individuals from whom it derives income, it does not lose its character as a charitable institution, and its exemption from the payment of real estate taxes on its real property. The petitioner cited our ruling in Herrera v. QC-BAA9 to bolster its pose. The petitioner further contends that even if P.D. No. 1823 does not exempt it from the payment of real estate taxes, it is not precluded from seeking tax exemption under the 1987 Constitution. In their comment on the petition, the respondents aver that the petitioner is not a charitable entity. The petitioners real property is not exempt from the payment of real estate taxes under P.D. No. 1823 and even under the 1987 Constitution because it failed to prove that it is a charitable institution and that the said property is actually, directly and exclusively used for charitable purposes. The respondents noted that in a newspaper report, it appears that graft charges were filed with the Sandiganbayan against the director of the petitioner, its administrative officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and Garden Center, for entering into a lease contract over 7,663.13 square meters of the property in 1990 for only P20,000 a month, when the monthly rental should be P357,000 a month as determined by the Commission on Audit; and that instead of complying with the directive of the COA for the cancellation of the contract for being grossly prejudicial to the government, the petitioner renewed the same on March 13, 1995 for a Page 22 of 327

Tax 2 Cases for FE monthly rental of only P24,000. They assert that the petitioner uses the subsidies granted by the government for charity patients and uses the rest of its income from the property for the benefit of paying patients, among other purposes. They aver that the petitioner failed to adduce substantial evidence that 100% of its out-patients and 170 beds in the hospital are reserved for indigent patients. The respondents further assert, thus: 13. That the claims/allegations of the Petitioner LCP do not speak well of its record of service. That before a patient is admitted for treatment in the Center, first impression is that it is pay-patient and required to pay a certain amount as deposit. That even if a patient is living below the poverty line, he is charged with high hospital bills. And, without these bills being first settled, the poor patient cannot be allowed to leave the hospital or be discharged without first paying the hospital bills or issue a promissory note guaranteed and indorsed by an influential agency or person known only to the Center; that even the remains of deceased poor patients suffered the same fate. Moreover, before a patient is admitted for treatment as free or charity patient, one must undergo a series of interviews and must submit all the requirements needed by the Center, usually accompanied by endorsement by an influential agency or person known only to the Center. These facts were heard and admitted by the Petitioner LCP during the hearings before the Honorable QC-BAA and Honorable CBAA. These are the reasons of indigent patients, instead of seeking treatment with the Center, they prefer to be treated at the Quezon Institute. Can such practice by the Center be called charitable?10 The Issues The issues for resolution are the following: (a) whether the petitioner is a charitable institution within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether the real properties of the petitioner are exempt from real property taxes. The Courts Ruling The petition is partially granted. On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties.11 In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of government.12 It may be applied to almost anything that tend to promote the well-doing and well-being of social man. It embraces the improvement and promotion of the happiness of man.13 The word "charitable" is not restricted to relief of the poor or sick.14 The test of a charity and a charitable organization are in law the same. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage.

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Tax 2 Cases for FE Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions of the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. The raison detre for the creation of the petitioner is stated in the decree, viz: Whereas, for decades, respiratory diseases have been a priority concern, having been the leading cause of illness and death in the Philippines, comprising more than 45% of the total annual deaths from all causes, thus, exacting a tremendous toll on human resources, which ailments are likely to increase and degenerate into serious lung diseases on account of unabated pollution, industrialization and unchecked cigarette smoking in the country;lavvph!l.net Whereas, the more common lung diseases are, to a great extent, preventable, and curable with early and adequate medical care, immunization and through prompt and intensive prevention and health education programs; Whereas, there is an urgent need to consolidate and reinforce existing programs, strategies and efforts at preventing, treating and rehabilitating people affected by lung diseases, and to undertake research and training on the cure and prevention of lung diseases, through a Lung Center which will house and nurture the above and related activities and provide tertiary-level care for more difficult and problematical cases; Whereas, to achieve this purpose, the Government intends to provide material and financial support towards the establishment and maintenance of a Lung Center for the welfare and benefit of the Filipino people.15 The purposes for which the petitioner was created are spelled out in its Articles of Incorporation, thus: SECOND: That the purposes for which such corporation is formed are as follows: 1. To construct, establish, equip, maintain, administer and conduct an integrated medical institution which shall specialize in the treatment, care, rehabilitation and/or relief of lung and allied diseases in line with the concern of the government to assist and provide material and financial support in the establishment and maintenance of a lung center primarily to benefit the people of the Philippines and in pursuance of the policy of the State to secure the well-being of the people by providing them specialized health and medical services and by minimizing the incidence of lung diseases in the country and elsewhere. 2. To promote the noble undertaking of scientific research related to the prevention of lung or pulmonary ailments and the care of lung patients, including the holding of a series of relevant congresses, conventions, seminars and conferences; 3. To stimulate and, whenever possible, underwrite scientific researches on the biological, demographic, social, economic, eugenic and physiological Page 24 of 327

Tax 2 Cases for FE aspects of lung or pulmonary diseases and their control; and to collect and publish the findings of such research for public consumption; 4. To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or awareness, and the development of fact-finding, information and reporting facilities for and in aid of the general purposes or objects aforesaid, especially in human lung requirements, general health and physical fitness, and other relevant or related fields; 5. To encourage the training of physicians, nurses, health officers, social workers and medical and technical personnel in the practical and scientific implementation of services to lung patients; 6. To assist universities and research institutions in their studies about lung diseases, to encourage advanced training in matters of the lung and related fields and to support educational programs of value to general health; 7. To encourage the formation of other organizations on the national, provincial and/or city and local levels; and to coordinate their various efforts and activities for the purpose of achieving a more effective programmatic approach on the common problems relative to the objectives enumerated herein; 8. To seek and obtain assistance in any form from both international and local foundations and organizations; and to administer grants and funds that may be given to the organization; 9. To extend, whenever possible and expedient, medical services to the public and, in general, to promote and protect the health of the masses of our people, which has long been recognized as an economic asset and a social blessing; 10. To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the people in any and all walks of life, including those who are poor and needy, all without regard to or discrimination, because of race, creed, color or political belief of the persons helped; and to enable them to obtain treatment when such disorders occur; 11. To participate, as circumstances may warrant, in any activity designed and carried on to promote the general health of the community; 12. To acquire and/or borrow funds and to own all funds or equipment, educational materials and supplies by purchase, donation, or otherwise and to dispose of and distribute the same in such manner, and, on such basis as the Center shall, from time to time, deem proper and best, under the particular circumstances, to serve its general and non-profit purposes and objectives;lavvphil.net 13. To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties, whether real or personal, for purposes herein mentioned; and Page 25 of 327

Tax 2 Cases for FE 14. To do everything necessary, proper, advisable or convenient for the accomplishment of any of the powers herein set forth and to do every other act and thing incidental thereto or connected therewith.16 Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination. After all, any person, the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity.17 As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution.18 In Congregational Sunday School, etc. v. Board of Review,19 the State Supreme Court of Illinois held, thus: *A+n institution does not lose its charitable character, and consequent exemption from taxation, by reason of the fact that those recipients of its benefits who are able to pay are required to do so, where no profit is made by the institution and the amounts so received are applied in furthering its charitable purposes, and those benefits are refused to none on account of inability to pay therefor. The fundamental ground upon which all exemptions in favor of charitable institutions are based is the benefit conferred upon the public by them, and a consequent relief, to some extent, of the burden upon the state to care for and advance the interests of its citizens.20 As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital Association of South Dakota v. Baker:21 *T+he fact that paying patients are taken, the profits derived from attendance upon these patients being exclusively devoted to the maintenance of the charity, seems rather to enhance the usefulness of the institution to the poor; for it is a matter of common observation amongst those who have gone about at all amongst the suffering classes, that the deserving poor can with difficulty be persuaded to enter an asylum of any kind confined to the reception of objects of charity; and that their honest pride is much less wounded by being placed in an institution in which paying patients are also received. The fact of receiving money from some of the patients does not, we think, at all impair the character of the charity, so long as the money thus received is devoted altogether to the charitable object which the institution is intended to further.22 The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust purposes and cannot be diverted to private profit or benefit.23 Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character as a charitable institution simply because the gift or donation is in the form of subsidies granted by the government. As held by the State Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt Lake County:24 Second, the government subsidy payments are provided to the project. Thus, those payments are like a gift or donation of any other kind except they come from Page 26 of 327

Tax 2 Cases for FE the government. In both Intermountain Health Care and the present case, the crux is the presence or absence of material reciprocity. It is entirely irrelevant to this analysis that the government, rather than a private benefactor, chose to make up the deficit resulting from the exchange between St. Marks Tower and the tenants by making a contribution to the landlord, just as it would have been irrelevant in Intermountain Health Care if the patients income supplements had come from private individuals rather than the government. Therefore, the fact that subsidization of part of the cost of furnishing such housing is by the government rather than private charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise support such an exemption, as they do here.25 In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even incurred a net loss in 1991 and 1992 from its operations. Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.26 As held in Salvation Army v. Hoehn:27 An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and unmistakable terms, or must appear by necessary implication from the language used, for it is a well settled principle that, when a special privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be construed strictly against the property owner and in favor of the public. This principle applies with peculiar force to a claim of exemption from taxation . 28 Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically provides that the petitioner shall enjoy the tax exemptions and privileges: SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-stock corporation organized primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines, all donations, contributions, endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from income and gift taxes, the same further deductible in full for the purpose of determining the maximum deductible amount under Section 30, paragraph (h), of the National Internal Revenue Code, as amended. The Lung Center of the Philippines shall be exempt from the payment of taxes, charges and fees imposed by the Government or any political subdivision or Page 27 of 327

Tax 2 Cases for FE instrumentality thereof with respect to equipment purchases made by, or for the Lung Center.29 It is plain as day that under the decree, the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2: It is a settled rule of statutory construction that the express mention of one person, thing, or consequence implies the exclusion of all others. The rule is expressed in the familiar maxim, expressio unius est exclusio alterius. The rule of expressio unius est exclusio alterius is formulated in a number of ways. One variation of the rule is the principle that what is expressed puts an end to that which is implied. Expressium facit cessare tacitum. Thus, where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to other matters. ... The rule of expressio unius est exclusio alterius and its variations are canons of restrictive interpretation. They are based on the rules of logic and the natural workings of the human mind. They are predicated upon ones own voluntary act and not upon that of others. They proceed from the premise that the legislature would not have made specified enumeration in a statute had the intention been not to restrict its meaning and confine its terms to those expressly mentioned.30 The exemption must not be so enlarged by construction since the reasonable presumption is that the State has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very terms of the statute the favor would be intended beyond what was meant.31 Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus: (3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly and exclusively used for religious, charitable or educational purposes shall be exempt from taxation.32 The tax exemption under this constitutional provision covers property taxes only.33 As Chief Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes."34 Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160 (otherwise known as the Local Government Code of 1991) as follows: SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: ... Page 28 of 327

Tax 2 Cases for FE (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes.35 We note that under the 1935 Constitution, "... all lands, buildings, and improvements used exclusively for charitable purposes shall be exempt from taxation."36 However, under the 1973 and the present Constitutions, for "lands, buildings, and improvements" of the charitable institution to be considered exempt, the same should not only be "exclusively" used for charitable purposes; it is required that such property be used "actually" and "directly" for such purposes.37 In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling in Herrera v. Quezon City Board of Assessment Appeals which was promulgated on September 30, 1961 before the 1973 and 1987 Constitutions took effect.38 As this Court held in Province of Abra v. Hernando:39 Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from taxation." The present Constitution added "charitable institutions, mosques, and non-profit cemeteries" and required that for the exemption of "lands, buildings, and improvements," they should not only be "exclusively" but also "actually" and "directly" used for religious or charitable purposes. The Constitution is worded differently. The change should not be ignored. It must be duly taken into consideration. Reliance on past decisions would have sufficed were the words "actually" as well as "directly" not added. There must be proof therefore of the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be exempt from taxation. Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively."40 If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation.41 The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and the law.42 Solely is synonymous with exclusively.43 What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.44 The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether paying or nonpaying, other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private individual for her business enterprise under the business name "Elliptical Orchids and Garden Center." Indeed, the petitioners evidence shows that it collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees. Page 29 of 327

Tax 2 Cases for FE 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.45 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. IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City Assessor is hereby DIRECTED to determine, after due hearing, the precise portions of the land and the area thereof which are leased to private persons, and to compute the real property taxes due thereon as provided for by law. SO ORDERED. Davide, Jr., Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona, Carpio Morales, Azcuna, and Tinga, JJ., concur.

Footnotes
*

On official leave. On leave.

**

Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate Justices Fermin A. Martin, Jr. and Salvador J. Valdez, Jr. concurring.
2

SECTION 1. CREATION OF THE LUNG CENTER OF THE PHILIPPINES. There is hereby created a trust, under the name and style of Lung Center of the Philippines, which, subject to the provisions of this Decree, shall be administered, according to the Articles of Incorporation, By-Laws and Objectives of the Lung Center of the Philippines, Inc., duly registered (reg. No. 85886) with the Securities and Exchange Commission of the Republic of the Philippines, by the Office of the President, in coordination with the Ministry of Human Settlements and the Ministry of Health.
3

Annex "C," Rollo, p. 49. Annexes "2" & "2-A," id. at 93-94. Annex "D," id. at 50-52. Annex "E," id. at 53-55. Annexes "4" & "5," id. at 100-109. Annex "A," id. at 33-41. 3 SCRA 187 (1961). Rollo, pp. 83-84.

10

Page 30 of 327

Tax 2 Cases for FE

11

See Workmens Circle Educational Center of Springfield v. Board of Assessors of City of Springfield, 51 N.E.2d 313 (1943).
12

Congregational Sunday School & Publishing Society v. Board of Review, 125 N.E. 7 (1919), citing Jackson v. Philipps, 14 Allen (Mass.) 539.
13

Bader Realty & Investment Co. v. St. Louis Housing Authority, 217 S.W.2d 489 (1949).
14

Board of Assessors of Boston v. Garland School of Homemaking, 6 N.E.2d 379. Rollo, pp. 119-120. Id. at 123-125.

15

16

17

Scripps Memorial Hospital v. California Employment Commission, 24 Cal.2d 669, 151 P.2d 109 (1944).
18

Sisters of Third Order of St. Frances v. Board of Review of Peoria County, 83 N.E. 272.
19

See note 12. Id. at 10. 167 N.W. 148 (1918), citing State v. Powers, 10 Mo. App. 263, 74 Mo. 476. Id. at 149. See Obrien v. Physicians Hospital Association, 116 N.E. 975 (1917). 714 P.2d 653 (1986). Id. at 660-661. Commissioner of Internal Revenue v. Court of Appeals, 298 SCRA 83 (1998). 188 S.W.2d. 826 (1945). Id. at 829. Rollo, p. 120. (Underscoring supplied.) Malinias v. COMELEC, 390 SCRA 480 (2002). St. Louis Young Mens Christian Association v. Gehner, 47 S.W.2d 776 (1932). Underscoring supplied. Commissioner of Internal Revenue v. Court of Appeals, supra. Page 31 of 327

20

21

22

23

24

25

26

27

28

29

30

31

32

33

Tax 2 Cases for FE

34

Ibid. Citing II RECORDS OF THE CONSTITUTIONAL COMMISSION 90. Underscoring supplied.

35

36

Article VI, Section 22, par. (3) of the 1935 Constitution provides that, "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from taxation."
37

Article VIII, Section 17, par. (3) of the 1973 Constitution provides that, "Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, and non-profit cemeteries, and all lands, buildings, and improvements actually, directly, and exclusively used for religious or charitable purposes shall be exempt from taxation."
38

3 SCRA 186 (1961). 107 SCRA 105 (1981).

39

40

Young Mens Christian Association of Omaha v. Douglas County, 83 N.W. 924 (1900).
41

St. Louis Young Mens Christian Association v. Gehner, supra. See State ex rel Koeln v. St. Louis Y.M.C.A., 168 S.W. 589 (1914). Lodge v. Nashville, 154 S.W. 141. Christian Business College v. Kalamanzoo, 131 N.W. 553.

42

43

44

45

See Young Mens Christian Association of Omaha v. Douglas County, supra; Martin v. City of New Orleans, 58 Am. 194 (1886).

Page 32 of 327

Tax 2 Cases for FE

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 114231 June 29, 2004 MANILA ELECTRIC COMPANY, petitioner, vs. NELIA A. BARLIS, in her capacity as Officer-in-Charge/Acting Municipal Treasurer of Muntinlupa, substituting EDUARDO A. ALON, former Municipal Treasurer of Muntinlupa, Metro Manila, respondent. RESOLUTION CALLEJO, SR., J.: For the Courts Resolution is petitioner Manila Electric Companys (MERALCO) "Motion for Leave to File Motion for Reconsideration," filed on June 2, 2002 and the attached Motion for Reconsideration of the Resolution of this Court dated April 15, 2002, denying its second motion for reconsideration and ordering that entry of judgment be made in due course,1 as well as its motion for reconsideration dated March 19, 2002. To preface, the above-entitled petition was an off-shoot of the following antecedents: From 1968 to 1972, petitioner MERALCO, a duly-organized corporation in the Philippines engaged in the distribution of electricity, erected four (4) power generating plants in Sucat, Muntinlupa, namely, the Gardner I, Gardner II, Snyder I and Snyder II stations. To equip the power plants, various machineries and equipment were purchased both locally and abroad. When the Real Property Tax Code took effect on June 1, 1974, MERALCO filed its tax declarations covering the Sucat power plants, including the buildings thereon as well as the machineries and equipment.2 In 1976, the Provincial Assessor found that the market value of the machineries amounted to P41,660,220.00, and its assessed value at P33,328,380.00. Later, in 1978, the Municipal Assessor assessed the value of the machineries and equipment at P36,974,610.00. From 1975 to 1978, MERALCO paid the real property taxes on the said properties on the basis of their assessed value as stated in its tax declarations. On December 29, 1978, MERALCO sold all the power-generating plants including the landsite to the National Power Corporation (NAPOCOR), a corporation fully owned and controlled by the Philippine government. In 1985, the Municipal Assessor of Muntinlupa, while reviewing records pertaining to assessment and collection of real property taxes, discovered, among others, that MERALCO, for the period beginning January 1, 1976 to December 29, 1978, misdeclared and/or failed to declare for taxation purposes a number of real properties consisting of several equipment and machineries found in the said power plants. A review of the Deed of Sale which MERALCO executed in favor of NAPOCOR Page 33 of 327

Tax 2 Cases for FE when it sold the power plants to the latter convinced the municipal government of Muntinlupa that the true value of the machineries and equipment was misdeclared/undeclared. The Municipal Assessor of Muntinlupa, on his own, then determined and assessed the value3 of the subject properties for taxation purposes from 1977 to 1978 under Tax Declarations Nos. T-009-05486 to T05506, viz: TAX DECL. ASSESSED VALUE

B-009-05495 P 68,208,610.00 (1977-1978) B-009-0496 P 62,524,550.00 (1978)

B-009-05486 P102,088,300.00 (1978) B-009-05490 P 79,881,420.00 (1977-1978) B-009-05491 P 74,555,990.00 (1978) B-009-05494 P 73,892,660.00 (1976-1978) B-009-05501 P 86,874,490.00 (1976-1978) B-009-05502 P 81,082,860.00 (1977-1978) B-009-05503 P 75,291,220.00 (1978)4 The matter of collection of the tax due and the enforcement of the remedies provided for in Presidential Decree No. 464 was then referred to the Municipal Treasurer, conformably to Section 57 thereof.5 Thereafter, on September 3, 1986, the Municipal Treasurer of Muntinlupa issued three notices to MERALCO, requesting it to pay the full amount of the claimed deficiency in the real property taxes covering the machinery and equipment found in the said power plants.6 He warned the taxpayer that its properties could be sold at public auction unless the tax due was paid. Still, MERALCO did not pay the assessed tax, nor take steps to question the tax assessed as contained in the said notices. The Municipality of Muntinlupa then sought the assistance of the Bureau of Local Government Finance-Department of Finance (BLGF-DOF) for the collection of the tax due from MERALCO. On August 14, 1989, the BLGF-DOF issued a Letter-Indorsement7 declaring that the properties of MERALCO were not used in a new and preferred industry, hence, taxable from 1976 up to but not beyond December 31, 1978, the year the properties were acquired by NAPOCOR. The municipal treasurer was directed, in the same letter, to inform the BLGF-DPF of any recent action taken by MERALCO on the collection letter dated September 3, 1986. On the basis thereof, the Municipal Treasurer of Muntinlupa, in a Letter8 dated October 31, 1989, reminded MERALCO of its deficiency Page 34 of 327

Tax 2 Cases for FE tax liability, demanded the immediate payment of the amount of P36,432,001.97 as unpaid real property taxes inclusive of penalties and accrued interest, and reiterated its warning that its properties may be sold at public auction if it failed to pay the taxes due. Subsequently, the Municipality of Muntinlupa, through its Municipal Treasurer, sent MERALCO another Letter9 dated November 20, 1989, reiterating its previous demands for tax payment. Attached to the latter was the computation of the taxes due. Still, no payment was made. Accordingly, after issuing the requisite certification of non-payment of real property taxes and complying with the additional requirement of public posting of the notices of delinquency, the Municipal Treasurer issued, on October 4, 1990, Warrants of Garnishment10 ordering the attachment of MERALCOs bank deposits with the Philippine Commercial and Industrial Bank (PCIB), Metropolitan Bank and Trust Company (METROBANK) and the Bank of the Philippine Islands (BPI) to the extent of its unpaid real property taxes. On October 10, 1990, MERALCO filed before the Regional Trial Court (RTC) of Makati a Petition for Prohibition with Prayer for Writ of Preliminary Mandatory Injunction and/or Temporary Restraining Order (TRO) praying, among others, that a TRO be issued to enjoin the Municipal Treasurer of Muntinlupa from enforcing the warrants of garnishment. The petitioner therein alleged, inter alia, that it had paid the real property taxes on its properties from 1975 to 1978 in full, based on the assessed value thereof, as well as the taxes on the machineries and equipment, based on their appraisal value as determined by the Provincial Assessor. According to the petitioner, the collection letters of the municipal assessor for real property taxes amounting to P36,432,001.97 was made arbitrarily and without legal authority, for the following reasons: (a) in times of rising cost, especially of imported machinery and equipment such as those installed at the Sucat Power Plants, the prices of articles several years after their acquisition would be very much higher; (b) the respondent could not levy additional real estate taxes without a prior re-appraisal of the property and an amendment of the tax declaration; and, (c) assuming arguendo that there was such a re-appraisal made, and a new tax declaration issued, such re-appraisal should operate prospectively and not retroactively as was done in this case.11 According to the petitioner, the respondent had no authority to distrain its personal property not found in the real property subject of the delinquent real estate taxes, the authority of respondent being limited to those found in the real property subject of the delinquent real estate taxes.12 The petitioner further averred that real estate tax is a tax on real property; as such, any tax delinquency on property should follow the present owner, in this case, the National Power Corporation. The petitioner further claimed that the alleged delinquent real estate taxes claimed by respondent as shown in the annex to the Notice of Garnishment,13 were arrived at by taxing the same property twice, and, in one case, even three times; by evaluating the property based on the selling price of the machineries and equipment rather than the actual acquisition cost; by taxing, as undeclared machineries, items that were already declared by the petitioner in 1974; and, by including the value of the land and other tax-exempt property in the computation of the alleged deficiency tax. Even assuming that it was liable for the real property tax delinquency, the petitioner asserted that the collection of the said amount had already prescribed. The petitioner later filed an Amended Petition alleging as follows: 12. To further pursue his unjustified aims, respondent issued three Warrants of Garnishment against petitioners bank deposits with the Philippine Commercial International Bank, Metropolitan Bank and Trust Company, and Bank of the Philippine Islands which required the said Banks to turn over to petitioner all the

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Tax 2 Cases for FE garnished amount, copies of which are attached hereto as Annexes "E," "F," and "G."14 The trial court issued a TRO which, after the hearing on the injunctive aspect of the case, was modified to the effect that the warrants of garnishment against the bank accounts would be in full force and effect, provided that the Municipal Treasurer would not, in the meantime, collect, receive or withdraw the frozen bank deposits. MERALCO was also allowed therein to withdraw from the frozen deposits, provided that it would not leave a balance less than the tax claim of the Municipality of Muntinlupa. For its part, the Municipal Treasurer filed a Motion to Dismiss15 on the following grounds: (a) lack of jurisdiction, since under Sec. 64 of the Real Property Tax Code, courts are prohibited from entertaining any suit assailing the validity of a tax assessed thereunder until the taxpayer shall have paid, under protest, the tax assessed against him; and (b) lack of cause of action, by reason of MERALCOs failure to question the notice of assessment issued to it by the Municipality of Muntinlupa before the Local Board of Assessment Appeals. MERALCO opposed the motion, contending that it was the NAPOCOR that was liable for the taxes being collected by the Municipal Treasurer, and that the right to collect such taxes had already prescribed under Section 25 of P.D. No. 464. In its June 17, 1991 Order, the trial court denied the said motion, ratiocinating that since MERALCO was not the present owner or possessor of the properties in question, it was not the "taxpayer" contemplated under Section 64 of the Tax Code: After careful examination of the grounds and arguments of the motion to dismiss and the opposition thereto, the Court is of the view that the petitioner in this case, the Manila Electric Company, is not the "taxpayer" contemplated under Section 64 of the Tax Code. For as rightly argued by the petitioner, the tax due on the property constitutes a lien thereto which lien shall be enforceable against the property whether in the possession of the delinquent or any subsequent owner or possessor. In the case at bar, it is undisputed that the present owner or the possessor of the property in question is not the petitioner Manila Electric Company but the National Power Corporation.16 The trial court no longer delved into and resolved the issue of whether the petitioners action was premature. On a Petition for Certiorari filed before the Supreme Court, later endorsed to the Court of Appeals,17 the Municipal Treasurer of Muntinlupa assailed the June 17, 1991 Order of the RTC alleging that MERALCO was the taxpayer liable for the tax due and the penalties thereon; that despite receipt by it of the 1985 notice of assessment from the Municipal Assessor, it failed to appeal therefrom and, as such, the assessment had become final and enforceable; and, that MERALCO was proscribed from filing its petition assailing the assessment. In its answer to the petition, MERALCO denied having received a notice of assessment from the Municipal Treasurer, but admitted to having received collection letters. On August 11, 1993, the Court of Appeals, in its Decision, granted the petition and declared the assailed order "void and without life in law, having been issued without jurisdiction, on a petition that further does not state a sufficient cause of action, filed by a party who had not exhausted available administrative remedies."18 The CA ruled that MERALCO was the taxpayer liable for the taxes due, and that it was barred under Section 64 of P.D. No. 464 from assailing the 1986 Page 36 of 327

Tax 2 Cases for FE assessment of the Municipal Assessor for its failure to appeal therefrom. MERALCO moved for a reconsideration of the Decision, which the CA denied for lack of merit in a Resolution19 dated February 28, 1994. On further recourse to this Court via a petition for review on certiorari under Rule 45, the petitioner alleged, inter alia, that the Court of Appeals erred in applying Section 64 of the Real Property Tax Code for the following reasons: (a) the petitioner was not the taxpayer for the purpose of an assessment under the Real Property Tax Code; and, (b) no assessment was made by the respondent, and only collection letters were sent to it; hence, Section 30 of the said Code had no application. The petitioner also alleged that its petition stated a sufficient cause of action for prohibition against the petitioner. Thus: Respondent Alon committed a grave mistake in going after MERALCO. He should have first asked the registered owner to explain the difference between the original assessment and the purchase price of the plant. Then he should have asked for a revision of the assessment and thereafter serve the notice of assessment on the new owner. Respondent cannot use MERALCO as a scapegoat for his errors. Moreover, as the PETITION FOR PROHIBITION states, the Municipal Treasurer made an erroneous conclusion as to the application of the valuation of the properties. The Real Property Tax Code provides that "real property shall be appraised at its current and fair market value." (Sec. 2, Pres. Decree No. 469). As a rule, the market value is that "highest price estimated in terms of money which the property will buy if exposed for sale in the open market x x x" (Sec. 3 [n], ibid). But in appraising machineries, the following provision applies: The current market value of machinery shall be determined on the basis of the original cost in the case of newly acquired machinery not yet depreciated and is appraised within the year of its purchase. In the case of all others, the current market value shall be determined by dividing the remaining economic life of the machinery by its economic life and multiplied by the replacement or reproduction cost (new) of said machinery. "If the machinery is imported, replacement or reproduction cost shall be the original acquisition cost which would normally include such costs as flight and insurance charges, brokerage, arrastre and handling, customs duties and taxes plus cost of inland transportation and handling, and significant installation charges at the present side." (Sec. 28, ibid). The land, building and machinery and equipment constituting the three power plants were sold to NAPOCOR in 1979. Instead of confronting to the above formula, respondent Alon merely assumed that the 1979 purchase price of the land and machinery would be the same value for the years 1976 to 1978. On the fact alone, he has erred in the appraisal of the machineries. His action is glaringly iniquitous in the light of the economic reality that immovables constantly appreciate in value. Likewise, he did not take into consideration the fact that the foreign currency exchange rate on the imported equipment at the time of the sale was very much Page 37 of 327

Tax 2 Cases for FE higher than the exchange rate at the time of original purchase. It is of judicial notice that when the peso depreciated in value, the cost of cars rapidly escalated. Thus, a second-hand car fetched a price double that of its original cost. The same is true in the instant case. The replacement cost of the machineries and equipment herein was more than their original cost, which replacement cost was made the basis of the purchase price between NAPOCOR and MERALCO. The tax declaration, meanwhile, reflected the actual cost and value of the machineries at the time they were originally purchased by MERALCO. Furthermore, the Real Property Tax Code itself provides for the prospective application of assessment and reassessments, thus "Sec. 24. Date of effectivity of assessment or reassessments All assessments or reassessments made after the first day of January or any year shall take effect on the first day of January of the succeeding year x x x." Taxes, moreover, levied on real estate for general revenue purposes are not enforceable as a personal liability of the owner, but a charge upon the real estate assessed, to be enforced and collected by a sale of property liable for the taxes so levied and assessed (Philadelphia Mortgage & Trust Co. v. City of Omaha, 63 Neb. 280, 88 NW 523; Grant v. Bartholomew, 57 Neb 673, 78 NW 314; Carman v. Harris, 85 NW 848; State of Montana Ex. Rel. Tillman v. District Court, 103 ALR 376). This principle is currently embodied in our own Real Property Tax Code, to wit: "The real property tax for any year shall attach and become due and payable on the first day of January and from the same date said tax and all penalties subsequently accruing thereto shall constitute a lien upon the property subject to such tax. Said lien shall be x x x enforceable against the property whether in the possession of the delinquent or any subsequent owner or possessor, and shall be removable only by the payment of the delinquent taxes and penalties." (Sec. 56, op. Cit., underscoring supplied). If indeed there is any tax due on the realty involved herein, Respondent Alon should therefore go against the real property involved herein, i.e., the Sucat Power Plant, and the personal property attached thereto, which have become immobilized by attachment. Even assuming arguendo that MERALCO is the "taxpayer," Respondent Alon has no right or the authority to attach personal property that is not located in the said realty, most especially the funds of MERALCO presently deposited with local banks. Regrettably, the respondent Court of Appeals did not even give petitioner MERALCO an opportunity to be heard on the foregoing. Instead, it ordered the dismissal of the PETITION FOR PROHIBITION.20 In his Comment on the Petition, the respondent alleged that the petitioner was furnished with a notice of assessment on November 19, 1985, and appended a receipt stressing the signature of one Basilio Afuang.21 The Court promulgated its Decision22 on May 18, 2001, denying due course to the petition and affirming the decision of the appellate court. The dispositive portion of the decision reads: Page 38 of 327

Tax 2 Cases for FE WHEREFORE, the 11 August 1993 Decision of the Court of Appeals declaring as void the 17 June 1992 Order of the Regional Trial Court is hereby AFFIRMED. The appellate courts 28 February 1994 Resolution denying petitioners motion for reconsideration of its subject Decision is likewise AFFIRMED. SO ORDERED.23 The Court held that the appellate court correctly ruled that the Regional Trial Court of Makati, Branch 66, had no jurisdiction to entertain the petition for prohibition filed by the petitioner because the latter failed to first pay under protest the deficiency taxes assessed against it, as required under Section 6424 of P.D. No. 464.25 The Court stated that the Notices sent by the respondent to the petitioner dated September 3, 1986 and October 31, 1989 were in the nature of tax assessments; hence, the petitioner should have paid under protest the deficiency tax assessed against it. The Court also ruled that contrary to the petitioners contention, the RTC could not take cognizance of its petition for prohibition, as it was, in truth, assailing the validity of the tax assessment and collection. The Court ratiocinated that to fully resolve the petition for prohibition, the trial court would not only have to rule on the validity of the warrants of garnishment, but also on the issues relating to the assessment and collection of the deficiency taxes. It further declared that the filing of the petition for prohibition would be for no other reason than to forestall the collection of deficiency taxes on the basis of the tax assessment arguments. It emphasized that the petitioner could not file a petition for certiorari and prohibition without first resorting to the proper administrative remedies, and by paying under protest the tax assessed, to allow the court to assume jurisdiction over the petition.26 The Court also ruled that the garnishment of the petitioners bank deposits was proper and regular, since the respondent was not limited to the remedy of selling the delinquent real property. It agreed with the contention of the respondent that it could, likewise, avail of the remedies of distraint and levy of the petitioners personal property and the collection of the real property tax through ordinary court action. Hence, the respondents availment of the remedy of distraint and levy on the petitioners bank deposits was in accord with case law. The Court declared that there was nothing illegal about exercising this option, since bank deposits are not among those properties exempt from execution under the Revised Rules of Court or under the Real Property Tax Code.27 The petitioner received a copy of this Courts Decision on June 18, 2001 and filed, on July 3, 2001, a motion for reconsideration thereon. The petitioner argued that the notices issued by the Municipal Treasurer of Muntinlupa were not notices of assessment envisaged in Section 3 of P.D. No. 464.28 The petitioner pointed out that the said notices did not contain the assessors findings regarding the kind of real estate, area, unit value, market value, actual use and assessment level; and, in the case of the machinery attached to the land, the description of the machinery, date of operation, original cost, depreciation, market value and assessment level. Hence, the said notices could not be used as bases for filing an appeal to the Local Board of Assessment Appeals under Section 3029 of the Real Property Tax Code, which clearly adverts to a written notice of assessment. Thus, the petitioner contended, it could not be required to avail of the prescribed administrative remedies in protesting an erroneous tax assessment under the said Code.30 On February 1, 2002, the Court issued a Resolution denying with finality the petitioners motion for reconsideration.31 The Court, however, reversed its ruling that the notices sent by the respondent to the petitioner were notices of assessment. It categorically stated that the notices were, in fact, notices of collection.

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Tax 2 Cases for FE Additionally, the Court declared that a question of fact had been raised before it, since the petitioner denied having received any notice of assessment from the Municipal Assessor and collection letters from the respondent: As there has been no apparent admission by petitioner that it had received the 1985 tax assessment notices allegedly sent by respondent Municipal Treasurer, and because we have found that the records are bereft of evidence showing actual receipt by petitioner of the real property tax declaration allegedly sent by the Municipal Assessor, We are thus compelled to declare that a question of fact has been raised before this Court: On the one hand, said respondent claims that, aside from the September 3, 1986 and October 31, 1989 notices, he had transmitted to petitioner tax assessment notices in the form of real property tax declarations in November of 1985. On the other hand, petitioner denies having received any tax assessment notice from said respondent prior to receipt of the notices of collection. Whether or not a tax assessment had been made and sent to the petitioner prior to the collection of back taxes by respondent Municipal Treasurer is of vital importance in determining the applicability of Section 64 of the Real Property Tax Code inasmuch as payment under protest is required only when there has in fact been a tax assessment, the validity of which is being questioned. Concomitantly, the doctrine of exhaustion of administrative remedies finds no application where no tax assessment has been made.32 The foregoing notwithstanding, the Court ruled against a remand of the case to the trial court, ratiocinating as follows: The Petition for Review on Certiorari of petitioner before us raises the same grounds which petitioner relies upon in its Petition for Prohibition before the trial court that the respondent Municipal Treasurer arbitrarily and despotically issued the writ of garnishment against petitioners funds, to wit: 1) The petitioner is not the taxpayer contemplated by the Real Property Tax Code for purposes of an assessment; 2) There was no assessment made prior to the collection of back taxes thereby rendering irregular the collection of taxes by the respondent; and 3) Respondent cannot garnish petitioners funds for the satisfaction of delinquent taxes. His remedy is merely to levy upon the real property subject of the tax pursuant to the legal principle that unpaid real property taxes constitute a lien upon the real property subject to back taxes. By the parties own doing, all the issues that bear upon the propriety of the issuance of the warrants of garnishment against petitioners bank deposits for the collection of back taxes have been raised before this Court in its Petition for Review on Certiorari and properly resolved in favor of respondent Municipal Treasurer. In resolving all those issues presented before us by petitioner, we have, in effect, resolved petitioners amended petition for prohibition filed before the trial court. In other words, we have already decided that said respondent did not act arbitrarily and despotically in garnishing petitioners funds. Hence, should the trial court find that there has indeed been a prior assessment, petitioners petition for prohibition would be dismissed for failure to pay under protest and to exhaust administrative remedies. However, a finding by the trial court that there was no tax assessment made prior to the collection of taxes would render inapplicable the requirement of paying under protest and exhausting administrative Page 40 of 327

Tax 2 Cases for FE remedies by first appealing to the LBAA before the trial court takes cognizance of petitioners petition for prohibition. Unfortunately therefore, even if the trial court can assume jurisdiction over the said petition for prohibition, there is nothing substantial left for it to do.33 The petitioner received, on March 4, 2002, a copy of this Courts Resolution dated February 1, 2002. Entry of judgment was made of record on March 6, 2002.34 On March 19, 2002, the petitioner filed a "Motion for Reconsideration of the Resolution Promulgated on February 1, 2002 or Motion to Admit the Second Motion for Reconsideration Herein Incorporated of the Decision," in view of the Courts pronouncements in its February 1, 2002 Resolution that the petitioner was not furnished with any notice of assessment; that the notices sent by the respondent to the petitioner were merely collection letters and not notices of assessment; and, that questions of fact were raised before the Court. The petitioner insisted that conformably with its new findings, the Court should have reversed the Decision of the Court of Appeals dated August 11, 1993 and its Resolution dated February 28, 1994, and remanded the case to the trial court for further proceedings. The petitioner argued that the Courts new findings were inconsistent with its denial of its motion for reconsideration. The petitioner prayed that: WHEREFORE, petitioner respectfully prays that the Decision promulgated on May 18, 2001 and the Resolution promulgated on February 1, 2002 be reconsidered and set aside and a new one issue reversing the Decision of the Honorable Court of Appeals dated August 11, 1993 and its Resolution dated February 28, 1994 and remanding this case to the trial court for further proceedings.35 Instead of resolving the petitioners March 19, 2002 motion for reconsideration on its merits, the Court, in a Resolution36 dated April 15, 2002, merely noted without action the said motion, directed that Entry of Judgment be made in due course and stated that no further pleadings shall be entertained in relation to the case. The Court treated the March 19, 2002 motion for reconsideration of the petitioner as a prohibited pleading. Undaunted, the petitioner filed, on June 2, 2002, a motion for leave to file a motion for reconsideration of the April 15, 2002 Resolution, appending thereto its motion for reconsideration. It contended that after the Court held in its February 1, 2002 Resolution that the September 3, 1986 and October 31, 1989 notices sent by the respondent to the petitioner were notices of collection, thus, justifying its conclusion that Section 614 of P.D. No. 464 was not applicable, the Court should have ordered the case remanded to the trial court for further proceedings. The petitioner argued that since the Court made findings in its February 1, 2002 Resolution contrary to those findings in its May 18, 2001 Decision, it should be allowed to seek a reconsideration of the said resolution.37 In the meantime, in view of the entry of judgment made in the case, the Equitable PCI Bank, one of the petitioners depository banks, was requested by the respondent, on June 20, 2002, to release to the latter the garnished funds of the petitioner in the amount of P36,432,001.97, pursuant to the October 4, 1990 Warrant of Garnishment served on the bank on October 8, 1990.38 The petitioner, however, in a Letter dated June 24, 2002,39 requested the same bank to defer the release of the garnished funds, and forthwith filed before the Court on June 28, 2002 an "Urgent Motion For The Recall Of The Entry Of Judgment,"40 in view of the pendency of its motion for reconsideration before the Court. Hence, on July 2, 2002, Equitable PCI Bank filed a "Motion For Clarification,"41 praying that it be given appropriate guidance relative to the respondents implementation of the warrant of garnishment, vis--vis the petitioners motion for reconsideration pending before the Court.

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Tax 2 Cases for FE On October 1, 2003, the Court resolved to refer the pending incidents to the Court En Banc for resolution. The Issues The petitioner presented two issues in its motions dated March 19, 2002 and June 2, 2002, viz: (a) whether the entry of judgment made of record by the Clerk of Court of this Court on March 6, 2002 should be recalled and the petitioner granted leave to file its motion for reconsideration; and, (b) whether the Courts May 18, 2001 Decision should be set aside and the case remanded to the trial court for further proceedings, in view of the factual findings contained in the Courts February 1, 2002 Resolution. On the first issue, the petitioner asserts that the entry of judgment made of record by this Court on March 6, 2002 was premature. It argues that it had the right to file a motion for the reconsideration of the February 1, 2002 Resolution of this Court, considering that while the material findings in the instant case were reversed, the petitioners motion for reconsideration was altogether denied. The petitioner avers that it should not be prevented from moving for a rectification of this Courts inconsistent stance, and submits that the Courts Resolution of February 1, 2002 denying with finality its July 3, 2001 motion for reconsideration was premature, hence, inefficacious. The Ruling of the Court The contention of the petitioner is meritorious. Section 1, Rule 52 of the Rules of Court, provides that a motion for reconsideration of a decision may be filed within fifteen days from notice thereof. Under Section 10, Rule 51, if no appeal or motion for new trial or reconsideration is filed within the time provided in the Rules, the judgment shall forthwith be entered by the clerk in the book of entries of judgments. Section 2, Rule 52 further provides that no second motion for reconsideration of a judgment or final resolution by the same party shall be entertained. Indeed, in Ortigas and Company Limited Partnership vs. Velasco,42 we held that a second motion for reconsideration of a decision or a final order is prohibited, except for extraordinarily persuasive reasons and only upon express leave first obtained. We explained, thus: The propriety or acceptability of such a second motion for reconsideration is not contingent upon the averment of "new" grounds to assail the judgment, i.e., grounds other than those theretofore presented and rejected. Otherwise, attainment of finality of a judgment might be staved off indefinitely, depending on the partys ingeniousness or cleverness in conceiving and formulating "additional flaws" or "newly discovered errors" therein, or thinking up some injury or prejudice to the rights of the movant for reconsideration. "Piece-meal" impugnation of a judgment by successive motions for reconsideration is anathema, being precluded by the salutary axiom that a party seeking the setting aside of a judgment, act or proceeding must set out in his motion all the grounds therefor, and those not so included are deemed waived and cease to be available for subsequent motions. For all litigation must come to an end at some point, in accordance with established rules of procedure and jurisprudence. As a matter of practice and policy, courts must dispose of every case as promptly as possible; and in fulfillment of their role in the

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Tax 2 Cases for FE administration of justice, they should brook no delay in the termination of cases by stratagems or maneuverings of parties or their lawyers...43 The foregoing rule has no application in this case. It bears stressing that this Court, in its May 18, 2001 Decision, affirmed the ruling of the Court of Appeals that the petitioner had no cause of action against the respondent. Thus, the appellate courts finding, that the petitioner received a notice of assessment from the respondent notwithstanding which it failed to appeal in due course from the same, was upheld; hence, the petitioner was barred from filing a petition for prohibition in the trial court under Section 64 of P.D. No. 464. This Court also ruled that the respondents Letters dated September 3, 1986 and October 31, 1989 received by the petitioner were notices of assessment and not mere collection letters. The Court concluded that the bank deposits of the petitioner may, thus, be garnished by the respondent under P.D. No. 464. However, in its February 1, 2002 Resolution, the Court reversed its findings and ruled that the petitioner was not served with any notice of assessment as required by law, and that the respondents Letters of September 6, 1985 and October 31, 1983 were collection letters, receipt of which was denied by the petitioner. The Court, thus, held that there was a need to remand the case to the lower court in order to resolve the factual issue of whether or not the respondent, indeed, served a notice of assessment on the petitioner. The Court, however, also ruled that there was no longer a need to remand the case to the trial court. In light of the supervening findings of this Court in its February 1, 2002 Resolution which are inconsistent with its ruling in its May 18, 2001 Decision, and the disposition of the petition on its merits, the Court now rules that the petitioner had the right to file a motion for reconsideration thereon. Consequently, the entry of judgment made of record on March 6, 2002 was premature and inefficacious, and should be recalled. Anent the second issue, this Court, upon a meticulous review of the records of the case, finds that the Court of Appeals erred in granting the respondents petition for a writ of certiorari. In People vs. Court of Appeals, et al.,44 this Court ruled that the public respondent acts without jurisdiction if it does not have the legal power to determine the case; there is excess of jurisdiction where the respondent, being clothed with the power to determine the case, oversteps its authority as determined by law. There is grave abuse of discretion where the public respondent acts in a capricious, whimsical, arbitrary or despotic manner in the exercise of its judgment as to be said to be equivalent to lack of jurisdiction.45 Mere abuse of discretion is not enough. In a petition for certiorari, the jurisdiction of the court is narrow in scope. It is limited to resolving only errors of jurisdiction. Errors of judgment of the trial court are to be resolved by the appellate court in the appeal by writ of error, or via a petition for review on certiorari in this Court under Rule 45 of the Rules of Court. Certiorari will issue only to correct errors of jurisdiction. It is not a remedy to correct errors of judgment.46 An error of judgment is one in which the court may commit in the exercise of its jurisdiction, and which error is reversible only by an appeal. Error of jurisdiction is one where the act complained of was issued by the court without or in excess of jurisdiction, and which error is correctible only by the extraordinary writ of certiorari.47 As long as the court acts within its jurisdiction, any alleged errors committed in the exercise of its discretion will amount to nothing more than mere errors of judgment, correctible by an appeal or a petition for review under Rule 45 of the Rules of Court.48

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Tax 2 Cases for FE This Court finds and so rules that the RTC committed grave abuse of discretion amounting to excess or lack of jurisdiction in declaring that the petitioner is not the taxpayer liable for the taxes due claimed by the private respondent. Indeed, in its May 18, 2001 Decision,49 this Court ruled: The fact that NAPOCOR is the present owner of the Sucat power plant machineries and equipment does not constitute a legal barrier to the collection of delinquent taxes from the previous owner, MERALCO, who has defaulted in its payment. In Testate Estate of Concordia T. Lim vs. City of Manila, the Court held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. In that case, the Court declared that to impose the real property tax on the subsequent owner which was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust.50 However, the Court holds that the RTC did not commit any grave abuse of discretion when it denied the respondents motion to dismiss on the claim that for the petitioners failure to appeal from the 1986 notice of assessment of the Municipal Assessor, the assessment had become final and enforceable under Section 64 of P.D. No. 464. Section 22 of P.D. No. 464 states that, upon discovery of real property, the provincial, city or municipal assessor shall make an appraisal and assessment of such real property in accordance with Section 5 of the law, irrespective of any previous assessment or taxpayers valuation thereon. The provincial, city or municipal assessor is tasked to determine the assessed value of the property, meaning the value placed on taxable property for ad valorem tax purposes. The assessed value multiplied by the tax rate will produce the amount of tax due. It is synonymous to taxable value. An assessment fixes and determines the tax liability of a taxpayer.51 It is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof.52 The assessor is mandated under Section 27 of the law to give written notice within thirty days of such assessment, to the person in whose name the property is declared.53 The notice should indicate the kind of property being assessed, its actual use and market value, the assessment level and the assessed value. The notice may be delivered either personally to such person or to the occupant in possession, if any, or by mail, to the last known address of the person to be served, or through the assistance of the barrio captain. The issuance of a notice of assessment by the local assessor shall be his last action on a particular assessment.54 For purposes of giving effect to such assessment, it is deemed made when the notice is released, mailed or sent to the taxpayer.55 As soon as the notice is duly served, an obligation arises on the part of the taxpayer to pay the amount assessed and demanded.56 If the taxpayer is not satisfied with the action of the local assessor in the assessment of his property, he has the right, under Section 30 of P.D. No. 464, to appeal to the Local Board of Assessment Appeals by filing a verified petition within sixty (60) days from service of said notice of assessment. If the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due becomes absolute upon the expiration of such period, with respect to the taxpayers property.57 The action to collect the taxes due is akin to an action to enforce a judgment.58 It bears stressing, however, that Section 30 of P.D. No. 464 pertains to the assessment and valuation of the property for purposes of real estate taxation. Such provision does not apply where what is questioned is the imposition of the tax assessed and who should shoulder the burden of the tax.59 Conformably to Section 57 of P.D. No. 464, it is the local treasurer who is tasked with collecting taxes due from the taxpayer. The said provision reads: Page 44 of 327

Tax 2 Cases for FE SEC. 57. Collection of tax to be the responsibility of treasurers. The collection of the real property tax and all penalties accruing thereto, and the enforcement of the remedies provided for in this Code or any applicable laws, shall be the responsibility of the treasurer of the province, city or municipality where the property is situated. The duty of the local treasurer to collect the taxes commences from the time the taxpayer fails or refuses to pay the taxes due, following the latters failure to question the assessment in the Local Board of Assessment Appeals and/or to the Central Board of Assessment Appeals. This, in turn, renders the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits.60 In this case, the petitioner denied receiving copies of Tax Declarations Nos. B-009-5501 to B-0095494 prepared by the respondent Municipal Assessor in 1985. In the face of the petitioners denial, the respondent was burdened to prove the service of the tax declarations on the petitioner.61 While the respondent alleged in his Comment on the Petition at bar that the Municipal Assessor furnished the petitioner with copies of the said tax declarations on November 29, 1985, the only proof proferred by the respondent to prove such claim was the receipt signed by a certain Basilio Afuang dated November 29, 1985.62 The records failed to show the connection of Basilio Afuang to the petitioner, or that he was authorized by the petitioner to receive the owners copy of the said tax declaration from the Office of the Municipal Assessor. We note that the respondent even failed to append a copy of the said receipt in its motion to dismiss in the trial court. Conformably, this Court, in its May 18, 2001 Decision,63 declared as follows: The records, however, are bereft of any evidence showing actual receipt by petitioner of the real property tax declaration sent by the Municipal Assessor. However, the respondent in a Petition for Certiorari (G.R. No. 100763) filed with this Court which later referred the same to the Court of Appeals for resolution, narrated that "the municipal assessor assessed and declared the afore-listed properties for taxation purposes as of 28 November 1985." Significantly, in the same petition, respondent referred to former Municipal Treasurer Norberto A. San Mateos notices to MERALCO, all dated 3 September 1986, as notices of assessment and not notices of collection as it claims in this present petition. Respondent cannot maintain diverse positions.64 The question that now comes to fore is, whether the respondents Letters to the petitioner dated September 3, 1986 and October 31, 1989, respectively, are mere collection letters as contended by the petitioner and as held by this Court in its February 1, 2002 Resolution; or, as claimed by the respondent and as ruled by this Court in its May 18, 2001 Decision, are notices of assessment envisaged in Section 27 of P.D. No. 464. The September 3, 1986 notice/letter65 of the respondent to the petitioner reads: "G/Gng. MANILA ELECTRIC CO. Ortigas Avenue, Pasig Metro Manila Mahal na G./Gng.

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Tax 2 Cases for FE Ipinababatid po namin sa inyo na ayon sa talaan ng aming tanggapan, ang buwis sa mga ari-arian na nakatala sa inyong pangalan ay hindi pa nakakabayad tulad ng nasasaad sa ibaba: Tax. Decl. No. Location Assessment B-009-05501 -05502 -05503 -05504 Sucat - do - do - do Year Tax Due Penalty Total 2,171,862.25 2,027,071.50 1,882,280.50 2,024,462.50 2,024,462.50 2,024,462.50

P86,874,490 1976 ... 81,082,860 75,291,220 80,978,500. 1977 1978 1979 1980 1981

TOTAL - - - - - P ___________CONT. BELOW__________ Inaasahan po namin na di ninyo ipagwawalang bahala ang patalastas na ito at ang pagbabayad ng nabanggit na buwis sa lalong madaling panahon. Ipinaaala-ala po lamang ang sino mang magpabaya o magkautang ng buwis ng maluwat ay isusubasta (Auction Sale) ng Pamahalaan ang inyong ariarian ng naaayon sa batas. Subalit kung kayo po naman ay bayad na, ipakita po lamang ang katibayan sa pagbabayad (Official Receipt) at ipagwalang bahala ang patalastas na ito. Lubos na gumagalang, (Sgd.) NORBERTO A. SAN MATEO Ingat-Yaman Pambayan66 The October 31, 1989 notice/letter of the respondent to the petitioner, on the other hand, reads: Gng. MANILA ELECTRIC COMPANY Sucat Mahal na G./Gng. Ipinababatid po namin sa inyo na ayon sa talaan ng aming tanggapan, ang buwis sa mga ari-arian na nakatala sa inyong pangalan ay hindi nakabayad tulad ng nasasaad sa ibaba: TAX DECL ASSESSED LOCATION NO. VALUE 05495Sucat 68,208,610.00 Mach. 05496- do - 62,524,550.00 Mach. YEAR TAX DUE PENALTY TOTAL

19773,410,430.50 818,503.32 4,228,933 78 1978 1,563,113.75 375,147.30 1,938,261 Page 46 of 327

Tax 2 Cases for FE 05486- do Mach. 05490- do Mach. 05491- do Mach. 05494- do Mach. GRAND TOTAL

102,088,300.00 1978 78,881,420.00 74,555,990.00 73,892,660.00

2,552,200.50 612,529.80 1,164,737

19771,997,035.50 479,288.52 2,476,324 78 1978 1,863,899.75 447,335.94 2,311,235

19765,541,949.50 1,330,067.88 6,872,017 78 20,991.509

Inaasahan po namin na di ninyo ipagwawalang bahala ang patalastas ng ito at ang pagbabayad sa buwis ng sa lalong madaling panahon. Ipinaala-ala po lamang na sino ang magpabaya sa buwis ng maluwat ay isusubasta (AUCTION SALE) ng pamahalaan ang inyong ari-arian ayon sa batas. Subalit kung kayo ay bayad na, ipakita po lamang ang katibayan sa pagbabayad (OFFICIAL RECEIPT) at ipagwalang bahala ag patalastas na ito. Lubos na gumagalang, (Sgd.) EDUARDO A. ALON Asst. Municipal Treasurer Officer-in-Charge67 The Court, in its February 1, 2002 Resolution,68 upheld the petitioners contention and ruled that the aforequoted letters/notices are not the notices of assessment envisaged in Section 27 of P.D. No. 464. Thus: It is apparent why the foregoing cannot qualify as a notice of tax assessment. A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties. The September 3, 1986 and October 31, 1989 notices do not contain the essential information that a notice of assessment must specify, namely, the value of a specific property or proportion thereof which is being taxed, nor does it state the discovery, listing, classification and appraisal of the property subject to taxation. In fact, the tenor of the notices bespeaks an intention to collect unpaid taxes, thus the reminder to the taxpayer that the failure to pay the taxes shall authorize the government to auction off the properties subject to taxes or, in the words of the notice, "Ipinaala-ala po lamang, ang sino mang magpabaya o magkautang ng buwis ng maluwat ay isusubasta (Auction Sale) ng pamahalaan ang inyong ari-arian ng naaayon sa batas." The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made, the notices may be disregarded is an indication that it is in fact a notice of collection. Furthermore, even the Bureau of Local Government Finance (BLGF), upon whose recommendation former Municipal Treasurer Alon relied in the collection of back

Page 47 of 327

Tax 2 Cases for FE taxes against petitioner, deemed the September 3, 1986 notice as a "collection letter." Hence; "The Bureau should be informed of any recent action taken by MERALCO on the collection letter dated September 3, 1986 of that Office and whether NAPOCOR was also advised thereof and its reaction thereon, if any, for our record and reference.69 Such ruling is, in effect, a reversal of the May 18, 2001 Decision of the Court, where it was ruled that the said letters/notices were, in fact, notices of assessment: Be that as it may, petitioner was correct when it pointed out that the Municipal Treasurer, contrary to that required by law, issued the notices of assessment. However, the trial court is without authority to address the alleged irregularity in the issuance of the notices of assessment without prior tax payment, under protest, by petitioner. Section 64 of the RPTC, prohibits courts from declaring any tax invalid by reason of irregularities or informalities in the proceedings of the officers charged with the assessment or collection of taxes except upon the condition that the taxpayer pays the just amount of the tax, as determined by the court in the pending proceeding. As petitioner failed to make a protest payment of the tax assessed, any argument regarding the procedure observed in the preparation of the notice of assessment and collection is futile as the trial court in such a scenario cannot assume jurisdiction over the matter. It cannot be gainsaid that petitioner should have addressed its arguments to respondent at the first opportunity upon receipt of the 3 September 1986 notices of assessment signed by Municipal Treasurer Norberto A. San Mateo. Thereafter, it should have availed of the proper administrative remedies in protesting an erroneous tax assessment, i.e., to question the correctness of the assessments before the Local Board of Assessment Appeals (LBAA), and later, invoke the appellate jurisdiction of the Central Board of Assessment Appeals (CBAA). Under the doctrine of primacy of administrative remedies, an error in the assessment must be administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to a later adjustment pending the outcome of the appeal. The failure to appeal within the statutory period shall render the assessment final and unappealable70 We note that the petitioner, in its Answer to the Petition of the respondent in the Court of Appeals, admitted to receiving copies of the said letters/notices.71 Upon a careful review of the records of this case and the applicable jurisprudence, we find that it is the contention of the petitioner and the ruling of this Court in its February 1, 2002 Resolution which is correct. Indeed, even the respondent admitted in his comment on the petition that: Indeed, respondent did not issue any notice of assessment because statutorily, he is not the proper officer obliged to do so. Under Chapter VIII, Sections 90 and 90-A of the Real Property Tax Code, the functions related to the appraisal and assessment for tax purposes of real properties situated within a municipality pertains to the Municipal Deputy Assessor and for the municipalities within Metropolitan Manila, the same is lodged, pursuant to P.D. No. 921, on the Municipal Assessor.72 Page 48 of 327

Tax 2 Cases for FE Consequently then, Sections 30 and 64 of P.D. No. 464 had no application in the case before the trial court. The petitioners action for prohibition was not premature. Hence, the Court of Appeals erred in rendering judgment granting the petition for certiorari of the respondent. Moreover, the petitioner, in its petition for prohibition before the court a quo, denied liability for the taxes claimed by the respondent, asserting that if at all, it is the NAPOCOR, as the present owner of the machineries/equipment, that should be held liable for such taxes. The petitioner had further alleged that the assessment and collection of the said taxes had already prescribed. Conformably to the ruling of this Court in Testate Estate of Lim vs. City of Manila,73 Section 30 of P.D. No. 464 will not apply. The Court further rules that there is a need to remand the case for further proceedings, in order for the trial court to resolve the factual issue of whether or not the Municipal Assessor served copies of Tax Declarations Nos. B-009-05499 to B-009-05502 on the petitioner, and, if in the affirmative, when the petitioner received the same; and to resolve the other issues raised by the parties in their pleadings. It bears stressing that the Court is not a trier of facts. IN VIEW OF THE FOREGOING, the May 18, 2001 Decision of this Court dismissing the petition is SET ASIDE. The petition at bar is GIVEN DUE COURSE and GRANTED. The assailed decision of the Court of Appeals is REVERSED and SET ASIDE. The case is REMANDED to the trial court for further proceedings. The trial court is DIRECTED to terminate the proceedings within six (6) months from notice hereof. No costs. SO ORDERED. Davide, Jr., Puno, Vitug*, Panganiban, Quisumbing, Ynares-Santiago**, Sandoval-Gutierrez, Carpio, Austria-Martinez**, Corona, Carpio Morales, Azcuna, and Tinga, JJ., concur. Footnotes
*

On official leave. On leave.

**

Rollo, p. 512. Id. at 64-71.

SEC. 22. Valuation of Real Property. Upon the discovery of real property or during the general revision of property assessments as provided in Section twenty-two of this Code or at any time when requested by the person in whose name the property is declared, the provincial or city assessor or his authorized deputy shall make an appraisal and assessment in accordance with Section five hereof of the real property listed and described in the declaration irrespective of any previous assessment or taxpayers valuation thereon: Provided, however, That the assessment of real property shall not be increased oftener than once every five years in the absence of new improvements increasing the value of said property or of any change in its use, except as otherwise provided in this Code.

Page 49 of 327

Tax 2 Cases for FE

4

CA Rollo, p. 8.

SEC. 57. Collection of tax to be the responsibility of treasurers. The collection of the real property tax and all penalties accruing thereto, and the enforcement of the remedies provided for in this Code or any applicable laws, shall be the responsibility of the treasurer of the province, city or municipality where the property is situated.
6

Rollo, pp. 267-269. Id. at 270-271. Id. at 272-273. Id. at 274. Id. at 276-278. RTC Records, p. 4. Citing Sec. 68, Real Property Tax Code. Annex "E," Records, pp. 217-218. Records, pp. 54-55. CA Rollo, pp. 73-80. RTC Records, p. 149. The petition was docketed as CA-G.R. SP No. 25610. Rollo, pp. 33-49. Id. at 51-53-A. Id. at 20-22. Annex "K," Rollo, p. 304. The case was raffled to the Second Division of the Court. Id. at 448. Section 64 of the Real Property Tax Code (Presidential Decree No. 464) provides: Restriction upon power of court to impeach tax. No court shall entertain any suit assailing the validity of tax assessed under this Code until the taxpayer shall have paid, under protest, the tax assessed against him nor shall any court declare any tax invalid by reason of irregularities or informalities in the proceedings of the officers charged with the assessment or collection of taxes, or of failure to perform their duties within the time Page 50 of 327

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

Tax 2 Cases for FE herein specified for their performance unless such irregularities, informalities or failure shall have impaired the substantial rights of the taxpayer; nor shall any court declare any portion of the tax assessed under the provisions of this Code invalid except upon condition that the taxpayer shall pay the just amount of the tax, as determined by the court in the pending proceeding.
25

The Real Property Tax Code in force at the time of the questioned acts of the petitioner, prior to the enactment of Republic Act No. 7160 (otherwise known as the Local Government Code of 1991) which superseded P.D. No. 464.
26

Rollo, pp. 443-444. Id. at 447. Id. at 456-458.

27

28

29

SEC. 30. Local Board of Assessment Appeals. Any owner who is not satisfied with the action of the provincial or city assessor in the assessment of his property may, within sixty days from the date of receipt by him of the written notice of assessment as provided in this Code, appeal to the Board of Assessment Appeals of the province or city, by filing with it a petition under oath using the form prescribed for the purpose, together with copies of the tax declarations and such affidavit or documents submitted in support of the appeal.
30

Rollo, pp. 453-459. Id. at 482-492. Id. at 487-488. Id. at 488-489. Id. at 514-517. Id. at 508-509. Id. at 512. Id. at 531-532. Id. at 544. Id. at 545. Id. at 535-537. Id. at 540-543. 254 SCRA 234 (1996).

31

32

33

34

35

36

37

38

39

40

41

42

Page 51 of 327

Tax 2 Cases for FE

43

Id. at 240-241. G.R. No. 144332, June 10, 2004. Condo Suite Club Travel, Inc. vs. NLRC, 323 SCRA 679 (2000), People vs. Court of Appeals, 308 SCRA 687 (1999). Toh vs. Court of Appeals, 344 SCRA 831 (2000). People vs. Court of Appeals, supra. Manila Electric Company v. Barlis, 357 SCRA 832 (2001). Id. at 840.

44

45

46

47

48

49

50

51

Commissioner of Internal Revenue v. Island Government Manufacturing Corporation, 153 SCRA 665 (1987).
52

Tupaz vs. Ulep, 316 SCRA 118 (1999).

53

SEC. 27. Notification of New or Revised Assessments.When real property is assessed for the first time or when an existing assessment is increased or decreased, the provincial or city assessor shall within thirty days give written notice of such new or revised assessment to the person in whose name the property is declared. The notice may be delivered personally to such person or to the occupant in possession, if any, of by mail to the last known address of the person to be served, or through the assistance of the barrio captain.
54

Callanta v. Office of the Ombudsman, 285 SCRA 648 (1998).

55

Republic v. De la Rama, 18 SCRA 861 (1966) cited in Callanta v. Office of the Ombudsman, supra.
56

Callanta v. Office of the Ombudsman, supra. Ibid. See Republic vs. Court of Appeals, 149 SCRA 351 (1987). Testate Estate of Concordia T. Lim v. City of Manila, 182 SCRA 482 (1990). Republic of the Philippines v. Court of Appeals, supra. Ibid. Rollo, p. 241. Supra. Id. at 841-842. Page 52 of 327

57

58

59

60

61

62

63

64

Tax 2 Cases for FE

65

The petitioner received several letters/notices dated September 3, 1986 and October 31, 1989. Except for the figures therein, the letters/notices are similarly worded. Quoted above are only samples thereof.
66

CA Rollo, p. 51. Id. at 55. Rollo, pp. 482-492. Id. at 484-485. Id. at 842-843. CA Rollo, pp. 96-105. Rollo, pp. 234-235 (Emphasis supplied). Supra.

67

68

69

70

71

72

73

Page 53 of 327

Tax 2 Cases for FE Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 150763 July 2, 2004 RURAL BANK OF MAKATI, INC., ESTEBAN S. SILVA and MAGDALENA V. LANDICHO, petitioners, vs. MUNICIPALITY OF MAKATI and ATTY. VICTOR A. L. VALERO, respondents.

DECISION

QUISUMBING, J.: In its decision1 dated July 17, 2001, in CA-G.R. CV No. 58214, the Court of Appeals affirmed the decision2 dated October 22, 1996 of the Regional Trial Court of Makati City, Branch 134, in Civil Case No. 91-2866 dismissing petitioners complaint for recovery of a sum of money and damages. Petitioners now assail said CA decision as well as the Resolution3 dated November 9, 2001, which denied their Motion for Reconsideration. The facts are as follows: Sometime in August 1990, Atty. Victor A.L. Valero, then the municipal attorney of the Municipality of Makati, upon request of the municipal treasurer, went to the Rural Bank of Makati to inquire about the banks payments of taxes and fees to the municipality. He was informed, however, by petitioner Magdalena V. Landicho, corporate secretary of the bank, that the bank was exempt from paying taxes under Republic Act No. 720, as amended.4 On November 19, 1990, the municipality lodged a complaint with the Prosecutors Office, charging petitioners Esteban S. Silva, president and general manager of the bank and Magdalena V. Landicho for violation of Section 21(a), Chapter II, Article 3 in relation to Sections 105 and 169 of the Metropolitan Tax Code. On April 5, 1991, an Information docketed as Criminal Case No. 140208, for violation of Municipal Ordinance Nos. 122 and 39 for non-payment of the mayors permit fee, was filed with the Metropolitan Trial Court (MeTC) of Makati against petitioners. Another Information, docketed as Criminal Case No. 140209, for non-payment of annual business tax, in violation of Metro Manila Commission Ordinance No. 82-03, Section 21(a), Chapter II, Article 3, was likewise filed with the MeTC. While said cases were pending with the municipal court, respondent municipality ordered the closure of the bank. This prompted petitioners to pay, under protest, the mayors permit fee and the annual fixed tax in the amount of P82,408.66.

Page 54 of 327

Tax 2 Cases for FE On October 18, 1991, petitioners filed with the RTC of Makati a Complaint for Sum of Money and Damages, docketed as Civil Case No. 91-2866. Petitioners alleged that they were constrained to pay the amount of P82,408.66 because of the closure order, issued despite the pendency of Criminal Cases Nos. 140208-09 and the lack of any notice or assessment of the fees to be paid. They averred that the collection of the taxes/fees was oppressive, arbitrary, unjust and illegal. Additionally, they alleged that respondent Atty. Valero had no power to enforce laws and ordinances, thus his action in enforcing the collection of the permit fees and business taxes was ultra vires. Petitioners claimed that the bank lost expected earnings in the amount of P19,778. Petitioners then assailed the municipal ordinances of Makati as invalid for want of the requisite publication. In its Answer, respondent municipality asserted that petitioners payment of P82,408.66 was for a legal obligation because the payment of the mayors permit fee as well as the municipal business license was required of all business concerns. According to respondent, said requirement was in furtherance of the police power of the municipality to regulate businesses. For his part, Atty. Valero filed an Answer claiming that there was no coercion committed by the municipality, that payment was a legal obligation of the bank, and that its claim of exemption had no legal basis. He further alleged that petitioners action was clearly intended to harass and humiliate him and as counterclaim, he asked for moral and other damages. On October 22, 1996, the RTC decided Civil Case No. 91-2866 as follows: WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing the complaint. On the counterclaim, the plaintiffs are hereby ordered jointly and severally to pay to defendant Victor Valero the sum of P200,000.00 as moral damages and the amount of P50,000.00 as attorneys fees. The counterclaim of defendant Municipality is dismissed. Cost against the plaintiffs. SO ORDERED.5 In finding for respondents, the RTC ruled that the bank was engaged in business as a rural bank. Hence, it should secure the necessary permit and business license, as well as pay the corresponding charges and fees. It found that the municipality had authority to impose licenses and permit fees on persons engaging in business, under its police power embodied under the general welfare clause. Also, the RTC declared unmeritorious petitioners claim for exemption under Rep. Act No. 720 since said exemption had been withdrawn by Executive Order No. 936 and the Rural Bank Act of 1992.7 These statutes no longer exempted rural banks from paying corporate income taxes and local taxes, fees and charges. It also found petitioners claim of lack of publication of MMC Ordinance Nos. 82-03 and Municipal Ordinance No. 122 to be mere allegations unsupported by clear and convincing evidence. In awarding damages to Atty. Valero, the RTC found that he had been maliciously impleaded as defendant. It noted that Atty. Valero, as a municipal legal officer, was tasked to enforce municipal ordinances. In short, he was merely an agent of the local chief executive and should not be faulted for performing his assigned task.

Page 55 of 327

Tax 2 Cases for FE Petitioners seasonably moved for reconsideration, but this was denied by the RTC in its Order dated January 10, 1997.8 Petitioners appealed to the Court of Appeals in CA-G.R. CV No. 58214. The appellate court sustained the lower court in this wise: WHEREFORE, premises considered, the appealed decision is hereby AFFIRMED in toto. SO ORDERED.9 The Court of Appeals found the order of closure of the bank valid and justified since the bank was operating without any permit and without having paid the requisite permit fee. Thus, declared the Court of Appeals, "it is not merely a matter of enforcement and collection of fees, as the appellants would have it, but a violation of the municipalitys authority to regulate the businesses operating within its territory."10 The appellate court also brushed aside petitioners claim that the general welfare clause is limited only to legislative action. It declared that the exercise of police power by the municipality was mandated by the general welfare clause, which authorizes the local government units to enact ordinances, not only to carry into effect and discharge such duties as are conferred upon them by law, but also those for the good of the municipality and its inhabitants. This mandate includes the regulation of useful occupations and enterprises. Petitioner moved for reconsideration, but the appellate court in its Resolution11 of November 9, 2001 denied the same. Hence, this instant petition alleging that the Honorable Court of Appeals seriously erred in: 1) .HOLDING THAT THE CLOSURE BY THE APPELLEE, VICTOR VALERO, OF THE APPELLANT BANK WAS A LEGITIMATE EXERCISE OF POLICE POWER BY THE MUNICIPALITY OF MAKATI; 2) .NOT CONSIDERING THE FACT THAT MAKATI ORDINANCE 122 REQUIRING MAYORS PERMIT FOR OPERATION OF AN ESTABLISHMENT AND MMC ORDINANCE NO. 82-03 WERE ADMITTED AS NOT PUBLISHED AS REQUIRED IN TAADA, ET AL., vs. TUVERA, NO. L-63915, DECEMBER 29, 1986 AND THAT NO TAX ASSESSMENT WAS PRESENTED TO THE BANK; 3) .AWARDING MORAL DAMAGES TO APPELLEE VICTOR VALERO IN THE AMOUNT OF P200,000.00 AND ATTORNEYS FEES IN THE SUM OF P50,000.00; 4) .NOT AWARDING TO THE APPELLANT BANK, THE AMOUNT OF P57,854.00 REPRESENTING THE AMOUNT UNJUSTLY AND ILLEGALLY COLLECTED FROM THE APPELLANT BANK; 5) .NOT AWARDING THE AMOUNT OF P10,413.75 YEARLY REPRESENTING THE UNREALIZED PROFIT WHICH THE APPELLANT BANK IS BEING DEPRIVED OF IN THE USE OF THE AFORESAID AMOUNT PLUS LEGAL INTEREST ALLOWED IN JUDGMENT FROM THE TIME OF THE EXTRAJUDICIAL DEMAND. (DEMAND LETTER, DATED OCTOBER 4, 1991, EXHIBIT "O" FOR THE APPELLANTS); Page 56 of 327

Tax 2 Cases for FE 6) .NOT GRANTING TO APPELLANTS ESTEBAN S. SILVA AND MAGDALENA LANDICHO MORAL DAMAGES IN THE AMOUNT OF P15,000.00; 7) .NOT AWARDING TO APPELLANTS, P1,000,000.00 EXEMPLARY DAMAGES; 25% OF THE APPELLANTS CLAIM AS AND FOR ATTORNEYS FEE AND COSTS OF SUIT.12 Essentially, the following are the relevant issues for our resolution: 1. Whether or not petitioner bank is liable to pay the business taxes and mayors permit fees imposed by respondent; 2. Whether or not the closure of petitioner bank is valid; 3. Whether or not petitioners are entitled to an award of unrealized profit and damages; 4. Whether or not respondent Atty. Victor Valero is entitled to damages. On the first issue, petitioner bank claims that of the P82,408.66 it paid under protest, it is actually liable only for the amount of P24,154, representing taxes, fees and charges due beginning 1987, or after the issuance of E.O. No. 93. Prior to said year, it was exempt from paying any taxes, fees, and charges by virtue of Rep. Act No. 720. We find the banks claim for refund untenable now. Section 14 of Rep. Act No. 720, as amended by Republic Act No. 4106,13 approved on July 19, 1964, had exempted rural banks with net assets not exceeding one million pesos (P1,000,000) from the payment of all taxes, charges and fees. The records show that as of December 29, 1986, petitioner banks net assets amounted only to P745,432.2914 or below the one million ceiling provided for in Section 14 of the old Rural Banking Act. Hence, under Rep. Act No. 720, petitioner bank could claim to be exempt from payment of all taxes, charges and fees under the aforementioned provision. However, on December 17, 1986, Executive Order No. 93 was issued by then President Corazon Aquino, withdrawing all tax and duty incentives with certain exceptions. Notably, not included among the exceptions were those granted to rural banks under Rep. Act No. 720. With the passage of said law, petitioner could no longer claim any exemption from payment of business taxes and permit fees. Now, as to the refund of P57,854 claimed by petitioners allegedly because of overpayment of taxes and fees, we note that petitioners have not adequately substantiated their claim. As found by the Court of Appeals: As to the computation of the payable fees, the plaintiffs-appellants claim an overpayment and pray for a refund. It is not clearly shown from their argument that such overpayment exists. And from their initial complaint, they even asked for the refund of the whole P82,408.66 paid, which complaint was instituted in 1991. They claim having paid the fees and charges due since 1991, which is irrelevant, since the P82,408.66 was paid for the period before 1991, and thus no deduction can be made for payments after that period. It is not clear where their computation of P57,854.00 owed them came from, and lacking solid support, their prayer for a partial refund

Page 57 of 327

Tax 2 Cases for FE must fail. Plaintiffs-appellants have failed to show that the payment of fees and charges even covered the period before their exemption was withdrawn.15 Factual findings of the Court of Appeals, which are supported on record, are binding and conclusive upon this Court. As repeatedly held, such findings will not be disturbed unless they are palpably unsupported by the evidence on record or unless the judgment itself is based on misapprehension of facts.16 Moreover, in a petition for review, only questions of law are properly raised. On this score, the refund sought by petitioners could not be entertained much less granted. Anent the second issue, petitioner bank claims that the closure of respondent bank was an improper exercise of police power because a municipal corporation has no inherent but only delegated police power, which must be exercised not by the municipal mayor but by the municipal council through the enactment of ordinances. It also assailed the Court of Appeals for invoking the General Welfare Clause embodied in Section 1617 of the Local Government Code of 1991, which took effect in 1992,18 when the closure of the bank was actually done on July 31, 1991. Indeed the Local Government Code of 1991 was not yet in effect when the municipality ordered petitioner banks closure on July 31, 1991. However, the general welfare clause invoked by the Court of Appeals is not found on the provisions of said law alone. Even under the old Local Government Code (Batas Pambansa Blg. 337)19 which was then in effect, a general welfare clause was provided for in Section 7 thereof. Municipal corporations are agencies of the State for the promotion and maintenance of local self-government and as such are endowed with police powers in order to effectively accomplish and carry out the declared objects of their creation.20 The authority of a local government unit to exercise police power under a general welfare clause is not a recent development. This was already provided for as early as the Administrative Code of 1917.21 Since then it has been reenacted and implemented by new statutes on the matter. Thus, the closure of the bank was a valid exercise of police power pursuant to the general welfare clause contained in and restated by B.P. Blg. 337, which was then the law governing local government units. No reversible error arises in this instance insofar as the validity of respondent municipalitys exercise of police power for the general welfare is concerned. The general welfare clause has two branches. The first, known as the general legislative power, authorizes the municipal council to enact ordinances and make regulations not repugnant to law, as may be necessary to carry into effect and discharge the powers and duties conferred upon the municipal council by law. The second, known as the police power proper, authorizes the municipality to enact ordinances as may be necessary and proper for the health and safety, prosperity, morals, peace, good order, comfort, and convenience of the municipality and its inhabitants, and for the protection of their property.22 In the present case, the ordinances imposing licenses and requiring permits for any business establishment, for purposes of regulation enacted by the municipal council of Makati, fall within the purview of the first branch of the general welfare clause. Moreover, the ordinance of the municipality imposing the annual business tax is part of the power of taxation vested upon local governments as provided for under Section 8 of B.P. Blg. 337,23 to wit: Sec. 8. Authority to Create Sources of Revenue. (1) 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. ...

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Tax 2 Cases for FE Implementation of these ordinances is vested in the municipal mayor, who is the chief executive of the municipality as provided for under the Local Government Code, to wit: Sec. 141. Powers and Duties. (1) The mayor shall be the chief executive of the municipal government and shall exercise such powers, duties and functions as provided in this Code and other laws. (2) He shall: ... (k) Grant licenses and permits in accordance with existing laws or municipal ordinances and revoke them for violation of the conditions upon which they have been granted; ... (o) Enforce laws, municipal ordinances and resolutions and issue necessary orders for their faithful and proper enforcement and execution; (p) Ensure that all taxes and other revenues of the municipality are collected, and that municipal funds are spent in accordance with law, ordinances and regulations; ... (t) Cause to be instituted judicial proceedings in connection with the violation of ordinances, for the collection of taxes, fees and charges, and for the recovery of property and funds of the municipality, and otherwise to protect the interest of the municipality; 24 (Emphasis supplied) ... Consequently, the municipal mayor, as chief executive, was clothed with authority to create a Special Task Force headed by respondent Atty. Victor A.L. Valero to enforce and implement said ordinances and resolutions and to file appropriate charges and prosecute violators.25 Respondent Valero could hardly be faulted for performing his official duties under the cited circumstances. Petitioners contend that MMC Ordinance No. 82-03 and Municipal Ordinance No. 122 are void for lack of publication. This again raises a factual issue, which this Court may not look into. As repeatedly held, this Court is not a trier of facts.26 Besides, both the Court of Appeals and the trial court found lack of sufficient evidence on this point to support petitioners claim, thus: And finally the matter of the lack of publication is once again alleged by the plaintiffs-appellants, claiming that the matter was skirted by the trial court. This argument must fail, in the light of the trial courts squarely finding lack of evidence to support the allegation of the plaintiffs-appellants. We quote from the trial courts decision:

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Tax 2 Cases for FE The contention that MMC Ordinance No. 82-03 and Municipal Ordinance No. 122 of Makati are void as they were not publishced (sic) is untenable. The mere allegation of the plaintiff is not sufficient to declare said ordinances void. The plaintiffs failed to adduce clear, convincing and competent evidence to prove said Ordinances void. Moreover, in this jurisdiction, an ordinance is presumed to be valid unless declared otherwise by a Court in an appropriate proceeding where the validity of the ordinance is directly put in issue.27 On the issue of the closure of the bank, we find that the bank was not engaged in any illegal or immoral activities to warrant its outright closure. The appropriate remedies to enforce payment of delinquent taxes or fees are provided for in Section 62 of the Local Tax Code, to wit: SEC. 62. Civil Remedies. The civil remedies available to enforce payment of delinquent taxes shall be by distraint of personal property, and by legal action. Either of these remedies or both simultaneously may be pursued at the discretion of the proper authority. The payment of other revenues accruing to local governments shall be enforced by legal action.28 Said Section 62 did not provide for closure. Moreover, the order of closure violated petitioners right to due process, considering that the records show that the bank exercised good faith and presented what it thought was a valid and legal justification for not paying the required taxes and fees. The violation of a municipal ordinance does not empower a municipal mayor to avail of extrajudicial remedies.29 It should have observed due process before ordering the banks closure. Finally, on the issue of damages, we agree with both the trial and the appellate courts that the bank is not entitled to any damages. The award of moral damages cannot be granted to a corporation, it being an artificial person that exists only in legal contemplation and cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one having a nervous system.30 There is also no sufficient basis for the award of exemplary damages. There being no moral damages, exemplary damages could not be awarded also. As to attorneys fees, aside from lack of adequate support and proof on the matter, these fees are not recoverable as a matter of right but depend on the sound discretion of the courts.31 Under the circumstances of this case, the award of damages to Atty. Valero is also baseless. We cannot ascribe any illegal motive or malice to the bank for impleading Atty. Valero as an officer of respondent municipality. The bank filed the case against respondent municipality in the honest belief that it is exempt from paying taxes and fees. Since Atty. Valero was the official charged with the implementation of the ordinances of respondent municipality, he was rightly impleaded as a necessary party in the case. WHEREFORE, the assailed Decision dated July 17, 2001, of the Court of Appeals in CA-G.R. CV No. 58214 is AFFIRMED with MODIFICATIONS, so that (1) the order denying any claim for refunds and fees allegedly overpaid by the bank, as well as the denial of any award for damages and unrealized profits, is hereby SUSTAINED; (2) the order decreeing the closure of petitioner bank is SET ASIDE; and (3) the award of moral damages and attorneys fees to Atty. Victor A.L. Valero is DELETED. No pronouncement as to costs. SO ORDERED. Page 60 of 327

Tax 2 Cases for FE Puno, (Chairman), Callejo, Sr., and Tinga, JJ., concur. Austria-Martinez, J., on leave.

Footnotes
1

Rollo, pp. 34-43. Penned by Associate Justice Presbitero J. Velasco, Jr., with Associate Justices Bienvenido L. Reyes, and Juan Q. Enriquez, Jr. concurring.
2

CA Rollo, pp. 51-A-57. Rollo, p. 60.

Republic Act No. 720. Entitled "An Act Providing For The Creation, Organization And Operation Of Rural Banks, And For Other Purposes." SEC. 14. of said law reads: "All rural banks created and organized under the provisions of this Act with net assets not exceeding one million pesos, excluding the counterpart capital subscribed and paid in by the Government under Sections seven and eight of this Act, shall be exempt from the payment of all taxes, charges and fees of whatever nature and description: Provided, however, That when the net assets of a rural bank exceed one million pesos, the taxes, charges and fees shall be levied in the proportion that such excess bears to the said net assets: Provided, finally, That when the net assets of a rural bank exceed three million pesos, it shall pay taxes, fees and charges like any other bank."
5

Records, p. 377.

E.O. No. 93. Entitled "Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding the Powers of the Fiscal Incentives Review Board, and For Other Purposes." Section 1 of said Executive Order states in part: "The provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to government and private entities are hereby withdrawn . . . ."
7

Republic Act No. 7353. an act providing for the creation, organization and operation of rural banks, and for other purposes.
8

Records, p. 398. Rollo, p. 42. Id. at 39. Id. at 60. Id. at 9-10.

10

11

12

13

An Act to Further Amend Section Fourteen of Republic Act Numbered Seven Hundred Twenty, As Amended, Otherwise known as Rural Banks Act.

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14

Records, p. 251; Statement of Condition, p. 2. Rollo, p. 41. Austria v. Court of Appeals, G.R. No. 133323, 9 March 2000, 327 SCRA 668, 674.

15

16

17

SEC. 16. General Welfare. Every local government unit shall exercise the powers expressly granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental for its efficient and effective governance and those which are essential to the promotion of the general welfare. Within their respective territorial jurisdictions, local government units shall ensure and support, among other things, the preservation and enrichment of culture, promote health and safety, enhance the right of the people to a balanced ecology, encourage and support the development of appropriate and self-reliant scientific and technological capabilities, improve public morals, enhance economic prosperity and social justice, promote full employment among their residents, maintain peace and order, and preserve the comfort and convenience of their inhabitants.
18

SEC. 536. Effectivity Clause This Code shall take effect on January first, nineteen hundred and ninety-two, unless otherwise provided herein, after its complete publication in at least one (1) newspaper of general circulation.
19

B.P. Blg. 337, Sec. 7. Governmental Powers in General. Every local government unit shall exercise the powers expressly granted, those necessarily implied therefrom, as well as powers necessary and proper for governance such as to promote health and safety, enhance prosperity, improve morals, and maintain peace and order in the local government unit, and preserve the comfort and convenience of the inhabitants therein.
20

Tatel v. Municipality of Virac, G.R. No. 40243, 11 March 1992, 207 SCRA 157, 160.

21

SEC. 2238. General power of council to enact ordinances and make regulations. The municipal council shall enact such ordinances and make such regulations, not repugnant to law, as may be necessary to carry into effect and discharge the powers and duties conferred upon it by law and such as shall seem necessary and proper to provide for the health and safety, promote the prosperity, improve the morals, peace, good order, comfort, and convenience of the municipality and the inhabitants thereof, and for the protection of the property therein.
22

See Ruperto G. Martin, Public Corporations 165 (1971 Ed.) Now Section 18 of the Local Government Code of 1991. Section 141, B.P. Blg. 337, Local Government Code. Records, pp. 321-323. Tan v. Mendez, Jr., G.R. No. 138669, 6 June 2002, 383 SCRA 202, 211. Rollo, pp. 41-42.

23

24

25

26

27

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28

Section 62, P.D. No. 231, as amended, also known as the "Local Tax Code."

29

Estate of Gregoria Francisco v. Court of Appeals, G.R. No. 95279, 25 July 1991, 199 SCRA 595, 600.
30

ABS-CBN Broadcasting Corporation v. Court of Appeals, G.R. No. 128690, 21 January 1999, 301 SCRA 572, 602-603.
31

Article 2233, Civil Code of the Philippines.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 158540 July 8, 2004 SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs. THE PHILIPPINE CEMENT MANUFACTURERS CORP., THE SECRETARY OF THE DEPARTMENT OF TRADE & INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF FINANCE, and THE COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.

DECISION

TINGA, J.: "Good fences make good neighbors," so observed Robert Frost, the archetype of traditional New England detachment. The Frost ethos has been heeded by nations adjusting to the effects of the liberalized global market.1 The Philippines, for one, enacted Republic Act (Rep. Act) No. 8751 (on the imposition of countervailing duties), Rep. Act No. 8752 (on the imposition of anti-dumping duties) and, finally, Rep. Act No. 8800, also known as the Safeguard Measures Act ("SMA")2 soon after it joined the General Agreement on Tariff and Trade (GATT) and the World Trade Organization (WTO) Agreement.3 The SMA provides the structure and mechanics for the imposition of emergency measures, including tariffs, to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them.4 The wisdom of the policies behind the SMA, however, is not put into question by the petition at bar. The questions submitted to the Court relate to the means and the procedures ordained in the law to ensure that the determination of the imposition or nonimposition of a safeguard measure is proper. Antecedent Facts Petitioner Southern Cross Cement Corporation ("Southern Cross") is a domestic corporation engaged in the business of cement manufacturing, production, importation and exportation. Its principal stockholders are Taiheiyo Cement Corporation and Tokuyama Corporation, purportedly the largest cement manufacturers in Japan.5 Private respondent Philippine Cement Manufacturers Corporation6 ("Philcemcor") is an association of domestic cement manufacturers. It has eighteen (18) members,7 per Record. While Philcemcor heralds itself to be an association of domestic cement manufacturers, it appears that considerable equity holdings, if not controlling interests in at least twelve (12) of its member-corporations, were acquired by the three largest cement manufacturers in the world, namely Financiere Lafarge S.A. of Page 64 of 327

Tax 2 Cases for FE France, Cemex S.A. de C.V. of Mexico, and Holcim Ltd. of Switzerland (formerly Holderbank Financiere Glaris, Ltd., then Holderfin B.V.).8 On 22 May 2001, respondent Department of Trade and Industry ("DTI") accepted an application from Philcemcor, alleging that the importation of gray Portland cement9 in increased quantities has caused declines in domestic production, capacity utilization, market share, sales and employment; as well as caused depressed local prices. Accordingly, Philcemcor sought the imposition at first of provisional, then later, definitive safeguard measures on the import of cement pursuant to the SMA. Philcemcor filed the application in behalf of twelve (12) of its member-companies.10 After preliminary investigation, the Bureau of Import Services of the DTI, determined that critical circumstances existed justifying the imposition of provisional measures.11 On 7 November 2001, the DTI issued an Order, imposing a provisional measure equivalent to Twenty Pesos and Sixty Centavos (P20.60) per forty (40) kilogram bag on all importations of gray Portland cement for a period not exceeding two hundred (200) days from the date of issuance by the Bureau of Customs (BOC) of the implementing Customs Memorandum Order.12 The corresponding Customs Memorandum Order was issued on 10 December 2001, to take effect that same day and to remain in force for two hundred (200) days.13 In the meantime, the Tariff Commission, on 19 November 2001, received a request from the DTI for a formal investigation to determine whether or not to impose a definitive safeguard measure on imports of gray Portland cement, pursuant to Section 9 of the SMA and its Implementing Rules and Regulations. A notice of commencement of formal investigation was published in the newspapers on 21 November 2001. Individual notices were likewise sent to concerned parties, such as Philcemcor, various importers and exporters, the Embassies of Indonesia, Japan and Taiwan, contractors/builders associations, industry associations, cement workers' groups, consumer groups, non-government organizations and concerned government agencies.14 A preliminary conference was held on 27 November 2001, attended by several concerned parties, including Southern Cross.15 Subsequently, the Tariff Commission received several position papers both in support and against Philcemcor's application.16 The Tariff Commission also visited the corporate offices and manufacturing facilities of each of the applicant companies, as well as that of Southern Cross and two other cement importers.17 On 13 March 2002, the Tariff Commission issued its Formal Investigation Report ("Report"). Among the factors studied by the Tariff Commission in its Report were the market share of the domestic industry,18 production and sales,19 capacity utilization,20 financial performance and profitability,21 and return on sales.22 The Tariff Commission arrived at the following conclusions: 1. The circumstances provided in Article XIX of GATT 1994 need not be demonstrated since the product under consideration (gray Portland cement) is not the subject of any Philippine obligation or tariff concession under the WTO Agreement. Nonetheless, such inquiry is governed by the national legislation (R.A. 8800) and the terms and conditions of the Agreement on Safeguards. 2. The collective output of the twelve (12) applicant companies constitutes a major proportion of the total domestic production of gray Portland cement and blended Portland cement. 3. Locally produced gray Portland cement and blended Portland cement (Pozzolan) are "like" to imported gray Portland cement.

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Tax 2 Cases for FE 4. Gray Portland cement is being imported into the Philippines in increased quantities, both in absolute terms and relative to domestic production, starting in 2000. The increase in volume of imports is recent, sudden, sharp and significant. 5. The industry has not suffered and is not suffering significant overall impairment in its condition, i.e., serious injury. 6. There is no threat of serious injury that is imminent from imports of gray Portland cement. 7. Causation has become moot and academic in view of the negative determination of the elements of serious injury and imminent threat of serious injury.23 Accordingly, the Tariff Commission made the following recommendation, to wit: The elements of serious injury and imminent threat of serious injury not having been established, it is hereby recommended that no definitive general safeguard measure be imposed on the importation of gray Portland cement.24 The DTI received the Report on 14 March 2002. After reviewing the report, then DTI Secretary Manuel Roxas II ("DTI Secretary") disagreed with the conclusion of the Tariff Commission that there was no serious injury to the local cement industry caused by the surge of imports.25 In view of this disagreement, the DTI requested an opinion from the Department of Justice ("DOJ") on the DTI Secretary's scope of options in acting on the Commission's recommendations. Subsequently, then DOJ Secretary Hernando Perez rendered an opinion stating that Section 13 of the SMA precluded a review by the DTI Secretary of the Tariff Commission's negative finding, or finding that a definitive safeguard measure should not be imposed.26 On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the conclusions of the Tariff Commission, the DTI Secretary noted the DTI's disagreement with the conclusions. However, he also cited the DOJ Opinion advising the DTI that it was bound by the negative finding of the Tariff Commission. Thus, he ruled as follows: The DTI has no alternative but to abide by the [Tariff] Commission's recommendations. IN VIEW OF THE FOREGOING, and in accordance with Section 13 of RA 8800 which states: "In the event of a negative final determination; or if the cash bond is in excess of the definitive safeguard duty assessed, the Secretary shall immediately issue, through the Secretary of Finance, a written instruction to the Commissioner of Customs, authorizing the return of the cash bond or the remainder thereof, as the case may be, previously collected as provisional general safeguard measure within ten (10) days from the date a final decision has been made; Provided, that the government shall not be liable for any interest on the amount to be returned. The Secretary shall not accept for consideration another petition from the same industry, with respect to the same imports of the product under consideration within one (1) year after the date of rendering such a decision."

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Tax 2 Cases for FE The DTI hereby issues the following: The application for safeguard measures against the importation of gray Portland cement filed by PHILCEMCOR (Case No. 02-2001) is hereby denied.27 (Emphasis in the original) Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus28 seeking to set aside the DTI Decision, as well as the Tariff Commission's Report. Philcemcor likewise applied for a Temporary Restraining Order/Injunction to enjoin the DTI and the BOC from implementing the questioned Decision and Report. It prayed that the Court of Appeals direct the DTI Secretary to disregard the Report and to render judgment independently of the Report. Philcemcor argued that the DTI Secretary, vested as he is under the law with the power of review, is not bound to adopt the recommendations of the Tariff Commission; and, that the Report is void, as it is predicated on a flawed framework, inconsistent inferences and erroneous methodology.29 On 10 June 2002, Southern Cross filed its Comment.30 It argued that the Court of Appeals had no jurisdiction over Philcemcor's Petition, for it is on the Court of Tax Appeals ("CTA") that the SMA conferred jurisdiction to review rulings of the Secretary in connection with the imposition of a safeguard measure. It likewise argued that Philcemcor's resort to the special civil action of certiorari is improper, considering that what Philcemcor sought to rectify is an error of judgment and not an error of jurisdiction or grave abuse of discretion, and that a petition for review with the CTA was available as a plain, speedy and adequate remedy. Finally, Southern Cross echoed the DOJ Opinion that Section 13 of the SMA precludes a review by the DTI Secretary of a negative finding of the Tariff Commission. After conducting a hearing on 19 June 2002 on Philcemcor's application for preliminary injunction, the Court of Appeals' Twelfth Division31 granted the writ sought in its Resolution dated 21 June 2002.32 Seven days later, on 28 June 2002, the two-hundred (200)-day period for the imposition of the provisional measure expired. Despite the lapse of the period, the BOC continued to impose the provisional measure on all importations of Portland cement made by Southern Cross. The uninterrupted assessment of the tariff, according to Southern Cross, worked to its detriment to the point that the continued imposition would eventually lead to its closure.33 Southern Cross timely filed a Motion for Reconsideration of the Resolution on 9 September 2002. Alleging that Philcemcor was not entitled to provisional relief, Southern Cross likewise sought a clarificatory order as to whether the grant of the writ of preliminary injunction could extend the earlier imposition of the provisional measure beyond the two hundred (200)-day limit imposed by law. The appeals' court failed to take immediate action on Southern Cross's motion despite the four (4) motions for early resolution the latter filed between September of 2002 and February of 2003. After six (6) months, on 19 February 2003, the Court of Appeals directed Philcemcor to comment on Southern Cross's Motion for Reconsideration.34 After Philcemcor filed its Opposition35 on 13 March 2003, Southern Cross filed another set of four (4) motions for early resolution. Despite the efforts of Southern Cross, the Court of Appeals failed to directly resolve the Motion for Reconsideration. Instead, on 5 June 2003, it rendered a Decision,36 granting in part Philcemcor's petition. The appellate court ruled that it had jurisdiction over the petition for certiorari since it alleged grave abuse of discretion. It refused to annul the findings of the Tariff Commission, citing the rule that factual findings of administrative agencies are binding upon the courts and its corollary, that courts should not interfere in matters addressed to the sound discretion and coming under the special technical knowledge and training of such agencies.37 Nevertheless, it held that the DTI Page 67 of 327

Tax 2 Cases for FE Secretary is not bound by the factual findings of the Tariff Commission since such findings are merely recommendatory and they fall within the ambit of the Secretary's discretionary review. It determined that the legislative intent is to grant the DTI Secretary the power to make a final decision on the Tariff Commission's recommendation.38 The dispositive portion of the Decision reads: WHEREFORE, based on the foregoing premises, petitioner's prayer to set aside the findings of the Tariff Commission in its assailed Report dated March 13, 2002 is DENIED. On the other hand, the assailed April 5, 2002 Decision of the Secretary of the Department of Trade and Industry is hereby SET ASIDE. Consequently, the case is REMANDED to the public respondent Secretary of Department of Trade and Industry for a final decision in accordance with RA 8800 and its Implementing Rules and Regulations. SO ORDERED.39 On 23 June 2003, Southern Cross filed the present petition, assailing the appellate court's Decision for departing from the accepted and usual course of judicial proceedings, and not deciding the substantial questions in accordance with law and jurisprudence. The petition argues in the main that the Court of Appeals has no jurisdiction over Philcemcor's petition, the proper remedy being a petition for review with the CTA conformably with the SMA, and; that the factual findings of the Tariff Commission on the existence or non-existence conditions warranting the imposition of general safeguard measures are binding upon the DTI Secretary. The timely filing of Southern Cross's petition before this Court necessarily prevented the Court of Appeals Decision from becoming final.40 Yet on 25 June 2003, the DTI Secretary issued a new Decision, ruling this time that that in light of the appellate court's Decision there was no longer any legal impediment to his deciding Philcemcor's application for definitive safeguard measures.41 He made a determination that, contrary to the findings of the Tariff Commission, the local cement industry had suffered serious injury as a result of the import surges.42 Accordingly, he imposed a definitive safeguard measure on the importation of gray Portland cement, in the form of a definitive safeguard duty in the amount of P20.60/40 kg. bag for three years on imported gray Portland Cement.43 On 7 July 2003, Southern Cross filed with the Court a "Very Urgent Application for a Temporary Restraining Order and/or A Writ of Preliminary Injunction" ("TRO Application"), seeking to enjoin the DTI Secretary from enforcing his Decision of 25 June 2003 in view of the pending petition before this Court. Philcemcor filed an opposition, claiming, among others, that it is not this Court but the CTA that has jurisdiction over the application under the law. On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI Secretary's 25 June 2003 Decision which imposed the definite safeguard measure. Prescinding from this action, Philcemcor filed with this Court a Manifestation and Motion to Dismiss in regard to Southern Cross's petition, alleging that it deliberately and willfully resorted to forum-shopping. It points out that Southern Cross's TRO Application seeks to enjoin the DTI Secretary's second decision, while its Petition before the CTA prays for the annulment of the same decision.44 Reiterating its Comment on Southern Cross's Petition for Review, Philcemcor also argues that the CTA, being a special court of limited jurisdiction, could only review the ruling of the DTI Secretary when a safeguard measure is imposed, and that the factual findings of the Tariff Commission are not binding on the DTI Secretary.45

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Tax 2 Cases for FE After giving due course to Southern Cross's Petition, the Court called the case for oral argument on 18 February 2004.46 At the oral argument, attended by the counsel for Philcemcor and Southern Cross and the Office of the Solicitor General, the Court simplified the issues in this wise: (i) whether the Decision of the DTI Secretary is appealable to the CTA or the Court of Appeals; (ii) assuming that the Court of Appeals has jurisdiction, whether its Decision is in accordance with law; and, (iii) whether a Temporary Restraining Order is warranted.47 During the oral arguments, counsel for Southern Cross manifested that due to the imposition of the general safeguard measures, Southern Cross was forced to cease operations in the Philippines in November of 2003.48 Propriety of the Temporary Restraining Order Before the merits of the Petition, a brief comment on Southern Cross's application for provisional relief. It sought to enjoin the DTI Secretary from enforcing the definitive safeguard measure he imposed in his 25 June 2003 Decision. The Court did not grant the provisional relief for it would be tantamount to enjoining the collection of taxes, a peremptory judicial act which is traditionally frowned upon,49 unless there is a clear statutory basis for it.50 In that regard, Section 218 of the Tax Reform Act of 1997 prohibits any court from granting an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the internal revenue code.51 A similar philosophy is expressed by Section 29 of the SMA, which states that the filing of a petition for review before the CTA does not stop, suspend, or otherwise toll the imposition or collection of the appropriate tariff duties or the adoption of other appropriate safeguard measures.52 This evinces a clear legislative intent that the imposition of safeguard measures, despite the availability of judicial review, should not be enjoined notwithstanding any timely appeal of the imposition. The Forum-Shopping Issue In the same breath, we are not convinced that the allegation of forum-shopping has been duly proven, or that sanction should befall upon Southern Cross and its counsel. The standard by Section 5, Rule 7 of the 1997 Rules of Civil Procedure in order that sanction may be had is that "the acts of the party or his counsel clearly constitute willful and deliberate forum shopping."53 The standard implies a malicious intent to subvert procedural rules, and such state of mind is not evident in this case. The Jurisdictional Issue On to the merits of the present petition. In its assailed Decision, the Court of Appeals, after asserting only in brief that it had jurisdiction over Philcemcor's Petition, discussed the issue of whether or not the DTI Secretary is bound to adopt the negative recommendation of the Tariff Commission on the application for safeguard measure. The Court of Appeals maintained that it had jurisdiction over the petition, as it alleged grave abuse of discretion on the part of the DTI Secretary, thus: A perusal of the instant petition reveals allegations of grave abuse of discretion on the part of the DTI Secretary in rendering the assailed April 5, 2002 Decision wherein it was ruled that he had no alternative but to abide by the findings of the Commission on the matter of safeguard measures for the local cement industry. Abuse of discretion is admittedly within the ambit of certiorari.

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Tax 2 Cases for FE Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. It is alleged that, in the assailed Decision, the DTI Secretary gravely abused his discretion in wantonly evading to discharge his duty to render an independent determination or decision in imposing a definitive safeguard measure.54 We do not doubt that the Court of Appeals' certiorari powers extend to correcting grave abuse of discretion on the part of an officer exercising judicial or quasi-judicial functions.55 However, the special civil action of certiorari is available only when there is no plain, speedy and adequate remedy in the ordinary course of law.56 Southern Cross relies on this limitation, stressing that Section 29 of the SMA is a plain, speedy and adequate remedy in the ordinary course of law which Philcemcor did not avail of. The Section reads: Section 29. Judicial Review. Any interested party who is adversely affected by the ruling of the Secretary in connection with the imposition of a safeguard measure may file with the CTA, a petition for review of such ruling within thirty (30) days from receipt thereof. Provided, however, that the filing of such petition for review shall not in any way stop, suspend or otherwise toll the imposition or collection of the appropriate tariff duties or the adoption of other appropriate safeguard measures, as the case may be. The petition for review shall comply with the same requirements and shall follow the same rules of procedure and shall be subject to the same disposition as in appeals in connection with adverse rulings on tax matters to the Court of Appeals.57 (Emphasis supplied) It is not difficult to divine why the legislature singled out the CTA as the court with jurisdiction to review the ruling of the DTI Secretary in connection with the imposition of a safeguard measure. The Court has long recognized the legislative determination to vest sole and exclusive jurisdiction on matters involving internal revenue and customs duties to such a specialized court.58 By the very nature of its function, the CTA is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject.59 At the same time, since the CTA is a court of limited jurisdiction, its jurisdiction to take cognizance of a case should be clearly conferred and should not be deemed to exist on mere implication.60 Concededly, Rep. Act No. 1125, the statute creating the CTA, does not extend to it the power to review decisions of the DTI Secretary in connection with the imposition of safeguard measures.61 Of course, at that time which was before the advent of trade liberalization the notion of safeguard measures or safety nets was not yet in vogue. Undeniably, however, the SMA expanded the jurisdiction of the CTA by including review of the rulings of the DTI Secretary in connection with the imposition of safeguard measures. However, Philcemcor and the public respondents agree that the CTA has appellate jurisdiction over a decision of the DTI Secretary imposing a safeguard measure, but not when his ruling is not to impose such measure. In a related development, Rep. Act No. 9282, enacted on 30 March 2004, expressly vests unto the CTA jurisdiction over "[d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural product, commodity or article xxx involving xxx safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties."62 Had Rep. Act No. 9282 already been in force at the beginning of the incidents subject of this case, there would Page 70 of 327

Tax 2 Cases for FE have been no need to make any deeper inquiry as to the extent of the CTA's jurisdiction. But as Rep. Act No. 9282 cannot be applied retroactively to the present case, the question of whether such jurisdiction extends to a decision not to impose a safeguard measure will have to be settled principally on the basis of the SMA. Under Section 29 of the SMA, there are three requisites to enable the CTA to acquire jurisdiction over the petition for review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii) the petition must be filed by an interested party adversely affected by the ruling; and (iii) such ruling must be in connection with the imposition of a safeguard measure. The first two requisites are clearly present. The third requisite deserves closer scrutiny. Contrary to the stance of the public respondents and Philcemcor, in this case where the DTI Secretary decides not to impose a safeguard measure, it is the CTA which has jurisdiction to review his decision. The reasons are as follows: First. Split jurisdiction is abhorred. Essentially, respondents' position is that judicial review of the DTI Secretary's ruling is exercised by two different courts, depending on whether or not it imposes a safeguard measure, and in either case the court exercising jurisdiction does so to the exclusion of the other. Thus, if the DTI decision involves the imposition of a safeguard measure it is the CTA which has appellate jurisdiction; otherwise, it is the Court of Appeals. Such setup is as novel and unusual as it is cumbersome and unwise. Essentially, respondents advocate that Section 29 of the SMA has established split appellate jurisdiction over rulings of the DTI Secretary on the imposition of safeguard measure. This interpretation cannot be favored, as the Court has consistently refused to sanction split jurisdiction.63 The power of the DTI Secretary to adopt or withhold a safeguard measure emanates from the same statutory source, and it boggles the mind why the appeal modality would be such that one appellate court is qualified if what is to be reviewed is a positive determination, and it is not if what is appealed is a negative determination. In deciding whether or not to impose a safeguard measure, provisional or general, the DTI Secretary would be evaluating only one body of facts and applying them to one set of laws. The reviewing tribunal will be called upon to examine the same facts and the same laws, whether or not the determination is positive or negative. In short, if we were to rule for respondents we would be confirming the exercise by two judicial bodies of jurisdiction over basically the same subject matterprecisely the split-jurisdiction situation which is anathema to the orderly administration of justice.64 The Court cannot accept that such was the legislative motive especially considering that the law expressly confers on the CTA, the tribunal with the specialized competence over tax and tariff matters, the role of judicial review without mention of any other court that may exercise corollary or ancillary jurisdiction in relation to the SMA. The provision refers to the Court of Appeals but only in regard to procedural rules and dispositions of appeals from the CTA to the Court of Appeals.65 The principle enunciated in Tejada v. Homestead Property Corporation66 is applicable to the case at bar: The Court agrees with the observation of the [that] when an administrative agency or body is conferred quasi-judicial functions, all controversies relating to the subject matter pertaining to its specialization are deemed to be included within the jurisdiction of said administrative agency or body. Split jurisdiction is not favored.67 Page 71 of 327

Tax 2 Cases for FE Second. The interpretation of the provisions of the SMA favors vesting untrammeled appellate jurisdiction on the CTA. A plain reading of Section 29 of the SMA reveals that Congress did not expressly bar the CTA from reviewing a negative determination by the DTI Secretary nor conferred on the Court of Appeals such review authority. Respondents note, on the other hand, that neither did the law expressly grant to the CTA the power to review a negative determination. However, under the clear text of the law, the CTA is vested with jurisdiction to review the ruling of the DTI Secretary "in connection with the imposition of a safeguard measure." Had the law been couched instead to incorporate the phrase "the ruling imposing a safeguard measure," then respondent's claim would have indisputable merit. Undoubtedly, the phrase "in connection with" not only qualifies but clarifies the succeeding phrase "imposition of a safeguard measure." As expounded later, the phrase also encompasses the opposite or converse ruling which is the non-imposition of a safeguard measure. In the American case of Shaw v. Delta Air Lines, Inc.,68 the United States Supreme Court, in interpreting a key provision of the Employee Retirement Security Act of 1974, construed the phrase "relates to" in its normal sense which is the same as "if it has connection with or reference to."69 There is no serious dispute that the phrase "in connection with" is synonymous to "relates to" or "reference to," and that all three phrases are broadly expansive. This is affirmed not just by jurisprudential fiat, but also the acquired connotative meaning of "in connection with" in common parlance. Consequently, with the use of the phrase "in connection with," Section 29 allows the CTA to review not only the ruling imposing a safeguard measure, but all other rulings related or have reference to the application for such measure. Now, let us determine the maximum scope and reach of the phrase "in connection with" as used in Section 29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the US Supreme Court in New York State Blue Cross Plans v. Travelers Ins.70 conceded that the phrases "relate to" or "in connection with" may be extended to the farthest stretch of indeterminacy for, universally, relations or connections are infinite and stop nowhere.71 Thus, in the case the US High Court, examining the same phrase of the same provision of law involved in Shaw, resorted to looking at the statute and its objectives as the alternative to an "uncritical literalism."72 A similar inquiry into the other provisions of the SMA is in order to determine the scope of review accorded therein to the CTA.73 The authority to decide on the safeguard measure is vested in the DTI Secretary in the case of nonagricultural products, and in the Secretary of the Department of Agriculture in the case of agricultural products.74 Section 29 is likewise explicit that only the rulings of the DTI Secretary or the Agriculture Secretary may be reviewed by the CTA.75 Thus, the acts of other bodies that were granted some powers by the SMA, such as the Tariff Commission, are not subject to direct review by the CTA. Under the SMA, the Department Secretary concerned is authorized to decide on several matters. Within thirty (30) days from receipt of a petition seeking the imposition of a safeguard measure, or from the date he made motu proprio initiation, the Secretary shall make a preliminary determination on whether the increased imports of the product under consideration substantially cause or threaten to cause serious injury to the domestic industry.76 Such ruling is crucial since only upon the Secretary's positive preliminary determination that a threat to the domestic industry exists shall the matter be referred to the Tariff Commission for formal investigation, this time, to determine whether the general safeguard measure should be imposed or not.77 Pursuant to a positive preliminary determination, the Secretary may also decide that the imposition of a provisional safeguard measure would be warranted under Section 8 of the SMA.78 The Secretary is also Page 72 of 327

Tax 2 Cases for FE authorized to decide, after receipt of the report of the Tariff Commission, whether or not to impose the general safeguard measure, and if in the affirmative, what general safeguard measures should be applied.79 Even after the general safeguard measure is imposed, the Secretary is empowered to extend the safeguard measure,80 or terminate, reduce or modify his previous rulings on the general safeguard measure.81 With the explicit grant of certain powers involving safeguard measures by the SMA on the DTI Secretary, it follows that he is empowered to rule on several issues. These are the issues which arise in connection with, or in relation to, the imposition of a safeguard measure. They may arise at different stages the preliminary investigation stage, the post-formal investigation stage, or the post-safeguard measure stage yet all these issues do become ripe for resolution because an initiatory action has been taken seeking the imposition of a safeguard measure. It is the initiatory action for the imposition of a safeguard measure that sets the wheels in motion, allowing the Secretary to make successive rulings, beginning with the preliminary determination. Clearly, therefore, the scope and reach of the phrase "in connection with," as intended by Congress, pertain to all rulings of the DTI Secretary or Agriculture Secretary which arise from the time an application or motu proprio initiation for the imposition of a safeguard measure is taken. Indeed, the incidents which require resolution come to the fore only because there is an initial application or action seeking the imposition of a safeguard measure. From the legislative standpoint, it was a matter of sense and practicality to lump up the questions related to the initiatory application or action for safeguard measure and to assign only one court and; that is the CTA to initially review all the rulings related to such initiatory application or action. Both directions Congress put in place by employing the phrase "in connection with" in the law. Given the relative expanse of decisions subject to judicial review by the CTA under Section 29, we do not doubt that a negative ruling refusing to impose a safeguard measure falls within the scope of its jurisdiction. On a literal level, such negative ruling is "a ruling of the Secretary in connection with the imposition of a safeguard measure," as it is one of the possible outcomes that may result from the initial application or action for a safeguard measure. On a more critical level, the rulings of the DTI Secretary in connection with a safeguard measure, however diverse the outcome may be, arise from the same grant of jurisdiction on the DTI Secretary by the SMA.82 The refusal by the DTI Secretary to grant a safeguard measure involves the same grant of authority, the same statutory prescriptions, and the same degree of discretion as the imposition by the DTI Secretary of a safeguard measure. The position of the respondents is one of "uncritical literalism"83 incongruent with the animus of the law. Moreover, a fundamentalist approach to Section 29 is not warranted, considering the absurdity of the consequences. Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur Inconveniens Et Absurdum.84 Even assuming arguendo that Section 29 has not expressly granted the CTA jurisdiction to review a negative ruling of the DTI Secretary, the Court is precluded from favoring an interpretation that would cause inconvenience and absurdity.85 Adopting the respondents' position favoring the CTA's minimal jurisdiction would unnecessarily lead to illogical and onerous results. Indeed, it is illiberal to assume that Congress had intended to provide appellate relief to rulings imposing a safeguard measure but not to those declining to impose the measure. Respondents might argue that the right to relief from a negative ruling is not lost since the applicant could, as Philcemcor did, question such ruling through a special civil action for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, in lieu of an appeal to the CTA. Yet these two reliefs are of differing Page 73 of 327

Tax 2 Cases for FE natures and gravamen. While an appeal may be predicated on errors of fact or errors of law, a special civil action for certiorari is grounded on grave abuse of discretion or lack of or excess of jurisdiction on the part of the decider. For a special civil action for certiorari to succeed, it is not enough that the questioned act of the respondent is wrong. As the Court clarified in Sempio v. Court of Appeals: A tribunal, board or officer acts without jurisdiction if it/he does not have the legal power to determine the case. There is excess of jurisdiction where, being clothed with the power to determine the case, the tribunal, board or officer oversteps its/his authority as determined by law. And there is grave abuse of discretion where the tribunal, board or officer acts in a capricious, whimsical, arbitrary or despotic manner in the exercise of his judgment as to be said to be equivalent to lack of jurisdiction. Certiorari is often resorted to in order to correct errors of jurisdiction. Where the error is one of law or of fact, which is a mistake of judgment, appeal is the remedy.86 It is very conceivable that the DTI Secretary, after deliberate thought and careful evaluation of the evidence, may either make a negative preliminary determination as he is so empowered under Section 7 of the SMA, or refuse to adopt the definitive safeguard measure under Section 13 of the same law. Adopting the respondents' theory, this negative ruling is susceptible to reversal only through a special civil action for certiorari, thus depriving the affected party the chance to elevate the ruling on appeal on the rudimentary grounds of errors in fact or in law. Instead, and despite whatever indications that the DTI Secretary acted with measure and within the bounds of his jurisdiction are, the aggrieved party will be forced to resort to a gymnastic exercise, contorting the straight and narrow in an effort to discombobulate the courts into believing that what was within was actually beyond and what was studied and deliberate actually whimsical and capricious. What then would be the remedy of the party aggrieved by a negative ruling that simply erred in interpreting the facts or the law? It certainly cannot be the special civil action for certiorari, for as the Court held in Silverio v. Court of Appeals: "Certiorari is a remedy narrow in its scope and inflexible in its character. It is not a general utility tool in the legal workshop."87 Fortunately, this theoretical quandary need not come to pass. Section 29 of the SMA is worded in such a way that it places under the CTA's judicial review all rulings of the DTI Secretary, which are connected with the imposition of a safeguard measure. This is sound and proper in light of the specialized jurisdiction of the CTA over tax matters. In the same way that a question of whether to tax or not to tax is properly a tax matter, so is the question of whether to impose or not to impose a definitive safeguard measure. On another note, the second paragraph of Section 29 similarly reveals the legislative intent that rulings of the DTI Secretary over safeguard measures should first be reviewed by the CTA and not the Court of Appeals. It reads: The petition for review shall comply with the same requirements and shall follow the same rules of procedure and shall be subject to the same disposition as in appeals in connection with adverse rulings on tax matters to the Court of Appeals. This is the only passage in the SMA in which the Court of Appeals is mentioned. The express wish of Congress is that the petition conform to the requirements and procedure under Rule 43 of the Rules of Civil Procedure. Since Congress mandated that the form and procedure adopted be analogous to a review of a CTA ruling by the Court of Appeals, the legislative contemplation could not have been that the appeal be directly taken to the Court of Appeals. Page 74 of 327

Tax 2 Cases for FE Issue of Binding Effect of Tariff Commission's Factual Determination on DTI Secretary. The next issue for resolution is whether the factual determination made by the Tariff Commission under the SMA is binding on the DTI Secretary. Otherwise stated, the question is whether the DTI Secretary may impose general safeguard measures in the absence of a positive final determination by the Tariff Commission. The Court of Appeals relied upon Section 13 of the SMA in ruling that the findings of the Tariff Commission do not necessarily constitute a final decision. Section 13 details the procedure for the adoption of a safeguard measure, as well as the steps to be taken in case there is a negative final determination. The implication of the Court of Appeals' holding is that the DTI Secretary may adopt a definitive safeguard measure, notwithstanding a negative determination made by the Tariff Commission. Undoubtedly, Section 13 prescribes certain limitations and restrictions before general safeguard measures may be imposed. However, the most fundamental restriction on the DTI Secretary's power in that respect is contained in Section 5 of the SMAthat there should first be a positive final determination of the Tariff Commissionwhich the Court of Appeals curiously all but ignored. Section 5 reads: Sec. 5. Conditions for the Application of General Safeguard Measures. The Secretary shall apply a general safeguard measure upon a positive final determination of the [Tariff] Commission that a product is being imported into the country in increased quantities, whether absolute or relative to the domestic production, as to be a substantial cause of serious injury or threat thereof to the domestic industry; however, in the case of non-agricultural products, the Secretary shall first establish that the application of such safeguard measures will be in the public interest. (emphasis supplied) The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a "positive final determination." This power lodged in the Tariff Commission, must be distinguished from the power to impose the general safeguard measure which is properly vested on the DTI Secretary.88 All in all, there are two condition precedents that must be satisfied before the DTI Secretary may impose a general safeguard measure on grey Portland cement. First, there must be a positive final determination by the Tariff Commission that a product is being imported into the country in increased quantities (whether absolute or relative to domestic production), as to be a substantial cause of serious injury or threat to the domestic industry. Second, in the case of non-agricultural products the Secretary must establish that the application of such safeguard measures is in the public interest.89 As Southern Cross argues, Section 5 is quite clear-cut, and it is impossible to finagle a different conclusion even through overarching methods of statutory construction. There is no safer nor better settled canon of interpretation that when language is clear and unambiguous it must be held to mean what it plainly expresses:90 In the quotable words of an illustrious member of this Court, thus: [I]f a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. The verba legis or plain meaning rule rests on the valid presumption that the words employed by the Page 75 of 327

Tax 2 Cases for FE legislature in a statute correctly express its intent or will and preclude the court from construing it differently. The legislature is presumed to know the meaning of the words, to have used words advisedly, and to have expressed its intent by the use of such words as are found in the statute.91 Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA,92 which interprets Section 5 of the law, likewise requires a positive final determination on the part of the Tariff Commission before the application of the general safeguard measure. The SMA establishes a distinct allocation of functions between the Tariff Commission and the DTI Secretary. The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a "positive final determination." This power, which belongs to the Tariff Commission, must be distinguished from the power to impose general safeguard measure properly vested on the DTI Secretary. The distinction is vital, as a "positive final determination" clearly antecedes, as a condition precedent, the imposition of a general safeguard measure. At the same time, a positive final determination does not necessarily result in the imposition of a general safeguard measure. Under Section 5, notwithstanding the positive final determination of the Tariff Commission, the DTI Secretary is tasked to decide whether or not that the application of the safeguard measures is in the public interest. It is also clear from Section 5 of the SMA that the positive final determination to be undertaken by the Tariff Commission does not entail a mere gathering of statistical data. In order to arrive at such determination, it has to establish causal linkages from the statistics that it compiles and evaluates: after finding there is an importation in increased quantities of the product in question, that such importation is a substantial cause of serious threat or injury to the domestic industry. The Court of Appeals relies heavily on the legislative record of a congressional debate during deliberations on the SMA to assert a purported legislative intent that the findings of the Tariff Commission do not bind the DTI Secretary.93 Yet as explained earlier, the plain meaning of Section 5 emphasizes that only if the Tariff Commission renders a positive determination could the DTI Secretary impose a safeguard measure. Resort to the congressional records to ascertain legislative intent is not warranted if a statute is clear, plain and free from ambiguity. The legislature is presumed to know the meaning of the words, to have used words advisedly, and to have expressed its intent by the use of such words as are found in the statute.94 Indeed, the legislative record, if at all to be availed of, should be approached with extreme caution, as legislative debates and proceedings are powerless to vary the terms of the statute when the meaning is clear.95 Our holding in Civil Liberties Union v. Executive Secretary96 on the resort to deliberations of the constitutional convention to interpret the Constitution is likewise appropriate in ascertaining statutory intent: While it is permissible in this jurisdiction to consult the debates and proceedings of the constitutional convention in order to arrive at the reason and purpose of the resulting Constitution, resort thereto may be had only when other guides fail as said proceedings are powerless to vary the terms of the Constitution when the meaning is clear. Debates in the constitutional convention "are of value as showing the views of the individual members, and as indicating the reasons for their votes, but they give us no light as to the views of the large majority who did not talk xxx. We think it safer to construe the constitution from what appears upon its face."97

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Tax 2 Cases for FE Moreover, it is easy to selectively cite passages, sometimes out of their proper context, in order to assert a misleading interpretation. The effect can be dangerous. Minority or solitary views, anecdotal ruminations, or even the occasional crude witticisms, may improperly acquire the mantle of legislative intent by the sole virtue of their publication in the authoritative congressional record. Hence, resort to legislative deliberations is allowable when the statute is crafted in such a manner as to leave room for doubt on the real intent of the legislature. Section 5 plainly evinces legislative intent to restrict the DTI Secretary's power to impose a general safeguard measure by preconditioning such imposition on a positive determination by the Tariff Commission. Such legislative intent should be given full force and effect, as the executive power to impose definitive safeguard measures is but a delegated powerthe power of taxation, by nature and by command of the fundamental law, being a preserve of the legislature.98 Section 28(2), Article VI of the 1987 Constitution confirms the delegation of legislative power, yet ensures that the prerogative of Congress to impose limitations and restrictions on the executive exercise of this power: The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.99 The safeguard measures which the DTI Secretary may impose under the SMA may take the following variations, to wit: (a) an increase in, or imposition of any duty on the imported product; (b) a decrease in or the imposition of a tariff-rate quota on the product; (c) a modification or imposition of any quantitative restriction on the importation of the product into the Philippines; (d) one or more appropriate adjustment measures, including the provision of trade adjustment assistance; and (e) any combination of the above-described actions. Except for the provision of trade adjustment assistance, the measures enumerated by the SMA are essentially imposts, which precisely are the subject of delegation under Section 28(2), Article VI of the 1987 Constitution.100 This delegation of the taxation power by the legislative to the executive is authorized by the Constitution itself.101 At the same time, the Constitution also grants the delegating authority (Congress) the right to impose restrictions and limitations on the taxation power delegated to the President.102 The restrictions and limitations imposed by Congress take on the mantle of a constitutional command, which the executive branch is obliged to observe. The SMA empowered the DTI Secretary, as alter ego of the President,103 to impose definitive general safeguard measures, which basically are tariff imposts of the type spoken of in the Constitution. However, the law did not grant him full, uninhibited discretion to impose such measures. The DTI Secretary authority is derived from the SMA; it does not flow from any inherent executive power. Thus, the limitations imposed by Section 5 are absolute, warranted as they are by a constitutional fiat.104 Philcemcor cites our 1912 ruling in Lamb v. Phipps105 to assert that the DTI Secretary, having the final decision on the safeguard measure, has the power to evaluate the findings of the Tariff Commission and make an independent judgment thereon. Given the constitutional and statutory limitations governing the present case, the citation is misplaced. Lamb pertained to the discretion of the Insular Auditor of the Philippine Islands, whom, as the Court recognized, "[t]he statutes of the United States require[d] xxx to exercise his judgment upon the legality xxx [of] provisions of law and resolutions of Congress providing for the payment of money, the means of procuring testimony upon which he may act."106 Page 77 of 327

Tax 2 Cases for FE Thus in Lamb, while the Court recognized the wide latitude of discretion that may have been vested on the Insular Auditor, it also recognized that such latitude flowed from, and is consequently limited by, statutory grant. However, in this case, the provision of the Constitution in point expressly recognizes the authority of Congress to prescribe limitations in the case of tariffs, export/import quotas and other such safeguard measures. Thus, the broad discretion granted to the Insular Auditor of the Philippine Islands cannot be analogous to the discretion of the DTI Secretary which is circumscribed by Section 5 of the SMA. For that matter, Cario v. Commissioner on Human Rights,107 likewise cited by Philcemcor, is also inapplicable owing to the different statutory regimes prevailing over that case and the present petition. In Cario, the Court ruled that the constitutional power of the Commission on Human Rights (CHR) to investigate human rights' violations did not extend to adjudicating claims on the merits.108 Philcemcor claims that the functions of the Tariff Commission being "only investigatory," it could neither decide nor adjudicate.109 The applicable law governing the issue in Cario is Section 18, Article XIII of the Constitution, which delineates the powers and functions of the CHR. The provision does not vest on the CHR the power to adjudicate cases, but only to investigate all forms of human rights violations.110 Yet, without modifying the thorough disquisition of the Court in Cario on the general limitations on the investigatory power, the precedent is inapplicable because of the difference in the involved statutory frameworks. The Constitution does not repose binding effect on the results of the CHR's investigation.111 On the other hand, through Section 5 of the SMA and under the authority of Section 28(2), Article VI of the Constitution, Congress did intend to bind the DTI Secretary to the determination made by the Tariff Commission.112 It is of no consequence that such determination results from the exercise of investigatory powers by the Tariff Commission since Congress is well within its constitutional mandate to limit the authority of the DTI Secretary to impose safeguard measures in the manner that it sees fit. The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and Rule 13 of the SMA's Implementing Rules in support of the view that the DTI Secretary may decide independently of the determination made by the Tariff Commission. Admittedly, there are certain infelicities in the language of Section 13 and Rule 13. But reliance should not be placed on the textual imprecisions. Rather, Section 13 and Rule 13 must be viewed in light of the fundamental prescription imposed by Section 5. 113 Section 13 of the SMA lays down the procedure to be followed after the Tariff Commission renders its report. The provision reads in full: SEC. 13. Adoption of Definitive Measures. Upon its positive determination, the Commission shall recommend to the Secretary an appropriate definitive measure, in the form of: (a) An increase in, or imposition of, any duty on the imported product; (b) A decrease in or the imposition of a tariff-rate quota (MAV) on the product; (c) A modification or imposition of any quantitative restriction on the importation of the product into the Philippines; (d) One or more appropriate adjustment measures, including the provision of trade adjustment assistance; Page 78 of 327

Tax 2 Cases for FE (e) Any combination of actions described in subparagraphs (a) to (d). The Commission may also recommend other actions, including the initiation of international negotiations to address the underlying cause of the increase of imports of the product, to alleviate the injury or threat thereof to the domestic industry, and to facilitate positive adjustment to import competition. The general safeguard measure shall be limited to the extent of redressing or preventing the injury and to facilitate adjustment by the domestic industry from the adverse effects directly attributed to the increased imports: Provided, however, That when quantitative import restrictions are used, such measures shall not reduce the quantity of imports below the average imports for the three (3) preceding representative years, unless clear justification is given that a different level is necessary to prevent or remedy a serious injury. A general safeguard measure shall not be applied to a product originating from a developing country if its share of total imports of the product is less than three percent (3%): Provided, however, That developing countries with less than three percent (3%) share collectively account for not more than nine percent (9%) of the total imports. The decision imposing a general safeguard measure, the duration of which is more than one (1) year, shall be reviewed at regular intervals for purposes of liberalizing or reducing its intensity. The industry benefiting from the application of a general safeguard measure shall be required to show positive adjustment within the allowable period. A general safeguard measure shall be terminated where the benefiting industry fails to show any improvement, as may be determined by the Secretary. The Secretary shall issue a written instruction to the heads of the concerned government agencies to implement the appropriate general safeguard measure as determined by the Secretary within fifteen (15) days from receipt of the report. In the event of a negative final determination, or if the cash bond is in excess of the definitive safeguard duty assessed, the Secretary shall immediately issue, through the Secretary of Finance, a written instruction to the Commissioner of Customs, authorizing the return of the cash bond or the remainder thereof, as the case may be, previously collected as provisional general safeguard measure within ten (10) days from the date a final decision has been made: Provided, That the government shall not be liable for any interest on the amount to be returned. The Secretary shall not accept for consideration another petition from the same industry, with respect to the same imports of the product under consideration within one (1) year after the date of rendering such a decision. When the definitive safeguard measure is in the form of a tariff increase, such increase shall not be subject or limited to the maximum levels of tariff as set forth in Section 401(a) of the Tariff and Customs Code of the Philippines. To better comprehend Section 13, note must be taken of the distinction between the investigatory and recommendatory functions of the Tariff Commission under the SMA.

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Tax 2 Cases for FE The word "determination," as used in the SMA, pertains to the factual findings on whether there are increased imports into the country of the product under consideration, and on whether such increased imports are a substantial cause of serious injury or threaten to substantially cause serious injury to the domestic industry.114 The SMA explicitly authorizes the DTI Secretary to make a preliminary determination,115 and the Tariff Commission to make the final determination.116 The distinction is fundamental, as these functions are not interchangeable. The Tariff Commission makes its determination only after a formal investigation process, with such investigation initiated only if there is a positive preliminary determination by the DTI Secretary under Section 7 of the SMA.117 On the other hand, the DTI Secretary may impose definitive safeguard measure only if there is a positive final determination made by the Tariff Commission.118 In contrast, a "recommendation" is a suggested remedial measure submitted by the Tariff Commission under Section 13 after making a positive final determination in accordance with Section 5. The Tariff Commission is not empowered to make a recommendation absent a positive final determination on its part.119 Under Section 13, the Tariff Commission is required to recommend to the [DTI] Secretary an "appropriate definitive measure."120 The Tariff Commission "may also recommend other actions, including the initiation of international negotiations to address the underlying cause of the increase of imports of the products, to alleviate the injury or threat thereof to the domestic industry and to facilitate positive adjustment to import competition."121 The recommendations of the Tariff Commission, as rendered under Section 13, are not obligatory on the DTI Secretary. Nothing in the SMA mandates the DTI Secretary to adopt the recommendations made by the Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the application of such safeguard measures is in the public interest, notwithstanding the Tariff Commission's recommendation on the appropriate safeguard measure based on its positive final determination.122 The non-binding force of the Tariff Commission's recommendations is congruent with the command of Section 28(2), Article VI of the 1987 Constitution that only the President may be empowered by the Congress to impose appropriate tariff rates, import/export quotas and other similar measures.123 It is the DTI Secretary, as alter ego of the President, who under the SMA may impose such safeguard measures subject to the limitations imposed therein. A contrary conclusion would in essence unduly arrogate to the Tariff Commission the executive power to impose the appropriate tariff measures. That is why the SMA empowers the DTI Secretary to adopt safeguard measures other than those recommended by the Tariff Commission. Unlike the recommendations of the Tariff Commission, its determination has a different effect on the DTI Secretary. Only on the basis of a positive final determination made by the Tariff Commission under Section 5 can the DTI Secretary impose a general safeguard measure. Clearly, then the DTI Secretary is bound by the determination made by the Tariff Commission. Some confusion may arise because the sixth paragraph of Section 13124 uses the variant word "determined" in a different context, as it contemplates "the appropriate general safeguard measure as determined by the Secretary within fifteen (15) days from receipt of the report." Quite plainly, the word "determined" in this context pertains to the DTI Secretary's power of choice of the appropriate safeguard measure, as opposed to the Tariff Commission's power to determine the existence of conditions necessary for the imposition of any safeguard measure. In relation to Section 5, such choice also relates to the mandate of the DTI Secretary to establish that the application of safeguard measures is in the public interest, also within the fifteen (15) day period. Nothing in Section 13 contradicts the instruction in Section 5 that the DTI Secretary is allowed to impose the general safeguard measures only if there is a positive determination made by the Tariff Commission.

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Tax 2 Cases for FE Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned "Final Determination by the Secretary." The assailed Decision and Philcemcor latch on this phraseology to imply that the factual determination rendered by the Tariff Commission under Section 5 may be amended or reversed by the DTI Secretary. Of course, implementing rules should conform, not clash, with the law that they seek to implement, for a regulation which operates to create a rule out of harmony with the statute is a nullity.125 Yet imperfect draftsmanship aside, nothing in Rule 13.2 implies that the DTI Secretary can set aside the determination made by the Tariff Commission under the aegis of Section 5. This can be seen by examining the specific provisions of Rule 13.2, thus: RULE 13.2. Final Determination by the Secretary RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report of the Commission, the Secretary shall make a decision, taking into consideration the measures recommended by the Commission. RULE 13.2.b. If the determination is affirmative, the Secretary shall issue, within two (2) calendar days after making his decision, a written instruction to the heads of the concerned government agencies to immediately implement the appropriate general safeguard measure as determined by him. Provided, however, that in the case of non-agricultural products, the Secretary shall first establish that the imposition of the safeguard measure will be in the public interest. RULE 13.2.c. Within two (2) calendar days after making his decision, the Secretary shall also order its publication in two (2) newspapers of general circulation. He shall also furnish a copy of his Order to the petitioner and other interested parties, whether affirmative or negative. (Emphasis supplied.) Moreover, the DTI Secretary does not have the power to review the findings of the Tariff Commission for it is not subordinate to the Department of Trade and Industry ("DTI"). It falls under the supervision, not of the DTI nor of the Department of Finance (as mistakenly asserted by Southern Cross),126 but of the National Economic Development Authority, an independent planning agency of the government of co-equal rank as the DTI.127 As the supervision and control of a Department Secretary is limited to the bureaus, offices, and agencies under him,128 the DTI Secretary generally cannot exercise review authority over actions of the Tariff Commission. Neither does the SMA specifically authorize the DTI Secretary to alter, amend or modify in any way the determination made by the Tariff Commission. The most that the DTI Secretary could do to express displeasure over the Tariff Commission's actions is to ignore its recommendation, but not its determination. The word "determination" as used in Rule 13.2 of the Implementing Rules is dissonant with the same word as employed in the SMA, which in the latter case is undeviatingly in reference to the determination made by the Tariff Commission. Beyond the resulting confusion, however, the divergent use in Rule 13.2 is explicable as the Rule textually pertains to the power of the DTI Secretary to review the recommendations of the Tariff Commission, not the latter's determination. Indeed, an examination of the specific provisions show that there is no real conflict to reconcile. Rule 13.2 respects the logical order imposed by the SMA. The Rule does not remove the essential requirement under Section 5 that a positive final determination be made by the Tariff Commission before a definitive safeguard measure may be imposed by the DTI Secretary.

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Tax 2 Cases for FE The assailed Decision characterizes the findings of the Tariff Commission as merely recommendatory and points to the DTI Secretary as the authority who renders the final decision.129 At the same time, Philcemcor asserts that the Tariff Commission's functions are merely investigatory, and as such do not include the power to decide or adjudicate. These contentions, viewed in the context of the fundamental requisite set forth by Section 5, are untenable. They run counter to the statutory prescription that a positive final determination made by the Tariff Commission should first be obtained before the definitive safeguard measures may be laid down. Was it anomalous for Congress to have provided for a system whereby the Tariff Commission may preclude the DTI, an office of higher rank, from imposing a safeguard measure? Of course, this Court does not inquire into the wisdom of the legislature but only charts the boundaries of powers and functions set in its enactments. But then, it is not difficult to see the internal logic of this statutory framework. For one, as earlier stated, the DTI cannot exercise review powers over the Tariff Commission which is not its subordinate office. Moreover, the mechanism established by Congress establishes a measure of check and balance involving two different governmental agencies with disparate specializations. The matter of safeguard measures is of such national importance that a decision either to impose or not to impose then could have ruinous effects on companies doing business in the Philippines. Thus, it is ideal to put in place a system which affords all due deliberation and calls to fore various governmental agencies exercising their particular specializations. Finally, if this arrangement drawn up by Congress makes it difficult to obtain a general safeguard measure, it is because such safeguard measure is the exception, rather than the rule. The Philippines is obliged to observe its obligations under the GATT, under whose framework trade liberalization, not protectionism, is laid down. Verily, the GATT actually prescribes conditions before a membercountry may impose a safeguard measure. The pertinent portion of the GATT Agreement on Safeguards reads: 2. A Member may only apply a safeguard measure to a product only if that member has determined, pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products.130 3. (a) A Member may apply a safeguard measure only following an investigation by the competent authorities of that Member pursuant to procedures previously established and made public in consonance with Article X of the GATT 1994. This investigation shall include reasonable public notice to all interested parties and public hearings or other appropriate means in which importers, exporters and other interested parties could present evidence and their views, including the opportunity to respond to the presentations of other parties and to submit their views, inter alia, as to whether or not the application of a safeguard measure would be in the public interest. The competent authorities shall publish a report setting forth their findings and reasoned conclusions reached on all pertinent issues of fact and law.131 The SMA was designed not to contradict the GATT, but to complement it. The two requisites laid down in Section 5 for a positive final determination are the same conditions provided under the Page 82 of 327

Tax 2 Cases for FE GATT Agreement on Safeguards for the application of safeguard measures by a member country. Moreover, the investigatory procedure laid down by the SMA conforms to the procedure required by the GATT Agreement on Safeguards. Congress has chosen the Tariff Commission as the competent authority to conduct such investigation. Southern Cross stresses that applying the provision of the GATT Agreement on Safeguards, the Tariff Commission is clearly empowered to arrive at binding conclusions.132 We agree: binding on the DTI Secretary is the Tariff Commission's determinations on whether a product is imported in increased quantities, absolute or relative to domestic production and whether any such increase is a substantial cause of serious injury or threat thereof to the domestic industry.133 Satisfied as we are with the proper statutory paradigm within which the SMA should be analyzed, the flaws in the reasoning of the Court of Appeals and in the arguments of the respondents become apparent. To better understand the dynamics of the procedure set up by the law leading to the imposition of definitive safeguard measures, a brief step-by-step recount thereof is in order. 1. After the initiation of an action involving a general safeguard measure,134 the DTI Secretary makes a preliminary determination whether the increased imports of the product under consideration substantially cause or threaten to substantially cause serious injury to the domestic industry,135 and whether the imposition of a provisional measure is warranted under Section 8 of the SMA.136 If the preliminary determination is negative, it is implied that no further action will be taken on the application. 2. When his preliminary determination is positive, the Secretary immediately transmits the records covering the application to the Tariff Commission for immediate formal investigation.137 3. The Tariff Commission conducts its formal investigation, keyed towards making a final determination. In the process, it holds public hearings, providing interested parties the opportunity to present evidence or otherwise be heard.138 To repeat, Section 5 enumerates what the Tariff Commission is tasked to determine: (a) whether a product is being imported into the country in increased quantities, irrespective of whether the product is absolute or relative to the domestic production; and (b) whether the importation in increased quantities is such that it causes serious injury or threat to the domestic industry.139 The findings of the Tariff Commission as to these matters constitute the final determination, which may be either positive or negative. 4. Under Section 13 of the SMA, if the Tariff Commission makes a positive determination, the Tariff Commission "recommends to the [DTI] Secretary an appropriate definitive measure." The Tariff Commission "may also recommend other actions, including the initiation of international negotiations to address the underlying cause of the increase of imports of the products, to alleviate the injury or threat thereof to the domestic industry, and to facilitate positive adjustment to import competition."140 5. If the Tariff Commission makes a positive final determination, the DTI Secretary is then to decide, within fifteen (15) days from receipt of the report, as to what appropriate safeguard measures should he impose. 6. However, if the Tariff Commission makes a negative final determination, the DTI Secretary cannot impose any definitive safeguard measure. Under Section 13, he is instructed instead to return whatever cash bond was paid by the applicant upon the initiation of the action for safeguard measure. The Effect of the Court's Decision Page 83 of 327

Tax 2 Cases for FE The Court of Appeals erred in remanding the case back to the DTI Secretary, with the instruction that the DTI Secretary may impose a general safeguard measure even if there is no positive final determination from the Tariff Commission. More crucially, the Court of Appeals could not have acquired jurisdiction over Philcemcor's petition for certiorari in the first place, as Section 29 of the SMA properly vests jurisdiction on the CTA. Consequently, the assailed Decision is an absolute nullity, and we declare it as such. What is the effect of the nullity of the assailed Decision on the 5 June 2003 Decision of the DTI Secretary imposing the general safeguard measure? We have recognized that any initial judicial review of a DTI ruling in connection with the imposition of a safeguard measure belongs to the CTA. At the same time, the Court also recognizes the fundamental principle that a null and void judgment cannot produce any legal effect. There is sufficient cause to establish that the 5 June 2003 Decision of the DTI Secretary resulted from the assailed Court of Appeals Decision, even if the latter had not yet become final. Conversely, it can be concluded that it was because of the putative imprimatur of the Court of Appeals' Decision that the DTI Secretary issued his ruling imposing the safeguard measure. Since the 5 June 2003 Decision derives its legal effect from the void Decision of the Court of Appeals, this ruling of the DTI Secretary is consequently void. The spring cannot rise higher than the source. The DTI Secretary himself acknowledged that he drew stimulating force from the appellate court's Decision for in his own 5 June 2003 Decision, he declared: From the aforementioned ruling, the CA has remanded the case to the DTI Secretary for a final decision. Thus, there is no legal impediment for the Secretary to decide on the application.141 The inescapable conclusion is that the DTI Secretary needed the assailed Decision of the Court of Appeals to justify his rendering a second Decision. He explicitly invoked the Court of Appeals' Decision as basis for rendering his 5 June 2003 ruling, and implicitly recognized that without such Decision he would not have the authority to revoke his previous ruling and render a new, obverse ruling. It is clear then that the 25 June 2003 Decision of the DTI Secretary is a product of the void Decision, it being an attempt to carry out such null judgment. There is therefore no choice but to declare it void as well, lest we sanction the perverse existence of a fruit from a non-existent tree. It does not even matter what the disposition of the 25 June 2003 Decision was, its nullity would be warranted even if the DTI Secretary chose to uphold his earlier ruling denying the application for safeguard measures. It is also an unfortunate spectacle to behold the DTI Secretary, seeking to enforce a judicial decision which is not yet final and actually pending review on appeal. Had it been a judge who attempted to enforce a decision that is not yet final and executory, he or she would have readily been subjected to sanction by this Court. The DTI Secretary may be beyond the ambit of administrative review by this Court, but we are capacitated to allocate the boundaries set by the law of the land and to exact fealty to the legal order, especially from the instrumentalities and officials of government. WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI Secretary dated 25 June 2003 is also DECLARED NULL AND VOID and SET ASIDE. No Costs. SO ORDERED.

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Tax 2 Cases for FE Puno, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

Footnotes
1

Globalization is "the removal of barriers to free trade and the closer integration of national economies." In recent times, protests against globalization have entered a new stage. Riots and demonstrations against the policies of and actions by institutions of globalization have become commonplace even in developed countries. France's Jacques Chirac has expressed concern that globalization is not making life better for those most in need of its promised benefits. J. Stiglitz, , Globalization and Its Discontents, pp. 1-4 (2002).
2

The policy objective that guides the General Safeguard Measures Act is enunciated in Section 2 thereof, which reads: "Section 2. Declaration of Policy. The State shall promote the competitiveness of domestic industries and producers based on sound industrial and agricultural development policies, and the efficient use of human, natural and technical resources. In pursuit of this goal and in the public interest, the State shall provide safeguard measures to protect domestic industries and producers from increased imports which cause or threaten to cause serious injury to those domestic industries and producers."
3

GATT was a collection of treaties governing access to the economics of treaty adherents with no institutionalized body administering the agreements or dependable system of dispute settlement. (See Taada v. Angara, 338 Phil. 546, 556 (1997)) Originally formulated in 1947, the GATT was updated in 1994 to take into account substantive and institutional changes negotiated in the Uruguay Round. A comprehensive history of the GATT is recounted in Footnote No. 1 of Taada v. Angara, id. at 557-561.
4

Supra note 2. Rollo, p. 14.

Philcemcor has since renamed itself the Cement Manufacturers Association of the Philippines. Rollo, p. 1364.
7

Union Cement Corporation, Northern Cement Corporation, Limay Grinding Mill Corporation, Republic Cement Corporation, Continental Operating Corporation, Rizal Cement Company, Inc., Solid Cement Corporation, FR Cement Corporation, Union Cement Corporation, Fortune Cement Corporation, Apo Cement Corporation, Lloyds-Richfield Industrial Corporation, Grand Cement Manufacturing Corporation, Alsons Cement Corporation, Iligan Cement Corporation, Mindanao Portland Cement Corporation, Pacific Cement Company, Inc., and Union Cement Corporation. Vide "Staff Report on Formal Investigation of Safeguard Measures Case Against Importations of Gray Portland Cement." Rollo, p. 132.

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8

Vide "Staff Report on Formal Investigation of Safeguard Measures Case Against Importations of Gray Portland Cement." Rollo at 133. This fact was confirmed by counsel for Philcemcor during the oral argument before this Court on 18 February 2004. See TSN, pp. 157-158, 18 February 2004.
9

Philcemcor's application covered gray Portland cement of all types and excluded white Portland cement, aluminous cement, and masonry cement. Rollo, p. 127.
10

Namely, Philcemcor in behalf of twelve (12) of its member-companies, as follows: Alsons Cement Corporation; Apo Cement Corporation; Continental Operating Corporation, Fortune Cement Corporation; FR Cement Corporation; Iligan Cement Corporation; Lloyds Richfield Industrial Corporation; Mindanao Portland Cement Corporation; Republic Cement Corporation; Rizal Cement Company, Inc.; Solid Cement Corporation; and Union Cement Corporation. The other cement producers (i.e., Limay Grinding Mill Corporation and Pacific Cement Philippines, Inc.) that did not join the application nevertheless supported the application for the imposition of the safeguard measures. Rollo, p. 127. Limay Grinding Mill Corporation and Pacific Cement Philippines, Inc. did not join the application yet nevertheless supported the same. Id.
11

Ibid. Id. at 128.

12

13

Ibid. Customs Memorandum Order No. 38-2001 directed that all importations from all countries of gray Portland cement, including blended Portland cement that contains pozzolan, slag or other additives, whether in bulk or bags, classified under HS Codes 2523.29 00 and 2523.90 00, shall be imposed, in addition to taxes and duties and other charges, a cash bond amounting to P20.60 per 40-kg. bag or its equivalent in bulk.
14

Id. at 129.

15

Also in attendance were representatives from Philcemcor, Lafarge, Cemex, TCC Cement Corporation, Southern Cross Cement Corporation, PriceWaterhouse Coopers, Samstone Infra-Construction Supply, Westpoint Industrial Sales Company, Cohaco Trading Corporation, Philippine Constructors Association, Confederation of Homeowners Association for Reforms on Governance and Environment, Ssangyong Corporation, National Constructors Association of the Philippines, Private Sector Consultative Council for Shelter, Fair Trade Alliance, Philippine Cement Workers' Council, Refractories Corporation of the Philippines, Embassy of Japan, Embassy of Indonesia, the House of Representatives, and Arellano Law School. Id. at 130.
16

Ibid. Position papers supporting the application were received from: Philcemcor; Refractories Corporation of the Philippines; Tiger Machinery and Industrial Corporation; Cembag Plastic Industries, Ltd.; Union Lock Industrial and Trading Corporation; Refratrade Industrial Resources. Inc., CAPP Industries, Inc.; Noble Energy; Arcman Corporation; United Bag Manufacturing Corporation; IGNIS Ltd., Accufloor, Inc.; Primex International Philippines, Inc.; and Allied Distributor. On the other hand, position papers/manifestations opposing the application were submitted by: Southern Cross; Taiheiyo Cement Corporation; TCC Cement Page 86 of 327

Tax 2 Cases for FE Corporation; Taiwan Cement Corporation; Cohaco Trading Corporation; Samstone Infra-Construction Supply; Consumers Union of the Philippines; Confederation of Homeowners Association for Reforms on Governance and Environment; Philippine Constructors Association; and the Embassy of Indonesia.
17

The visits were conducted during the period of 10 December 2001 to 17 January 2002. The information gathered or verified during the visits pertained to such matters as the production process, production lines, machinery and equipment, quality test results, plant capacities, production levels, production cost, sales, selling prices, loans, employment, inventory levels, company ownership, and plant shutdowns or mothballing plans. Id. at 131.
18

The Tariff Commission concluded that while the market share of the domestic industry (i.e., the applicant-companies) had declined from almost 99% in 1998 to 80% in 2001, the local industry remained the significantly dominant market player. Id. at 290-291.
19

The Report determined that while domestic sales of the applicant-companies had declined since 1998, such decline was offset by an increase in export sales volume. The domestic industry likewise suffered a decline in production in the year 2000, when imports started to surge, at a rate of 5% from the previous year, yet such decline was not sharp nor significant enough relative to the years prior to the surge to constitute serious impairment in the production and sales of the industry. Id. at 292.
20

Anent the applicant-companies, it was found that while industry capacity utilization declined from 1996 to 1999, the decline was actually arrested in 2000, the year imports surged. Capacity utilization did decline in the first three quarters of 2001 relative to the same period in 2000, yet such decline was not sudden, sharp, nor significant enough in the contemplation of the law as to constitute serious impairment of the industry's overall condition. Id. at 294.
21

It was determined that total sales revenues of the applicant companies in the year 2000, when imports surged, had actually peaked at P25.97 billion pesos, the highest level in at least five years. The applicant-companies' income from operations had likewise registered a profit of P1.98 billion in 2000, representing an upturn of 175.51% from 1999, before imports surged, when a total loss of P2.62 billion was incurred by these companies. Id. at 296.
22

According to the Tariff Commission, a negative return on sales of the applicantcompanies was registered in 1999, when imports had not yet surged, due to a deficit from operations of P2.62 billion in 1999. However, as imports surged in 2000, the applicant-companies had registered a positive return of 7.62%, as operating income of P1.98 billion was realized for that year. Id. at 298.
23

Id. at 302. Id. at 303. Rollo, p. 343.

24

25

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Tax 2 Cases for FE

26

Id. at 334-341. Rollo, pp. 343-345. Id. at 345-416.

27

28

29

Among other claims, Philcemcor alleged that the Tariff Commission arbitrarily ignored the nature of the cement industry in evaluating the injury factors. Rollo, p. 394.
30

Rollo, pp. 418-490.

31

Chaired by Associate Justice Portia Alio-Hormachuelos, and with Justices Elvi John S. Asuncion and Edgardo F. Sundiam as members.
32

Rollo, pp. 492-493. Penned by Justice E.J.S. Asuncion, concurred in by Justices P. Alio-Hormachuelos and E.F. Sundiam. The dispositive portion of the Writ of Preliminary Injunction reads as follows: "NOW, THEREFORE, You, the public respondents, the Hon. Secretary of the Dept. of Trade & Industry, the Tariff Commission, the Hon. Commissioner of the Bureau of Customs, and the Hon. Secretary of the Dept. of Finance or any of your agents or representatives, are hereby restrained and prohibited from enforcing the decision dated April 5, 2002 of the Hon. Secretary Manuel A. Roxas II of the Dept. of Trade & Industry in DTI SG No. 02-2001. SO ORDERED." (Rollo, p. 496)
33

Rollo, p. 24.

34

Id. at p. 594. The 19 February 2003 Resolution of the Court of Appeals also granted the Motion for Intervention filed by Vicente T. Lao. However, despite due notice, Lao failed to file his comment in intervention. See Rollo, p. 72.
35

In the meantime, frustrated by the failure of the Court of Appeals to resolve Southern Cross's Motion for Reconsideration, Southern Cross filed a Petition for Certiorari with this Court on 12 March 2003. See Rollo, pp. 596-654. Owing to the pending Motion for Reconsideration before the Court of Appeals, the Supreme Court First Division dismissed Southern Cross's first Petition for Certiorari as premature in a Resolution dated 17 March 2003. Rollo, p. 655.
36

Rollo, pp. 67-84. Penned by Justice E.J.S. Asuncion, concurred in by Justices P. Alio-Hormachuelos and E.F. Sundiam.
37

Rollo, pp. 75-76, citing Litonjua v. Court of Appeals, 286 SCRA 136 (1998) and Sta. Ines Melale Forest Products Corporation v. Macaraig, 299 SCRA 491 (1998).
38

Id. at 82. Id. at 83.

39

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40

See Section 2, Rule 36, 1997 Rules of Civil Procedure.

41

Rollo, p. 685. Prior to the promulgation of this new Decision, Southern Cross was already apprehensive that the DTI Secretary might act favorably on Philcemcor's petition in light of the Court of Appeals ruling. Southern Cross sent a letter dated 19 June 2003 to DTI Secretary Roxas, informing him that Southern Cross would be appealing the Court of Appeals Decision to the Supreme Court, and that "[w]e trust that, in accordance with the Rules of Court, you will refrain from assuming jurisdiction or from taking any action on the Application for Safeguard Measures filed by Philcemcor until after the Supreme Court shall have finally decided on our appeal xxx." See Rollo, pp. 679-680.
42

Among the factors cited by the DTI as basis for holding that there was serious injury was the decline in sales volumes during the period of the import surge, sales volume decreasing by 11.72% in 2000, and by 13.28% during the first three quarters of 2001. It also cited the decline in the domestic industry's market share from 98.60% in 1998 to 79.23% in 2001, representing a 20% drop. The import surge had also caused the idling of seven (7) dry kilns, a decline in actual production of the domestic industry by 7.2% from 1998 to 2001; a decrease in capacity utilization; and net losses to the domestic industry amounting to around P7.7 billion in 1999 and P5.5 billion in 2000. See Rollo, pp. 688-690.
43

Rollo, pp. 681-699.

44

There is a certain novelty to Philcemcor's claim, considering that the purported common identity of causes of action arose not with the filing of the initiatory pleading, but with the ancillary action for injunction. We do not doubt that forumshopping can be committed even if the identical relief or cause of action is sought or asserted before a different forum not in the initiatory pleading, but in an application for provisional relief. Forum-shopping is frowned upon as it affords the litigant the opportunity to avail of the same relief based on the same cause of action before different jurisdictions. For so long as the courts or tribunals are capacitated to grant the reliefs sought, the mode through which the redress is sought becomes immaterial.
45

Rollo, pp. 952-1005. In a Resolution dated 4 February 2004. See Rollo, p. 1191. TSN, 18 February 2004, p. 3. Ibid.

46

47

48

49

See e.g., Churchill v. Rafferty, 32 Phil. 580, 582-583 (1915); David v. Hon. Ramos, 90 Phil. 351, 354-356 (1951).
50

See e.g., Section 11, Rep. Act No. 1125. See Section 218, Rep. Act No. 8424. See Section 29, Rep. Act No. 8800. Page 89 of 327

51

52

Tax 2 Cases for FE

53

See Section 5, Rule 7, 1997 Rules of Civil Procedure. Rollo, p. 74.

54

55

See Section 1, Rule 65 in relation to Section 4, Rule 65, 1997 Rules of Civil Procedure. "The original jurisdiction of the Court of Appeals over special civil actions for, inter alia, certiorari, is vested upon it in Section 9(l ) of B.P. Blg. 129. This jurisdiction is concurrent with the Supreme Court and the Regional Trial Court." Atty. Paa v. Court of Appeals, 347 Phil. 122, 137 (1997).
56

See Section 1, Rule 65, 1997 Rules of Civil Procedure. See also Building Care Corp. v. NLRC, 335 Phil. 1131, 1138 (1997); Bernardo v. Court of Appeals, 341 Phil. 413, 425 (1997); BF Corporation v. Court of Appeals, 351 Phil. 507, 519 (1998); Tan v. Sandiganbayan, 354 Phil. 463, 469 (1998).
57

Before the passage of RA No. 9282 on 30 March 2004, appeal from the decisions of the Court of Tax Appeals was to the Court of Appeals.
58

Secretary of Finance v. Agana, G.R. No. L-36276, 17 January 1975, 62 SCRA 68, 73. "The CTA is a highly specialized body specifically created for the purpose of reviewing tax cases," Phil. Refining Co. v. CA, 326 Phil. 680, 689 (1996); CIR v. CA, 338 Phil. 322, 336 (1997).
59

Commissioner of Internal Revenue v. CA, 363 Phil. 239, 246 (1999).

60

Philippine Ports Authority v. Fuentes, G.R. No. 91259, 16 April 1991, 195 SCRA 790, 796.
61

See Section 7, Rep. Act No. 1125. But see also Section 7, Rep. Act No. 9282. See Section 7, Rep. Act No. 9282 (2004). See, e.g., ALU v. Gomez, 125 Phil. 717, 722 (1967).

62

63

64

ALU v. Gomez, supra note 60; Atlas Consolidated v. Court of Appeals, G.R. No. 54305, February 14, 1990, 182 SCRA 166, 181.
65

Supra note 55. Also, before the enactment of R.A. No. 9282, decisions of the CTA were appealable to the Court of Appeals.
66

G.R. No. 79622, 29 September 1989, 178 SCRA 164. Tejada v. Homestead Property Corporation, id. at 168. 463 US 85 (1983).

67

68

69

Id. at 96-97 (1983), citing Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289 US 689, 695 (1933); and Black's Law Dictionary 1158 (5th ed 1979), which states "Relate. To stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with."

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70

514 US 645 (1995). Id. at 656. Id. at 656. See also Egelhoff v. Egelhoff, 000 U.S. 99-1529 (2001).

71

72

73

"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." CIR v. TMX Sales, G.R. No. 83736, 15 January 1992, 205 SCRA 184, 188, citing Manila Lodge No. 761, et al. vs. Court of Appeals, et al., 73 SCRA 162 (1976).
74

See Section 4(n), Chapter I, Rep. Act No. 8800.

75

See Section 29, Rep. Act No. 8800, infra, in relation to Section 4(n), Chapter I, Rep. Act No. 8800.
76

Section 7, Rep. Act No. 8800. Ibid. Section 8, Rep. Act No. 8800. Id. at Sec. 13. Id. at Sec. 19. Id. at Sec. 18. Accord Tejada, supra note 61. Supra note 66.

77

78

79

80

81

82

83

84

"Where there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted."
85

CIR v. TMX Sales, supra note 66. Sempio v. Court of Appeals, 331 Phil. 912, 922-923 (1996).

86

87

Silverio v. Court of Appeals, 225 Phil. 459, 474 (1986), citing State v. Dawson, 325 S.W. 97. 99. See also San Miguel Foods, Inc. v. Hon. Laguesma, 331 Phil. 356, 376 (1996).
88

The distinction must also be laid between the power of the DTI Secretary to impose a provisional safeguard measure under Section 8 of the SMA and a general safeguard measure under Section 13. Under Section 8, the decision to impose a provisional safeguard measure is clearly within the sole discretion of the DTI Secretary, without need to take into account what other governmental agencies may say. Yet under Section 13, in relation to Section 8 of the SMA, the decision by

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Tax 2 Cases for FE the DTI Secretary to impose the general safeguard measure is indubitably predicated on a positive final determination by the Tariff Commission.
89

Section 5, Rep. Act No. 8800. Sutherland, Statutes and Statutory Construction, Vol. 2A, 5th ed., p. 81 (1973).

90

91

Republic v. Court of Appeals, G.R. Nos. 103882 & 105276, 25 November 1998, 299 SCRA 199, 270-271, J. Puno, concurring. See also Globe-Mackay Cable and Radio Corp. v. NLRC, G.R. No. 82511, 3 March 1992, 206 SCRA 701, 711, citing R. Agpalo, Statutory Construction, p. 94 (1990); Victoria v. COMELEC, G.R. No. 109005, 10 January 1994, 229 SCRA 269, 273; Supt. Fianza v. PLEB, G.R. Nos. 109638 & 109639, 31 March 1995, 243 SCRA 165, 178.
92

Joint Administrative Order No. 03-00, promulgated on 9 August 2000, and signed by the then Secretaries of Trade and Industry, Agriculture and Finance, as well as the Commissioner of the Bureau of Customs and the Chairman of the Tariff Commission.
93

See Rollo, pp. 81-82. Supra note 91.

94

95

See Civil Liberties Union v. Executive Secretary, G.R. Nos. 83896 & 83815; 22 February 1991, 194 SCRA 317, 337.
96

Ibid. Id. at 337.

97

98

See Section 24, Article VI, Constitution. "The power of taxation being legislative, all the incidents are within the control of the Legislature." Sarasola v. Trinidad, 40 Phil. 252, 263 (1919), citing Genet v. City of Brooklyn [1885], 99 N.Y., 296. See also National Dental Supply v. Meer, 90 Phil. 265, 268-269 (1951); Pepsi-Cola Bottling Company of the Philippines, Inc. v. Municipality of Tanauan, et. al., 161 Phil. 591, 600 (1976).
99

Article VI, Section 28 (2), 1987 Constitution. See Section 13, Rep. Act No. 8800.

100

"Thus, our fundamental also distinguishes between taxes, on the one hand, and "imposts" that is to say, tariff rates or duties imposed for the importation of goods on the other." Procter & Gamble Phil. Mfg. Corp. v. Comm. of Customs, 132 Phil. 169, 175 (1968).
101

As opined by Justice Irene Cortes, the indubitable authority in Administrative Law, "Where the Constitution itself authorizes the delegation there can obviously be no objection to it provided the constitutional conditions are met." I. Cortes, Philippine Administrative Law: Cases and Materials 12 (1963).
102

Supra note 99.

Page 92 of 327

Tax 2 Cases for FE

103

"Without minimizing the importance of the heads of the various departments, their personality is in reality but the projection of that of the President. Stated otherwise, and as forcibly characterized by Chief Justice Taft of the Supreme Court of the United States, 'each head of a department is, and must be, the President's alter ego in the matters of that department where the President is required by law to exercise authority'" Villena v. Secretary of Interior, 67 Phil. 451, 464 (1939).
104

Supra note 89. 22 Phil. 456 (1912).

105

106

Lamb v. Phipps, 22 Phil. 456, 480 (1912). The statutory authority cited by the Court in Lambs is Rev. Stat. of U.S., secs. 184, 187, 269, 277.
107

G.R. No. 96681, 2 December 1991, 204 SCRA 483. Id. at 496.

108

109

The functions of the Tariff Commission are traditionally investigatory. For example, both the law that created the Tariff Commission and the Tariff and Customs Code mandate the Commission to investigate, among others, the administration, fiscal and industrial effects of the tariff laws of this country. See Section 5, Rep. Act No. 911 & Section 505, Rep. Act No. 1937. Even in the SMA, the process by which the Tariff Commission arrives at its determination is denominated as a "formal investigation."
110

See Section 18 (1), Article XIII, Constitution.

111

Constitutional Commissioner Fr. Joaquin Bernas, citing the Record of the 1986 Constitutional Commission, says that for the prosecution of human rights violations, the CHR would have to rely on the appropriate government agencies such as the Fiscal's Office. J. Bernas, The Intent of the 1986 Constitution Writers 1014 (1995), citing IV Record of the Constitutional Commission: Proceedings and Debates 712.
112

Supra notes 89 and 99.

113

Ironically, the Court of Appeals invokes the doctrine that "a statute must be construed as to harmonize and give effect to all its provisions whenever possible," see rollo, p. 79, while failing to take into account Section 5 of Rep. Act No. 8800.
114

See Sections 5, 7, 8, 12 & 13, Rep. Act No. 8800. Section 7, Rep. Act No. 8800. Section 5, Rep. Act No. 8800. See also Section 9, Rep. Act No. 8800. Supra note 89. Section 13, Rep. Act No. 8800. Page 93 of 327

115

116

117

118

119

Tax 2 Cases for FE

120

"Upon its positive determination, the Commission shall recommend to the Secretary an appropriate definitive measure xxx." Supra note 89.
121

Section 13, Rep. Act No. 8800. See Section 5, Rep. Act No. 8800, in relation to Section 13, Rep. Act No. 8800. Supra note 99.

122

123

124

"The Secretary shall issue a written instruction to the heads of the concerned government agencies to implement the appropriate general safeguard measure as determined by the Secretary within fifteen (15) days from receipt of the report."
125

Regidor v. Chiongbian, G.R. No. 85815, 19 May 1989, 173 SCRA 507, 512; citing Commissioner of Internal Revenue v. Vda. de Prieto, L-13912, September 30, 1950. "A rule or regulation that was issued to implement a law may not go beyond the terms and provisions of the law." Regidor v. Chiongbian, id.; citing People v. Lim, 108 Phil. 1091.
126

Rollo, p. 1323, citing a provision of the repealed Revised Administrative Code.

127

See Sections 2 & 16, Chapter I, Subtitle C, Title II, Book V, Administrative Code of 1987. The supervision exercised by the NEDA over the Tariff Commission is administrative in nature. See Section 38(2), Chapter 7, Book IV, Administrative Code of 1987.
128

Section 39, Chapter 8, Book IV, Administrative Code of 1987. Rollo, p. 80. Section II(2), GATT Agreement on Safeguards. Section II(3)(a), GATT Agreement on Safeguards. Rollo, p. 1321. Supra note 89. See Section 5, Rep. Act No. 8800. Supra note 70. Section 6, Rep. Act No. 8800. Section 7, Rep. Act No. 8800. See Section 9, Rep. Act No. 8800. Supra note 89. Section 13, Rep. Act No. 8800. Page 94 of 327

129

130

131

132

133

134

135

136

137

138

139

140

Tax 2 Cases for FE Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 144707 July 13, 2004 PEOPLE OF THE PHILIPPINES, petitioner, vs. LUCIO C. TAN, FORTUNE TOBACCO CORPORATION, ANTONIO P. ABAYA, HARRY C. TAN, CARMEN KHAO TAN, FLORENCIO C. SANTOS, SALVADOR F. MISON, ROXAS CHUA, MARIANO TANENGLIAN and JUANITA TAN LEE (c/o Fortune Tobacco Corporation, Parang, Marikina City). TOWNSMAN COMMERCIAL, INC., WILLIAM YU, LETICIA LIM, GLORIA LOPEZ, ROBERT TANTAMPO, JOSE TIU, FELIPE LOY, LUIS SEE (c/o 4th Floor, Allied Bank Center, Ayala Avenue, Makati City) LANDMARK SALES AND MARKETING INC., ROLANDO CHUA, HONORINA TAN, MILLIE TANTAMCO, HENRY WECHEE, JESUS LIM, TEODORO TAN, ANTONIO APOSTOL, DOMINGO TENG (c/o 4th Floor, Allied Bank Center, Ayala Avenue, Makati City) CRIMSON CROKER DISTRIBUTORS, INC., CANDELARIO LI, TEODORO TAN, ERLINDA CRUZ, CARLOS TUMPALAN, LARRY JOHN SY, ERNESTO ONG, WILFREDO MACROHON (4th Floor, Allied Bank Center, Ayala Avenue, Makati City) DAGUPAN COMBINED COMMODITIES, INC., NEMESIO TAN, QUINTIN CALALEJA, YOLANDA MANALILI, CARLOS CHAN, ROMEO TAN, JOHN UY, VICENTE CO (4th Floor, Allied Bank Center, Ayala Avenue, Makati City) FIRST UNION TRADING CORPORATION, HENRY CHOA, LOPE LIM GUAN, EMILIO TAN, FELIPE TAN SHE CHUAN, ANDRES CO (4th Floor, Allied Bank Center, Ayala Avenue, Makati City) CARLSBURG & SONS, INC., FELIPE KEE, HENRY GO CO, NARCISO GO, ADOLFO LIM, MAXIMO TAN, CO SHU, DANIEL YAO (c/o 112 Aguirre Street, Legaspi Village, Makati City) OMAR ALI DISTRIBUTORS, INC., GABRIEL QUIENTELLA, NELSON TE, EMILIO GO, EDWIN LEE, CESAR LEDESMA, JR., JAO CHEP SENG (c/o 112 Aguirre Street, Legaspi Village, Makati City ORIEL & CO., INC., FRANCISCO J. ORIEL, JR., BENJAMIN T. HONG, PHILIP P. JAO, JOSE P. YU and EDISON M. QUE (c/o 112 Aguirre Street, Legaspi Village, Makati City) MT. MATUTUM MARKETING CORPORATION, ANTONIO TIU, FELIPE LOY, ROSARIO LESTOR, WILFREDO ONG, ROLANDO CHUA, BONIFACIO CHUA, GO CHING CHUAN (4th Floor, Becogan Bldg., 112 Aguirre Street, Legaspi Village, Makati City), respondents.

DECISION

AZCUNA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court which seeks to set aside the Decision1 of the Court of Appeals dated August 29, 2000 in C.A.-G.R. SP No. 56077, which dismissed petitioner's appeal from the Orders of the Regional Trial Court of Marikina City, Branch 273 (RTC-Marikina) dated August 25, 19992 and October 13, 19993 in SCA Case No. 95-340-MK. RTCMarikina dismissed the petition for certiorari filed by the Department of Justice Panel of State Prosecutors, for being filed out of time.

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Tax 2 Cases for FE The petition for certiorari before the RTC sought to annul and set aside (a) the Order dated March 22, 19994 of the Metropolitan Trial Court, Branch 75, Marikina City (MeTC), dismissing the criminal informations filed by the DOJ Panel against herein respondents; and (b) the Order dated May 17, 19995 of said MeTC denying the DOJ Panel's Motion for Reconsideration. ANTECEDENT FACTS On September 7, 1993, the Commissioner of Internal Revenue filed a Complaint with the Department of Justice (DOJ), charging Fortune Tobacco Corporation (hereafter "Fortune"), its corporate officers, nine (9) other corporations and their respective corporate officers, with fraudulent tax evasion for supposed non-payment of the correct ad valorem, income and valueadded taxes for the year 1992. The complaint was docketed as I.S. No. 93-508 and referred to the DOJ Task Force on Revenue Cases. The next day, on September 8, 1993, the DOJ Task Force, through a designated panel of prosecutors (DOJ Panel) issued a Subpoena directing respondents to submit their counter-affidavits not later than September 20, 1993. On October 15, 1993, Fortune filed a Verified Motion to Dismiss; Alternatively Motion to Suspend.6 At the scheduled preliminary investigation on October 15, 1993, the DOJ Panel denied the motion to dismiss and treated the same as respondents' counter-affidavits. On October 26, 1993, Commissioner Liwayway Vinzons-Chato filed with the DOJ, the 2nd Criminal Complaint against respondents, alleging the same acts of tax evasion, this time for taxable year 1991. The same was docketed as I.S. No. 93-584. On December 21, 1993, the BIR Commissioner filed the 3rd Criminal Complaint against respondents, this time with the Office of the City Prosecutor of Quezon City, alleging tax evasion for taxable year 1990. The complaint was docketed as I.S. No. 93-17942. On January 4, 1994, respondents filed a Petition for Certiorari and Prohibition with the Regional Trial Court of Quezon City (RTC-Quezon City), Branch 88, with prayer for preliminary injunction, which was docketed as Civil Case No. Q-94-18790. On January 25, 1994, RTC-Quezon City granted respondents' prayer and issued a writ of preliminary injunction, enjoining the conduct of further proceedings before the DOJ Panel in I.S. No. 93-508. On January 26, 1994 and January 28, 1994, respondents filed two Supplemental Petitions before RTC-Quezon City, also seeking to stay the preliminary investigations of the two other complaints before the DOJ Panel and the Quezon City Prosecutor's Office, respectively. On February 14, 1994, RTC-Quezon City issued an Order granting respondents' supplemental petitions, thereby also enjoining the preliminary investigations in the two other complaints, I.S. No. 93-584 and I.S. No. 93-17942. Thus, preliminary investigations for the following three complaints were enjoined: I.S. No. 93-508 DOJ Task Force Taxable Year 1992 Page 96 of 327

Tax 2 Cases for FE I.S. No. 93-584 DOJ Task Force Taxable Year 1991 I.S. No. 93-17942 Quezon City Prosecutor's Office Taxable Year 1990 G.R. No. 119322 Subsequently,7 the Commissioner of Internal Revenue filed a Petition for Review before this Court, docketed as G.R. No. 119322. In a Decision dated June 4, 1996,8 this Court9 pronounced: xxx The trial court and the Court of Appeals maintained that at that stage of the preliminary investigation, where the complaint and the accompanying affidavits and supporting documents did not show any violation of the Tax Code providing penal sanctions, the prosecutors should have dismissed the complaint outright because of total lack of evidence, instead of requiring private respondents to submit their counter affidavits under Section 3(b) of Rule 112. We believe that the trial court in issuing its questioned orders, which are interlocutory in nature, committed no grave abuse of discretion amounting to lack of jurisdiction. There are factual and legal bases for the assailed orders. On the other hand, the burden is upon the petitioners to demonstrate that the questioned orders constitute a whimsical and capricious exercise of judgment, which they have not. For certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari. Consequently, the Regional Trial Court acted correctly and judiciously, and as demanded by the facts and the law, in issuing the orders granting the writs of preliminary injunction, in denying petitioners' motion to dismiss and in admitting the supplemental petitions. What petitioners should have done was to file an answer to the petition filed in the trial court, proceed to the hearing and appeal the decision of the court if adverse to them. WHEREFORE, the instant petition is hereby DISMISSED. SO ORDERED. On a subsequent motion for reconsideration, however, this Court En Banc issued a Resolution10 dated February 6, 1997, thus: The Court further Resolved to DENY the motion for reconsideration of the decision dated 4 June 1996, the basic issues raised therein having already been passed upon in said decision and there being no substantial arguments to support said motion. However, in order to avoid undue delay in the disposition of Civil Case No. Q-9418790 and the preliminary investigation of the complaints against private respondents, the Court Resolved to:

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Tax 2 Cases for FE 1. REMAND Civil Case No. Q-94-18790 to the Regional Trial Court, Branch 88, Quezon City; 2. SET ASIDE the orders of the panel of prosecutors declaring private respondents' "Motion to Dismiss, Alternatively, Motion to Suspend" as private respondents' counter-affidavits, and denying their motions to require petitioner Commissioner of Internal Revenue to submit documents and to inhibit the members of the panel of prosecutors; 3. DIRECT the Secretary of Justice to designate as early as possible, a new panel of prosecutors to investigate the complaints against private respondents; 4. ORDER the new panel of prosecutors designated by the Secretary of Justice to grant private respondents' motion for the submission by petitioner Commissioner of Internal Revenue to private respondents, thru their counsel of record, of the documents supporting the complaints, and to give private respondents reasonable time to examine the documents and to submit their counter-affidavits; 5. ORDER the preliminary investigation to proceed with all reasonable dispatch; and 6. DIRECT respondent Judge Tirso Velasco to dismiss Civil Case No. Q-9418790 on the ground that it has become moot in light of the foregoing dispositions.11 (Emphasis ours) FACTS SUBSEQUENT TO THE G.R. NO. 119322 RESOLUTION In compliance with this Court's resolution, a New Panel (New DOJ Panel) of prosecutors was created.12 The BIR was directed to furnish respondents the documents supporting the complaints and to give respondents time to examine the same and, thereafter, for respondents to submit their counter-affidavits. On March 20, 1998, the BIR submitted a Manifestation/ Compliance, submitting the required documents with the explanation that it did not produce the other documents (i.e. the Daily Manufacturer's Sworn Statements of other cigarette companies) because to do so would be "inappropriate" as the same "do not, in any manner, bear any relevance" to the preliminary investigation proceedings against Fortune.13 On April 13, 1998, respondents filed a Counter-Manifestation With Motion to produce allegedly lacking or missing documents. The BIR filed a Comment/Manifestation, reiterating its stand. Respondents then filed a Motion to Resolve its Motion to Dismiss previously filed with the Old DOJ Panel, prior to the Decision and Resolution in G.R. No. 119322. Subsequently, on July 24, 1998, the New DOJ Panel ruled that: 1) There was substantial compliance by the BIR with the order to produce documents; 2) on the basis of the evidence submitted by the BIR, the panel finds sufficient ground to proceed with the preliminary investigation of the cases; and Page 98 of 327

Tax 2 Cases for FE 3) in view of the foregoing findings, the respondents were directed to file their counter-affidavits within 15 days from receipt of the order. Instead of filing counter-affidavits, the respondents filed a Supplement14 to its previous Verified Motion to Dismiss; Alternatively Motion to Suspend. Thus, the 15-day period to file counteraffidavits was deemed by the New DOJ Panel to have lapsed, hence, the case was submitted for resolution. Respondents, thereafter, filed, with the New DOJ Panel, motions to suspend the ongoing preliminary investigation, on the ground that the BIR Legal Service Appellate Division has given due course to Fortune's request for reconsideration/protest of the deficiency tax assessment on Fortune's 1992 tax liabilities. On November 19, 1998, the New DOJ Panel issued its Resolution15 stating that as to the Urgent Motion to Suspend, the same is denied since the preliminary investigation was not on the issue of the correctness of the computation of Fortune's tax liabilities and assessment but the determination of whether the acts complained of violate certain provisions of the Tax Code.16 The New DOJ Panel resolved the main complaints in favor of the BIR. It found reasonable ground to believe that respondents were probably guilty thereof and should be held for trial. PROCEEDINGS BEFORE THE MeTC On December 1, 1998, Informations17 for nine (9) counts of tax evasion (Taxable Years 1990, 1991 and 1992) were filed by the New DOJ Panel with the Metropolitan Trial Court (MeTC), Marikina City, Branch 75, docketed as Criminal Cases Nos. 98-38181 to 98-38189. The indictments were signed and certified by the New DOJ Panel of state prosecutors.18 Said Informations read, as follows: INFORMATION The undersigned State Prosecutors of the department of Justice, hereby accuse: a) LUCIO TAN, Chairman; ANTONIO P. ABAYA, President and General Manager; HARRY C. TAN, CARMEN KHAO TAN and FLORENCIO C. SANTOS, Directors; CHUNG POE KEE, Director/Executive Vice-President; ROXAS CHUA, Vice-President/Finance; MARIANO TANENGLIAN, Director/Treasurer; JUANITA TAN LEE, Corporate Secretary; and DAVID R. CORTEZ, External Auditor, all being corporate officers of FORTUNE TOBACCO CORPORATION ("FTC"); b) WILLIAM YU, Director/President; LETICIA LIM, Treasurer; GLORIA LOPEZ, Corporate Secretary; ROBERT TANTAMCO, JOSE TIU and FELIPE LOY, Directors, all being corporate officers of TOWNSMAN COMMERCIAL, INC., a dummy corporation of FTC; c) ROLANDO CHUA, President; HONORINA TAN, Treasurer; MILLIE TANTAMCO, Corporate Secretary; HENRY WEECHEE, JESUS LIM, TEODORO TAN, ANTONIO APOSTOL, and DOMINGO TENG, Directors, all being corporate officers of LANDMARK SALES and MARKETING, INC., a dummy corporation of FTC;

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Tax 2 Cases for FE d) CANDELARIA LI, Director/President; TEODORO TAN, Treasurer; ERLINDA CRUZ, Corporate Secretary; CARLOS TUMPALAN, LARRY JOHN SY, ERNESTO ONG and WOLFREDO MACROHON, Directors, all being corporate officers of CRIMSON CROKER DISTRIBUTORS, INC., a dummy corporation of FTC; e) NEMESIO TAN, President/Director; QUINTIN CALLEJA, Treasurer; YOLANDA MANALILI, Corporate Secretary; CARLOS CHAN, ROMEO TAN, JOHN UY, and VICENTE CO, Directors; all being corporate officers of DAGUPAN COMBINED COMMODITIES, INC., a dummy corporation of FTC; f) ANTONIO TIU, Director/President; FELIPE LOY, Treasurer; ROSARIO LESTOR, Corporate Secretary; WILFREDO ONG, ROLANDO CHUA, BONIFACIO CHUA, and GO CHING CHUAN, Directors; all being corporate officers of MT. MATUTUM MARKETING CORPORATION, a dummy corporation of FTC; g) HENRY CHAO, Director/President; LOPE LIM GUAN, Director/Treasurer; EMILIO TAN, Director/Corporate Secretary; FELIPE TAN SHE CHUAN and ANDRES CO, Directors, all corporate officers of FIRST UNION TRADING CORPORATION, a dummy corporation of FTC; h) FELIPE KEE, Director/President; HENRY GO CO, Treasurer; NARCISO GO; Secretary; ADOLFO LIM, MAXIMO TAN, CO SHU, and DANIEL YAO, Directors; all being corporate officers of CARLSBERG and SONS, INC., a dummy corporation of FTC; i) GABRIEL QUINTELA, President; NELSON TE; Director/Treasurer; EMILIO GO, Director/Corporate Secretary; EDWIN LEE, CESAR LEDESMA, JR., and JAO CHENG SENG, Directors; all being corporate officers of OMAR ALI DISTRIBUTORS, INC., a dummy corporation of FTC; j) FRANCISCO J, ORIEL, JR., BENJAMIN T. HONG, PHILIP P. JAO, JOSE P. YU and EDISON M. QUE, all corporate directors of ORIEL and CO., INC., a dummy corporation of FTC. for violation of Section 127[b] (now Section 130[b]), in relation to Section 253 (now Section 254) and Section 252[b] (now Section 253[b]) and Section 255 (now Section 256), of the National Internal Revenue Code (NIRC), as amended, committed as follows: "That during the taxable year 1991, in Marikina City, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the abovenamed accused, as the respective officers of Fortune Tobacco Corporation (FTC) and its nine (9) dummy corporations, conspiring with, and mutually helping each other, with willful intent to evade and defeat payment of the tax due the government, did then and there, unlawfully, feloniously, file with the Bureau of Internal Revenue (BIR) a false and fraudulent ad valorem tax returns for the taxable year 1991, by then and there purposely and maliciously creating, organizing and incorporating the said dummy corporations and employing individual "ghost" buyers to effect/perpetrate fictitious and simulated sales of FTC's cigarette products at a price higher than that of the wholesale price registered with the BIR, thereby facilitating the commission of tax evasion by willfully suppressing the true and accurate Page 100 of 327

Tax 2 Cases for FE sales of FTC and as a consequence of which the FTC, through the abovenamed accused, fraudulently declared and filed with the BIR for ad valorem tax purposes gross sales of P10,879,999,950.00 and paid only the ad valorem tax in the amount of P4,457,692,647.05 instead of the true aggregate ad valorem tax of P7,154,036,171.00 if the true and accurate gross sales subject to ad valorem tax is declared, thereby defrauding and causing damage and prejudice to the government in undeclared ad valorem taxes in the amount of P6,370,111,575.34 inclusive of increments." CONTRARY TO LAW. Manila for Marikina City, Philippines, November 19, 1998. INFORMATION The undersigned State Prosecutors of the department of Justice, hereby accuse: a) LUCIO TAN, Chairman; ANTONIO P. ABAYA, President and General Manager; HARRY C. TAN, CARMEN KHAO TAN and FLORENCIO C. SANTOS, Directors; CHUNG POE KEE, Director/Executive Vice-President; ROXAS CHUA, Vice-President/Finance; MARIANO TANENGLIAN, Director/Treasurer; JUANITA TAN LEE, Corporate Secretary; and DAVID R. CORTEZ, External Auditor, all being corporate officers of FORTUNE TOBACCO CORPORATION ("FTC"); b) WILLIAM YU, Director/President; LETICIA LIM, Treasurer; GLORIA LOPEZ, Corporate Secretary; ROBERT TANTAMCO, JOSE TIU and FELIPE LOY, Directors, all being corporate officers of TOWNSMAN COMMERCIAL, INC., a dummy corporation of FTC; c) ROLANDO CHUA, President; HONORINA TAN, Treasurer; MILLIE TANTAMCO, Corporate Secretary; HENRY WEECHEE, JESUS LIM, TEODORO TAN, ANTONIO APOSTOL, and DOMINGO TENG, Directors, all being corporate officers of LANDMARK SALES and MARKETING, INC., a dummy corporation of FTC; d) CANDELARIA LI, Director/President; TEODORO TAN, Treasurer; ERLINDA CRUZ, Corporate Secretary; CARLOS TUMPALAN, LARRY JOHN SY, ERNESTO ONG and WOLFREDO MACROHON, Directors, all being corporate officers of CRIMSON CROKER DISTRIBUTORS, INC., a dummy corporation of FTC; e) NEMESIO TAN, President/Director; QUINTIN CALLEJA, Treasurer; YOLANDA MANALILI, Corporate Secretary; CARLOS CHAN, ROMEO TAN, JOHN UY, and VICENTE CO, Directors; all being corporate officers of DAGUPAN COMBINED COMMODITIES, INC., a dummy corporation of FTC; f) ANTONIO TIU, Director/President; FELIPE LOY, Treasurer; ROSARIO LESTOR, Corporate Secretary; WILFREDO ONG, ROLANDO CHUA, BONIFACIO CHUA, and GO CHING CHUAN, Directors; all being corporate officers of MT. MATUTUM MARKETING CORPORATION, a dummy corporation of FTC; g) HENRY CHAO, Director/President; LOPE LIM GUAN, Director/Treasurer; EMILIO TAN, Director/Corporate Secretary; FELIPE TAN SHE CHUAN and ANDRES CO, Page 101 of 327

Tax 2 Cases for FE Directors, all corporate officers of FIRST UNION TRADING CORPORATION, a dummy corporation of FTC; h) FELIPE KEE, Director/President; HENRY GO CO, Treasurer; NARCISO GO; Secretary; ADOLFO LIM, MAXIMO TAN, CO SHU, and DANIEL YAO, Directors; all being corporate officers of CARLSBERG and SONS, INC., a dummy corporation of FTC; i) GABRIEL QUINTELA, President; NELSON TE; Director/Treasurer; EMILIO GO, Director/Corporate Secretary; EDWIN LEE, CESAR LEDESMA, JR., and JAO CHENG SENG, Directors; all being corporate officers of OMAR ALI DISTRIBUTORS, INC., a dummy corporation of FTC; j) FRANCISCO J, ORIEL, JR., BENJAMIN T. HONG, PHILIP P. JAO, JOSE P. YU and EDISON M. QUE, all corporate directors of ORIEL and CO., INC., a dummy corporation of FTC. for violation of Section 127[b] (now Section 130[b]), in relation to Section 253 (now Section 254) and Section 252[b] (now Section 253[b]) and Section 255 (now Section 256), of the National Internal Revenue Code (NIRC), as amended, committed as follows: "That during the taxable year 1990, in Marikina City, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the abovenamed accused, as the respective officers of Fortune Tobacco Corporation (FTC) and its nine (9) dummy corporations, conspiring with, and mutually helping each other, with willful intent to evade and defeat payment of the tax due the government, did then and there, unlawfully, feloniously, file with the Bureau of Internal Revenue (BIR) a false and fraudulent ad valorem tax returns for the taxable year 1990, by then and there purposely and maliciously creating, organizing and incorporating the said dummy corporations and employing individual "ghost" buyers to effect/perpetrate fictitious and simulated sales of FTC's cigarette products at a price higher than that of the wholesale price registered with the BIR, thereby facilitating the commission of tax evasion by willfully suppressing the true and accurate sales of FTC and as a consequence of which the FTC, through the abovenamed accused, fraudulently declared and filed with the BIR for ad valorem tax purposes gross sales of P10,581,522,160.00 and paid only the ad valorem tax in the amount of P3,806,272,068.75 instead of the true aggregate ad valorem tax of P6,574,331,124.35 if the true and accurate gross sales subject to ad valorem tax is declared, thereby defrauding and causing damage and prejudice to the government in undeclared ad valorem taxes in the amount of P7,508,360,188.31 inclusive of increments." CONTRARY TO LAW. Manila for Marikina City, Philippines, November 19, 1998. INFORMATION The undersigned State Prosecutors of the department of Justice, hereby accuse:

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Tax 2 Cases for FE a) LUCIO TAN, Chairman; ANTONIO P. ABAYA, President and General Manager; HARRY C. TAN, CARMEN KHAO TAN and FLORENCIO C. SANTOS, Directors; CHUNG POE KEE, Director/Executive Vice-President; ROXAS CHUA, Vice-President/Finance; MARIANO TANENGLIAN, Director/Treasurer; JUANITA TAN LEE, Corporate Secretary; and DAVID R. CORTEZ, External Auditor, all being corporate officers of FORTUNE TOBACCO CORPORATION ("FTC"); b) WILLIAM YU, Director/President; LETICIA LIM, Treasurer; GLORIA LOPEZ, Corporate Secretary; ROBERT TANTAMCO, JOSE TIU and FELIPE LOY, Directors, all being corporate officers of TOWNSMAN COMMERCIAL, INC., a dummy corporation of FTC; c) ROLANDO CHUA, President; HONORINA TAN, Treasurer; MILLIE TANTAMCO, Corporate Secretary; HENRY WEECHEE, JESUS LIM, TEODORO TAN, ANTONIO APOSTOL, and DOMINGO TENG, Directors, all being corporate officers of LANDMARK SALES and MARKETING, INC., a dummy corporation of FTC; d) CANDELARIA LI, Director/President; TEODORO TAN, Treasurer; ERLINDA CRUZ, Corporate Secretary; CARLOS TUMPALAN, LARRY JOHN SY, ERNESTO ONG and WOLFREDO MACROHON, Directors, all being corporate officers of CRIMSON CROKER DISTRIBUTORS, INC., a dummy corporation of FTC; e) NEMESIO TAN, President/Director; QUINTIN CALLEJA, Treasurer; YOLANDA MANALILI, Corporate Secretary; CARLOS CHAN, ROMEO TAN, JOHN UY, and VICENTE CO, Directors; all being corporate officers of DAGUPAN COMBINED COMMODITIES, INC., a dummy corporation of FTC; f) ANTONIO TIU, Director/President; FELIPE LOY, Treasurer; ROSARIO LESTOR, Corporate Secretary; WILFREDO ONG, ROLANDO CHUA, BONIFACIO CHUA, and GO CHING CHUAN, Directors; all being corporate officers of MT. MATUTUM MARKETING CORPORATION, a dummy corporation of FTC; g) HENRY CHAO, Director/President; LOPE LIM GUAN, Director/Treasurer; EMILIO TAN, Director/Corporate Secretary; FELIPE TAN SHE CHUAN and ANDRES CO, Directors, all corporate officers of FIRST UNION TRADING CORPORATION, a dummy corporation of FTC; h) FELIPE KEE, Director/President; HENRY GO CO, Treasurer; NARCISO GO; Secretary; ADOLFO LIM, MAXIMO TAN, CO SHU, and DANIEL YAO, Directors; all being corporate officers of CARLSBERG and SONS, INC., a dummy corporation of FTC; i) GABRIEL QUINTELA, President; NELSON TE; Director/Treasurer; EMILIO GO, Director/Corporate Secretary; EDWIN LEE, CESAR LEDESMA, JR., and JAO CHENG SENG, Directors; all being corporate officers of OMAR ALI DISTRIBUTORS, INC., a dummy corporation of FTC; j) FRANCISCO J, ORIEL, JR., BENJAMIN T. HONG, PHILIP P. JAO, JOSE P. YU and EDISON M. QUE, all corporate directors of ORIEL and CO., INC., a dummy corporation of FTC.

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Tax 2 Cases for FE for violation of Section 127[b] (now Section 130[b]), in relation to Section 253 (now Section 254) and Section 252[b] (now Section 253[b]) and Section 255 (now Section 256), of the National Internal Revenue Code (NIRC), as amended, committed as follows: "That during the taxable year 1992, in Marikina City, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the abovenamed accused, as the respective officers of Fortune Tobacco Corporation (FTC) and its nine (9) dummy corporations, conspiring with, and mutually helping each other, with willful intent to evade and defeat payment of the tax due the government, did then and there, unlawfully, feloniously, file with the Bureau of Internal Revenue (BIR) a false and fraudulent ad valorem tax returns for the taxable year 1992, by then and there purposely and maliciously creating, organizing and incorporating the said dummy corporations and employing individual "ghost" buyers to effect/perpetrate fictitious and simulated sales of FTC's cigarette products at a price higher than that of the wholesale price registered with the BIR, thereby facilitating the commission of tax evasion by willfully suppressing the true and accurate sales of FTC and as a consequence of which the FTC, through the abovenamed accused, fraudulently declared and filed with the BIR for ad valorem tax purposes gross sales of P11,736,658,580.00 and paid only the ad valorem tax in the amount of P4,805,254,523.00 instead of the true aggregate ad valorem tax of P7,725,832,581.75 if the true and accurate gross sales subject to ad valorem tax is declared, thereby defrauding and causing damage and prejudice to the government in undeclared ad valorem taxes in the amount of P5,792,479,816.24 inclusive of increments." CONTRARY TO LAW. Manila for Marikina City, Philippines, November 19, 1998. On December 3, 1998, respondents filed an Urgent Opposition to Issuance of Warrants of Arrest.19 They insist that: (1) Neither law nor evidence justified the filing of the Informations;20 (2) there was before the New DOJ Panel thousands of documents submitted by the Commissioner of Internal Revenue which negated unequivocally the factual basis of the BIR complaint;21 (3) there was no evidence of probable cause before the court;22 (4) the New DOJ Panel should, have acted first on their Motion to Dismiss dated October 14, 1993 and supplemented on July 28, 1998, before proceeding with the preliminary investigation.23 In addition, respondents argued that the filing of the Informations was without the approval of the Commissioner of Internal Revenue, a fatal defect, per Section 220, of the National Internal Revenue Code of 1997.24 On December 10, 1998, the New DOJ Panel countered by filing a Manifestation with Motion for the Immediate Issuance of Warrants of Arrest. On December 18, 1998, a Manifestation and Motion25 was filed before the MeTC by officers26 of the Litigation and Prosecution Division of the BIR, verified by then incumbent BIR Commissioner Beethoven L. Rualo, praying for the withdrawal of the Informations, stating:

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Tax 2 Cases for FE The legal officers of the Bureau of Internal Revenue, particularly the Chief, Litigation & Prosecution Division and the Assistant Chief for Prosecution, conducted a reevaluation of the criminal action subject of the cases under consideration on the basis of a recommendation contained in the memorandum report dated November 11, 1998 of a panel of hearing officers of the Appellate Division duly approved by the Commissioner of Internal Revenue in connection with the administrative hearing of the protested assessment issued by the Bureau of Internal Revenue against Fortune Tobacco Corporation for taxable year 1992, certified true copy of the memorandum report is attached as Annex "A" and is an integral part of this manifestation and motion. The aforesaid recommendation states: "1. x x x x x x x x x "2. That the Litigation and Prosecution Division, Legal Service, this Bureau, be directed to conduct a thorough study whether there is still wisdom of proceeding with the criminal complaint." As a result, the aforementioned officials of the Bureau have recommended the deinstitutionalization or withdrawal of the criminal complaint filed by then Commissioner Liwayway Vinzons-Chato, a certified true copy of the memorandum recommendation is attached hereto as Annex "B" and is an integral part of this Manifestation and Motion. This memorandum recommendation has been approved by the Commissioner of Internal Revenue. On January 15, 1999, MeTC Presiding Judge Alex E. Ruiz ordered the filing of parties' memoranda. On March 22, 1999, Judge Ruiz issued an Order27 dismissing the criminal cases. Citing the provisions of Section 220 of the Tax Reform Act of 1997, Republic Act No. 8424, the trial court ruled: The Court agrees with the Bureau of Internal Revenue that in view of the aforecited Section of the Tax Reform Act of 1997, a substantive law and the fact that it is evident that the Commissioner of Internal Revenue has not approved the filing of the instant cases, this Court, thus, has no other recourse but to obey the law and dismiss the cases at bar. xxx According to the Memorandum dated February 11, 1999 filed by the Bureau of Internal Revenue in connection with its Manifestation and Motion, the Bureau of Internal Revenue in fact conducted several hearings on the tax liability of the accused relative to the protest filed by Fortune Tobacco Corporation regarding its tax liabilities connected with the filing of the instant cases against Lucio C. Tan et al., and that thereafter the Bureau of Internal Revenue found no fraud committed by the Fortune Tobacco Corporation and, that, therefore, there is no legal justification to further pursue the three tax evasion cases against Lucio C. Tan, et al. This finding of non-fraud was approved by the Commissioner of Internal Revenue. Page 105 of 327

Tax 2 Cases for FE Again, in view of the Bureau of Internal Revenue's finding that Fortune Tobacco Corporation has not committed any tax violation relative to these cases now before this Court by the panel of state prosecutors, this Court, xxx has, therefore, no other recourse but to dismiss these cases also for lack of probable cause as found by the Bureau of Internal Revenue itself.28 On April 7, 1999, one day before the lapse of the 15-day period to file a Motion for Reconsideration, the New DOJ Panel filed its Motion for Reconsideration. On May 17, 1999,29 the motion for reconsideration was denied by the MeTC. A copy of the order denying reconsideration was received by the New DOJ Panel on MAY 18, 1999. PROCEEDINGS BEFORE THE RTC On July 14, 1999, the New Panel filed a Petition for Certiorari before the Regional Trial Court of Marikina City, Branch 273 (RTC-Marikina), seeking to nullify the MeTC Orders dated March 22, 1999 and May 17, 1999, alleging grave abuse of discretion on the part of the court a quo. On August 25, 1999, RTC-Marikina Presiding Judge Olga Palanca Enriquez dismissed the petition, for being filed out of time, thus: After examining the petition, the Court finds that the petition was filed eleven (11) days late, in violation of Section 4, Rule 65 of the 1997 Rules of Criminal Procedure, as amended by the resolution of the Supreme Court En Banc dated July 21, 1998, Bar Matter No. 803, which provides as follows: xxx The Panel of Prosecutors of the Department of Justice (DOJ Panel) admittedly received a copy of the assailed Order dated March 22, 1999 on March 24, 1999 and filed a "Motion for Reconsideration" on April 7, 1999. Thus, a period of fourteen (14) days had elapsed. According to Section 4 of Rule 65, as amended, this period of fourteen (14) days should be deducted from the total period of sixty (60) days prescribed therein. Hence, the DOJ Panel had the remaining period of forty-six (46) days within which to file the petition for certiorari. The DOJ Panel received a copy of the Order dated May 17, 1999 which denied its "Motion for Reconsideration" on May 18, 1999. It had until July 3, 1999 within which to file the petition for certiorari, and not July 17, 1999, as it claims. Apparently, the DOJ Panel overlooked the aforequoted amendment to Section 4 of Rule 65, thus arriving at the wrong premise that it had the total period of sixty (60) days from notice of denial of the motion for reconsideration, and not the remaining period only, within which to file the petition for certiorari. It was only on July 14, 1999, eleven days after the lapse of its last day within which to file the petition for certiorari that the DOJ Panel filed the present petition. Clearly, therefore, the present petition was filed eleven (11) days late. WHEREFORE, the instant petition for certiorari is hereby DENIED DUE COURSE and is thus DISMISSED. Page 106 of 327

Tax 2 Cases for FE SO ORDERED. On August 27, 1999, the New Panel filed a Motion for Reconsideration. On September 2, 1999, a Supplement to the Motion for Reconsideration was also filed. Respondents filed their Comment to the Motion for Reconsideration. Oral arguments were conducted and Memoranda thereafter submitted. On October 13, 1999, the Motion for Reconsideration was denied. On October 18, 1999, the DOJ endorsed the case to the Office of the Solicitor General (OSG). PROCEEDINGS BEFORE THE COURT OF APPEALS On October 20, 1999, the OSG appealed the RTC-Marikina Orders dated August 28, 1999 and October 13, 1999, to the Court of Appeals. On December 13, 1999 the Court of Appeals ordered the parties to file Memoranda. On August 29, 2000, the Court of Appeals dismissed the petition for lack of merit. A copy of the Court of Appeals' decision was received by the OSG on September 6, 2000. THE PRESENT PETITION The People of the Philippines, through the Office of the Solicitor General, filed this Petition for Review on Certiorari, as earlier stated, submitting the following assignment of errors: I. THE COURT A QUO SERIOUSLY ERRED WHEN IT AFFIRMED THE MeTC'S DISMISSAL OF THE CRIMINAL CASES AGAINST RESPONDENTS WITHOUT THEIR HAVING BEEN PLACED FIRST UNDER THE CUSTODY OF THE LAW. II. THE COURT A QUO GROSSLY ERRED WHEN IT SANCTIONED THE MeTC'S ACT OF GIVING THE BIR, A MERE WITNESS TO THE CASE, THE PREROGATIVE TO CONTROL AND CAUSE THE DISMISSAL OF THE CASES, THE CRIMINAL ASPECTS OF WHICH THE BIR HAD ITSELF [E]NDORSED TO THE DOJ FOR PROSECUTION. III. THE COURT A QUO SERIOUSLY ERRED IN MAKING THE TAX REFORM ACT OF 1997 RETROACTIVELY APPLY TO CASES PREVIOUSLY ENDORSED TO THE DOJ BY THE BIR LONG BEFORE THE EFFECTIVITY OF SAID LAW. IV. THE COURT A QUO GROSSLY ERRED IN SANCTIONING THE MeTC'S ACT OF DELEGATING THE TASK OF DETERMINING PROBABLE CAUSE TO THE BIR, WHICH WAS BUT A WITNESS. V. THE COURT A QUO ERRED WHEN IT IGNORED THE SERIOUS INFIRMITIES COMMITTED IN THE PROCEEDINGS BELOW WHICH SHOULD HAVE WARRANTED A MEASURE OF LIBERALITY TO PAVE THE WAY FOR A THOROUGH DETERMINATION OF THE MERITS OF THE CASES AGAINST THE RESPONDENTS.30 ISSUES

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Tax 2 Cases for FE A reading of the parties' arguments shows that the resolution of the numerous issues presented hinges upon the issue of whether or not the Metropolitan Trial Court (MeTC) erred in dismissing the criminal cases before it, on the basis of the Manifestation and Motion of the BIR to withdraw the said cases. First Issue: TIMELINESS After the MeTC dismissed the criminal cases on March 22, 1999, which Order was received by the New DOJ Panel on March 24, 1999, it filed a Motion for Reconsideration on May 7, 1999, one day before the lapse of the 15-day period to file the Motion for Reconsideration.31 The Motion for Reconsideration was thereafter denied on May 17, 1999 and the denial was received by petitioner on May 18, 1999. Instead of filing an appeal, petitioner filed before RTC-Marikina a Petition for Certiorari, on July 14, 1999. Respondents argue that: (1) This was the wrong remedy; and (2) even assuming this was the correct mode, the 60-day period to file the petition had also already lapsed. This Court has allowed resort to the extraordinary remedy of certiorari although the remedy appeal was available. In Metropolitan Manila Development Authority v. JANCOM Environmental Corporation,32 citing Ruiz, Jr. v. Court of Appeals,33 this Court stated the significant exceptions to be, as follows: xxx when public welfare and the advancement of public policy dictate; or when the broader interests of justice so require, or when the writs issued are nullor when the questioned order amounts to an oppressive exercise of judicial authority. There can be no question as to the public interest involved in this case. For the case of the prosecution, if proved, would mean that a fraudulent scheme to evade taxes has been resorted to by respondents, and the amount involved, at the time of the investigation, is nearly P20 billion pesos. The principle is well established that taxes are the lifeblood of government and every citizen is duty bound to pay taxes and to pay taxes in the right amount. Technicalities, therefore, will have to yield to the paramount interest of the nation to enforce its laws against tax evasion, especially where the amounts involved are huge. As aptly put by petitioner in its Consolidated Reply, procedural rules should not be applied with rigidity especially when to do so would result in manifest failure or miscarriage of justice. Furthermore, the petition for certiorari filed by the prosecution is not late. For the provision under which it can be considered late was subsequently amended and under the amended rules the petition is on time. Said amendment should be retroactively applied since it is a procedural rule and it is also remedial in character , i.e., it is intended precisely to correct the unjust effect of the amended rule. As correctly argued by the petitioner, also in its Consolidated Reply: The eleven (11)-day delay in the filing of the petition for certiorari before the Regional Trial Court was brought about y the DOJ New Panel's failure to consider the Page 108 of 327

Tax 2 Cases for FE period it had utilized in filing its Motion for Reconsideration. It should be recalled that when the 1997 Rules of Civil Procedure first took effect, the period for filing a petition for certiorari was originally set at sixty (60) days from the time the questioned order or the order denying the motion for reconsideration was received. Section 4, Rule 65 of the 1997 Rules of Civil Procedure was originally couched as follows: Sec. 4 Where petition filed. - The petition may be filed not later than sixty (60) days from notice of the judgment, order or resolution sought to assailed in the Supreme Court or, if it relates to the acts or omissions of a lower court or of a corporation, board, officer or person, in the Regional Trial Court exercising jurisdiction over the territorial area as defined by the Supreme Court. It may also be filed in the Court of Appeals whether or not the same is in aid of its jurisdiction. If it involves the acts or omission of a quasi-judicial agency and unless otherwise provided by law or these Rules, the petition shall be filed in and cognizable by the Court of Appeals. Subsequently, the aforequoted provision was amended by Bar Matter No. 803 dated July 21, 1998. Under this amendment, the period used up in filing a motion for reconsideration shall be deducted from the sixty (60)-day period for filing a petition for certiorari. Recently, however, Section 4, Rule 65 of the 1997 Rules of Civil Procedure was again revised, and the present policy on the matter, effective September 1, 2000, is that "[t]he petition shall be filed not later than sixty (60) days from notice of the judgment, order or resolution. In case a motion for reconsideration or new trial is timely filed, whether such motion is required or not, the sixty (60) day period shall be counted from notice of the denial of said motion."(SC. A.M. 00-2-03) Private respondents, nevertheless, contend that such amendment may only apply to cases filed after, or at least pending as of, September 1, 2000. Private respondents sorely missed the point. The recent amendment to Section 4, Rule 65 of the 1997 Rules of Civil Procedure clearly shows that the Honorable Court had realized that the original prescribed period is inadequate; accordingly, to give the aggrieved party sufficient time, a new 60-day period is given from the time the order denying a motion for reconsideration is received, within which to file a petition for certiorari. In the light of this recent amendment, therefore, there is more reason to relax the rigid application of the old rule and excuse the procedural lapse in the case below. This Court has consistently held that rules of procedure should not be applied in a very technical sense, for they are adopted to help secure, not override, substantial justice.34 Besides, if the issuances involved are a nullity, the same can be assailed at any time. After a thorough review of the orders of the MeTC dismissing the criminal cases, this Court finds, that said orders were null and void and were a result of a gravely injudicious exercise of judicial authority. Second Issue: DID THE MeTC GRAVELY ABUSE ITS DISCRETION OR EXCEED ITS JURISDICTION IN DISMISSING THE CRIMINAL CASES?

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Tax 2 Cases for FE Petitioner rightly disputes the dismissal of the cases. In the same case of Martinez v. Court of Appeals, et al.,35 this Court, citing the case of Crespo v. Mogul, held: The rule therefore in this jurisdiction is that once a complaint or information is filed in Court any disposition of the case as its dismissal or the conviction or acquittal of the accused rests in the sound discretion of the Court. Although the fiscal retains the direction and control of the prosecution of criminal cases even while the case is already in Court he cannot impose his opinion on the trial court. The Court is the best and sole judge on what to do with the case before it. The determination of the case is within its exclusive jurisdiction and competence. A motion to dismiss the case filed by the fiscal should be addressed to the Court who has the option to grant or deny the same. It does not matter if this is done before or after the arraignment of the accused or that the motion was filed after a reinvestigation or upon instructions of the Secretary of Justice who reviewed the records of the investigation. In another case,36 this Court affirmed the power conferred upon trial courts, reiterating: This argument is untenable. The court could have denied the public prosecutor's motion for the withdrawal of the information against petitioner, and there would have been no question of its power to do so. If it could do that, so could it reconsider what it had ordered. Every court has the power and indeed the duty to review and amend or reverse its findings and conclusions when its attention is timely called to any error or defect therein. Jurisprudence mandates that the grant of a motion to dismiss must be based upon the judge's own personal conviction that there was no case against the accused.37 The trial judge must himself be convinced that there was indeed no sufficient evidence against the accused, and this conclusion can be arrived at only after an assessment of the evidence in the possession of the prosecution. What was imperatively required was the trial judge's own assessment of such evidence, it not being sufficient for the valid and proper exercise of judicial discretion merely to accept the prosecution's word for its supposed insufficiency.38 In the present case, the record clearly shows that the MeTC failed to discharge its duty to judiciously and independently rule upon the motion to withdraw. In the Order dated March 22, 1999, the trial court stated: The Court agrees with the Bureau of Internal Revenue that in view of the aforecited Section of the Tax Reform Act of 1997, a substantive law, and the fact that it is evident that the Commissioner of Internal Revenue has not approved the filing of the instant cases, this Court, thus, has no other recourse but to obey the law and dismiss the cases at bar. Moreover, pursuant to the ruling of the Supreme Court in the case of Commissioner of Internal Revenue et al. vs. The Honorable Court of Appeals, et al., G.R. No. 119322, promulgated June 4, 1996 (257 SCRA 200, 225) said Court held that: xxx According to the Memorandum dated February 11, 1999 filed by the Bureau of Internal Revenue in connection with its Manifestation and Motion, the Bureau of Page 110 of 327

Tax 2 Cases for FE Internal Revenue in fact conducted several hearings on the tax liability of the accused relative to the protest filed by Fortune Tobacco Corporation regarding its tax liabilities connected with the filing of the instant cases against Lucio C. Tan, et al., and that thereafter the Bureau of Internal Revenue found no fraud committed by the Fortune Tobacco Corporation and, that, therefore, there is no legal justification to further pursue the three tax evasion cases against Lucio C. Tan, et al. This finding of non-fraud was approved by the Commissioner of Internal Revenue. Again, in view of the Bureau of Internal Revenue's finding that Fortune Tobacco Corporation has not committed any tax violation relative to these cases now before this Court by the panel of state prosecutors, this Court, pursuant to the abovementioned ruling of the Supreme Court, that there must first be a finding of tax fraud by the Bureau of Internal Revenue before a criminal case may be filed against a taxpayer has, therefore, no other recourse but to dismiss these cases also for lack of probable cause as found by the Bureau of Internal Revenue itself. xxx As the Court finds it, the government, that is to say, more accurately, the People, by statute has ordained the government prosecutors not to come to Court and file a criminal case involving violations of the National Internal Revenue Code without first getting the nod and approval of the Commissioner of Internal Revenue. No such Commissioner of Internal Revenue certification has been submitted to this Court against any of the accused in these cases. As to such a primordial statutory requirement, this Court believes that the statute rather than the Rules of Court, applies and governs. Accordingly, these cases, namely, Criminal Cases Nos. 98-38181 to 98-38189, are hereby dismissed. No costs. SO ORDERED. A reading of the MeTC order thus shows that the same was basically anchored only on the Manifestation and Motion of the BIR, praying for the withdrawal of the complaints. Contrary to its mandate, the trial court abandoned its duty to evaluate the submissions before it. By relying on the manifestation and motion of the BIR alone, it ignored the positive findings of the panel of state prosecutors, which had, themselves, painstakingly conducted the preliminary investigation on the subject criminal liability of the respondents. Furthermore, it is not quite correct that, as respondents claim, BIR Commissioner Liwayway VinzonsChato referred the matter to the Department of Justice for preliminary investigation only. The three letters of referral/complaints she wrote and filed with the Department of Justice and the Office of the City Prosecutor, dated September 6, 1993, October 22, 1993 and December 21, 1993, all stated "I hereby recommend the prosecution of the following for violations of the provisions of the National Internal Revenue Code, as amended, to wit: xxx39 Hence, the same clearly constituted approval of the filing of the cases in court.

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Tax 2 Cases for FE The fact, moreover, is that the cases had been filed in court and were already under the court's control. By merely echoing the findings of the BIR, the MeTC abdicated its duty as a court of law, and subjugated itself to the administrative agency. In failing to make an independent finding of the merits of the case and merely anchoring the dismissal on the position of the BIR, the trial court relinquished the discretion it was obliged to exercise, in violation of the ruling in Crespo v. Mogul.40 For this reason, this Court is constrained to annul and set aside the Orders of the MeTC. WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals dated August 29, 2000 in CA-G.R. SP No. 56077 and the Orders of the Regional Trial Court of Marikina City dated August 25, 1999 and October 13, 1999 in SCA Case No. 95-340-MK are hereby REVERSED, and the Orders dated March 22, 1999 and May 17, 1999 of the Metropolitan Trial Court (MeTC), Branch 75, Marikina City, dismissing the criminal informations filed by the DOJ Panel against herein respondents, and denying the DOJ Panel's Motion for Reconsideration, are hereby declared NULL and VOID and SET ASIDE, and the criminal informations are reinstated. Criminal Cases Nos. 98-38181 to 98-38189 are hereby REMANDED to the Metropolitan Trial Court (MeTC), Branch 75, Marikina City,41 for appropriate proceedings. Costs de oficio. SO ORDERED. Davide, Jr., C.J., Puno, Panganiban, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr., and Tinga, JJ., concur. Vitug, and Quisumbing, JJ., in the result. Carpio, J., no part. As Presidential Legal Counsel, I made some recommendations on this and other cases.

Footnotes
1

Rollo, pp. 74-84. Ibid, pp. 362-364. Ibid, pp. 402-405. Ibid, pp. 144-148. Ibid, pp. 166-169.

On the following grounds: (1) The complaint filed by the Commissioner allegedly follows a "pattern of persecution" against respondents, in violation of their right to due process and equal protection of the law; (2) Petitioner Commissioner and the Court of Tax Appeals have still to determine Fortune's tax liability for 1992 in question; without any tax liability, there can be no tax evasion; (3) Exclusive jurisdiction to determine tax liability is vested in the Court of Tax Appeals; therefore, the DOJ is without jurisdiction to conduct preliminary investigation; and (4) The complaint of petitioner Commissioner is not supported by any evidence to serve as Page 112 of 327

Tax 2 Cases for FE adequate basis for the issuance of subpoena to private respondents and to put them to their defense.
7

After a Petition for Certiorari was decided by the Court of Appeals.

Commissioner on Internal Revenue v. Court of Appeals, 257 SCRA 200, 231-232 (1996).
9

First Division, voting 3-2. Penned by Justice Kapunan, with the concurrence of Justice Hermosisima and Justice Bellosillo (with concurring and dissenting opinion). Justice Vitug (with separate opinion) and Justice Padilla dissenting.
10

Supra, note 8. 267 SCRA 599, 607 (1997). By Department Order No. 436, November 24, 1997. Rollo, p. 24. Dated July 28, 1998. Rollo, pp. 212-219.

11

12

13

14

15

16

Sec. 45 (now Sec. 52), Sec. 110 (now Sec. 114) in relation to Sec. 100 (now Sec. 106), Sec. 127 [b] (now Sec. 130), penalized under Sec. 253 (now Sec. 254) in relation to Sec. 252[b] (now Sec. 253[b]) and Sec. 255 (now Sec. 256; Sec. 232, penalized under Sec. 256 (now Sec. 257), Sec. 252[b] & [d] of the NIRC, as amended.
17

Annexes "C," "C-1" and "C-2" of the Petition; Rollo, pp. 94-111.

18

Senior State Prosecutor Paulita Acosta Villarante (Chairman), Assistant City Prosecutor Meynard Bautista (Vice-Chairman), State Prosecutor Josefino Subia (Member), State Prosecutor Susan Dacanay (Member) and State Prosecutor Edna Valenzuela (Member).
19

Annex "D" of the Petition; Rollo, pp. 112-126. Id. at 112. Id. at 113. Id. at 114. Id. at 124. Rollo, p. 125. Annex "F" of the Petition; Rollo, pp. 139-142. Osias B. Baldovino (Chief) and Romeo P. Buan (Assistant Chief for Prosecution). Page 113 of 327

20

21

22

23

24

25

26

Tax 2 Cases for FE

27

Annex "H" of the Petition; Rollo, pp. 144-148. Id. at 146-147. MeTC Order, Annex "J" of the Petition; Rollo, pp. 166-169. Rollo, pp. 43-44. Rollo, p. 799, Petitioner's Consolidated Reply. 375 SCRA 320, 330-331 (2002). 220 SCRA 490 (1993).

28

29

30

31

32

33

34

Piglas-Kamao v. NLRC, 357 SCRA 640, 648 (2001); Ramos v. Court of Appeals, 269 SCRA 34, 51-52 (1997).
35

Supra, note 32. Mosquera v. Panganiban, 258 SCRA 473, 480-481 (1996). Martinez v. Court of Appeals, supra, note 32. Ibid. Records, pp. 154-156.

36

37

38

39

40

Martinez v. Court of Appeals, supra; Perez v. Hagonoy Rural Bank, Inc., 327 SCRA 588 (2000); Roberts, Jr. v. Court of Appeals, 254 SCRA 307 (1996).
41

The Informations herein were filed before the effectivity of Republic Act No. 9282 giving original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code to the Court of Tax Appeals.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 144440 September 1, 2004 COMMISSIONER OF CUSTOMS, petitioner, vs. PHILIPPINE PHOSPHATE FERTILIZER CORPORATION, respondent. DECISION TINGA, J.: The financial planners of the State are often confounded by the precarious balance between the need to provide a conducive investment climate and the need to enhance revenue collections. In the present Petition for Review, the Court is called upon to interpret the provisions of a law designed to benefit investors with tax exemptions. Tax exemptions are generally construed strictly against the taxpayer; yet, when the purported ambiguities in the law are more imagined than real, there should be no hesitation to rule for the taxpayer. The factual backdrop of the case is uncomplicated. Respondent Philippine Phosphate Fertilizer Corporation (Philphos) is a domestic corporation engaged in the manufacture and production of fertilizers for domestic and international distribution. Its base of operations is in the Leyte Industrial Development Estate, an export processing zone.1 It is also registered with the Export Processing Zone Authority (EPZA), now known as the Philippine Export Zone Authority (PEZA).2 The manufacture of fertilizers required Philphos to purchase fuel and petroleum products for its machineries. These fuel supplies are considered indispensable by Philphos, as they are used to run the machines and equipment and in the transformation of raw materials into fertilizer.3 The fuel supplies are secured domestically from local distributors, in this case, Petron Corporation (Petron), which imports the same and pays the corresponding customs duties to the Bureau of Customs; and, the ad valorem and specific taxes to the Bureau of Internal Revenue. When the fuel and petroleum products are delivered at Philphoss manufacturing plant inside the Leyte Industrial Development Estate, Philphos is billed by Petron the corresponding customs duties imposed on these products. Effectively thus, Philphos reimburses Petron for the customs duties on the purchased fuels and petroleum products which are passed on by the Petron as part of the selling price.4 Under this arrangement, Philphos made several purchases from Petron of fuels and other petroleum products used directly or indirectly in the manufacture of fertilizers for the period of October 1991 until June 1992.5 During the period in question, Philphos indirectly paid as customs duties, the amount of Twenty Million One Hundred Forty Nine Thousand Four Hundred Seventy Three Pesos and Seventy Seven Centavos (P20,149,473.77).6

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Tax 2 Cases for FE In a letter to the Bureau of Customs, dated 18 September 1992, Philphos sought the refund of customs duties it had paid for the period covering the months of October to December 1991, and January to June, 1992.7 It pointed out that Philphos, being an enterprise registered with the export processing zone, is entitled to tax incentives under Presidential Decree No. 66 (EPZA Law), referring specifically to Section 17 thereof which exempts from customs and internal revenue laws, supplies brought into the export processing zone. Consequently, Philphos argued that the customs duties billed by Petron on Philphos should be refunded. The Bureau of Customs denied the claim for refund in a letter dated 4 January 1993.8 Hence, a Petition for Review was filed with the Court of Tax Appeals (CTA), assailing the denial of the refund. The CTA ruled for Philphos in a Decision9 dated 5 October 1995, ordering the issuance of a Tax Credit Certificate in the amount of Twenty Million One Hundred Forty Nine Thousand Four Hundred Seventy Three Pesos and Seventy Seven Centavos (P20,149,473.77) in favor of Philphos. The matter was elevated by the Commissioner of Customs (Commissioner) to the Court of Appeals (CA), which eventually affirmed the CTAs Decision in toto.10 Both the CTA and the CA relied upon Section 17(1) of the EPZA Law to justify the conclusion that Philphos is entitled to the refund. Before this Court, the Commissioner argues that since the importation of the subject products, made by the seller Petron, had already been finally terminated, all future claims for refund are thus barred. It likewise insists that controlling in this case is Section 18(i) of the EPZA Law, under which claims for refunds similar to Philphoss are precluded. Finally, the Commissioner posits that since a refund on tax credit partakes the nature of an exemption, the grant thereof must be explicit. There is no need to inquire into the factual basis for the amount sought to be refunded.11 Petitioner does not dispute the amount, but only the legal basis for the exemption. Moreover, since the Court itself is not a trier of facts it will respect primarily the findings of the ultimate trier of facts, namely: the CA. In this case, however, there is coalescence in the findings of the two courts below. The EPZA Law, promulgated in 1972, has since been superseded by Republic Act No. 7916, or "The Special Economic Zone Act of 1995." However, since the claim for exemption covers the years 1991 and 1992, or before the enactment of Republic Act No. 7916, the provisions of the EPZA Law are applicable in the present petition. Consideration of the general philosophy and thrust of the EPZA Law cannot be evaded. The export processing zone is intended to be a viable commercial, industrial and investment area.12 The enunciated policy of the EPZA Law is to encourage and promote foreign commerce as a means of making the Philippines a center of international trade; strengthening our export trade and foreign exchange position; hastening industrialization; reducing domestic unemployment; and accelerating the development of the country, by establishing export processing zones in strategic locations in the Philippines.13 As noted by the CTA, the basic policy in establishing export processing zones is to attract enterprises, especially foreign investors, who will be manufacturing products primarily for export and be able to do so without their supplies and raw materials entering, and the export products leaving, the Philippine territory within the context of customs and revenue regulations.14 From a macroperspective though, export processing zones are not intended to solely benefit investors. These zones are scattered throughout the country in remote areas and have the patent benefit of creating employment opportunities within their localities. It is the presence of tangible tax benefits attached to these zones which make them viable as investment locations, areas which ordinarily would be overlooked. Page 116 of 327

Tax 2 Cases for FE The incentives offered to enterprises duly registered with the PEZA consist, among others, of tax exemptions. These benefits may, at first blush, place the government at a disadvantage as they preclude the collection of revenue. Still, the expectation is that the tax breaks ultimately redound to the benefit of the national economy, enticing as they do more enterprises to invest and do business within the zones; thus creating more employment opportunities and infusing more dynamism to the vibrant interplay of market forces. Section 17 of the EPZA Law particularizes the tax benefits accorded to duly registered enterprises. It states: SEC. 17. Tax Treatment of Merchandize in the Zone. (1) Except as otherwise provided in this Decree, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every description, except those prohibited by law, brought into the Zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise or used whether directly or indirectly in such activity, shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, the following provisions of law to the contrary notwithstanding. (emphasis supplied) The cited provision certainly covers petroleum supplies used, directly or indirectly, by Philphos to facilitate its production of fertilizers, subject to the minimal requirement that these supplies are brought into the zone. The supplies are not subject to customs and internal revenue laws and regulations, nor to local tax ordinances. It is clear that Section 17(1) considers such supplies exempt even if they are used indirectly, as they had been in this case. Since Section 17(1) treats these supplies for tax purposes as beyond the ambit of customs laws and regulations, the arguments of the Commissioner invoking the provisions of the Tariff and Customs Code must fail. Particularly, his point that the importation of the petroleum products by Petron was deemed terminated under Section 120215 of the Tariff and Customs Code, and that the termination consequently barred any future claim for refund under Section 160316 of the same law is misplaced and inconsequential. Moreover, the cited provisions of the Tariff and Customs Code if related to Section 17(1) of the EPZA Law would significantly render the argument strained and, if upheld, obviate many of the benefits granted by Section 17(1), for the provision does not limit the tax exemption only to direct taxes. Following the Commissioners interpretation, any duly registered enterprise sought to be held liable for the controverted customs duty because the importer had shifted the duty to the buyer would forever be precluded from challenging the duty, which it is not in the first place obliged to pay under the law. Hand in hand with its patent noxiousness to the spirit of the EPZA Law, the approach calls for the unwarranted application of the Tariff and Customs Code to investors and players in the zones, which under the EPZA Law are beyond the reach of domestic customs and tax laws, as well as regulations. Neither would the prescriptive periods or procedural requirements provided under the Tariff and Customs Code serve as a bar for the claim for refund. The holding of the CTA on this point is illuminating: Contrary to the allegation of the Respondent that Section 17(1) does not provide for duty and tax exemption privilege, this Court disagrees. That phrase shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, the provisions of law to the contrary notwithstanding cannot be interpreted in any other manner than to mean that merchandise or supplies brought into the zone are exempt from Page 117 of 327

Tax 2 Cases for FE customs duties and taxes. The incentive given under Section 17(1) is broader than a mere tax exemption. The phrase is so broad to include not only the exemption from customs duties and taxes but everything required in the enforcement of the customs and internal revenue laws save on the exceptions and conditions specified in the EPZA law itself. Considering that the customs and internal revenue laws are primarily enacted to impose duties and taxes, the phrase cannot be interpreted to exclude these impositions. More so, the phrase will also include exemption from other rules and regulations which are normally followed in the discharge of importation such as the filing of import entries, examinations and other requirements attendant to the importation of goods into the country.17 Even our recent ruling in Nestle Philippines, Inc. v. Court of Appeals,18 to the effect that the claim for refund of customs duties in protestable cases may be foreclosed by the failure to file a written protest, is not apropos in the case at bar because petitioner therein was not a duly registered enterprise under the EPZA Law and thus not entitled to the exemptions therein.19 This leads to another question well-worth resolving what is the prescriptive period which a duly registered enterprise should observe in applying for a refund to which it is entitled under the EPZA Law? The EPZA Law itself is silent on the matter, and the prescriptive periods under the Tariff and Customs Code and other revenue laws are inapplicable, by specific mandate of Section 17(1) of the EPZA Law. This does not mean though that prescription will not lie, as the Civil Code provisions on solutio indebiti20 may find application. The Civil Code is not a customs and internal revenue law. The Court has in the past sanctioned the application of the provisions on solutio indebiti in cases when taxes were collected thru error or mistake.21 Solutio indebiti is a quasi-contract, thus the claim for refund must be commenced within six (6) years from date of payment pursuant to Article 1145(2) of the New Civil Code.22 Clearly then, Philphoss right to refund has not yet prescribed. Still, the Commissioner insists that it is Section 18(i) of the EPZA Law that is applicable, and precludes Philphoss claim for refund. The provision reads: SEC. 18. Additional Incentives. A zone registered enterprise shall also enjoy the following incentives: xxx (i)Tax credit. Every registered zone enterprise shall enjoy a tax credit equivalent to the sales, compensating and specific taxes and duties on supplies, raw materials and semi-manufactured products used in the manufacture, processing or production of its export products and forming part thereof; x x x. (emphasis supplied)23 Indubitably, Section 18 does not exclude or otherwise limit the broad grant of benefits accorded by Section 17. These "additional incentives" under Section 18 are to be enjoyed in conjunction with the incentives under Section 17. This is indicated by the use of the words "additional" and "shall also" in the first paragraph of Section 18. Even the Commissioner admits the distinct character of Section 18.24 The divergent natures of the benefits under Sections 17 and 18 become readily apparent upon examination of the additional incentives enumerated under Section 18. They include allowance of net-operating loss carry-over, accelerated depreciation, exemption from export tax, foreign exchange assistance, financial assistance, exemptions for local taxes and licenses, deductions for labor training services, and deductions for organizational and pre-operating expenses.25 Section 18 does not serve the purpose of qualifying the benefits provided under Section 17. Instead, it enumerates another class of incentives also available to registered enterprises, in addition to, and apart from, the general benefits accorded under Section 17. There can be no doubt that the Page 118 of 327

Tax 2 Cases for FE additional incentives under Section 18 are separate and distinct from those under the preceding section. Still, the Commissioner argues that Section 18(i) of the EPZA Law specifically controls the issuance of a tax credit equivalent to duties on supplies purchased, and that the provision clearly states that such supplies must form part of the export products, particularly fertilizer. A plain reading of Section 18(i) unmistakably indicates that the tax credit as an additional incentive avails only if the supplies actually form part of the export products. There is an apparent distinction between this provision and Section 17(1) which exempts from taxation supplies used indirectly by the registered enterprise. It is apparent that the petroleum supplies in question, which physically do not form part of the exportable fertilizers, are exempt from taxation under Section 17(1), but no tax credit could be claimed on them under Section 18(i). Still, this acknowledged distinction is not a cause for abject reversal of the assailed decisions, as it does not affect the key disposition. For Section 17(1) is determinative of the fundamental question whether there is legal basis for the claim of exemption. On the other hand, Section 18(i) does not impose limitations on the exemptions granted in the preceding provisions, but would only affect, if at all, the modality by which the exemption takes form. Obviously, the relief sought for erroneously paid taxes would be a return to the taxpayer of the amount paid to the government. The Tax Reform Act of 1997 authorizes either a refund or credit as a means of recovery of tax erroneously or illegally collected.26 It may be that there is no essential difference between a tax refund and a tax credit since both are modes of recovering taxes erroneously or illegally paid to the government.27 Yet, there are unmistakable formal and practical differences between the two modes. Formally, a tax refund requires a physical return of the sum erroneously paid by the taxpayer, while a tax credit involves the application of the reimbursable amount against any sum that may be due and collectible from the taxpayer.28 On the practical side, the taxpayer to whom the tax is refunded would have the option, among others, to invest for profit the returned sum, an option not proximately available if the taxpayer chooses instead to receive a tax credit. It should be noted that in its initial letter to the Commissioner dated 18 September 1992, Philphos specifically requested the refund of Twenty Million One Hundred Forty Nine Thousand Four Hundred Seventy Three Pesos and Seventy Seven Centavos (P20,149,473.77). However, in its Petition for Review before the CTA, Philphos prayed for the issuance of "corresponding tax credits" in the same amount. Still, there is no vehement insistence on the part of Philphos that the return of the amount paid should come in the form of a refund or a credit.29 The CTA, as affirmed by the CA, ordered the issuance of a Tax Credit Certificate in favor of Philphos. No elaboration was made as to why the relief granted was a tax credit and not a refund, but we can deduce that such was the relief afforded as it was the relief prayed for by Philphos in its Petition before the tax court. However, a slight modification of the award is necessary so as not to render nugatory the proscription under Section 18(i) that a tax credit avails only if the supplies form part of the export product. Instead of awarding a Tax Credit Certificate to Philphos, a refund of the same amount is warranted under the circumstances. The grant of exemption under Section 17(1) is clear and unambiguous. There is neither logic nor need to cast a speck of uncertainly on a doubt-free situation to resolve the resulting forced question in favor of the government. The disposition arises not out of a blind solicitude towards the concerns of business, but from the duty to affirm and enforce a crystal-clear legislative policy and initiative Page 119 of 327

Tax 2 Cases for FE intent. Indeed, the revenue collectors of the government should be cautious before attempting to gut away at concessions the State itself has deemed worthy of award to deserving investors. It is unsound practice and uncouth behaviour to invite over guests to dinner at home, then charge them for the use of the silverware before allowing them to dine. WHEREFORE, the Petition for Review is DENIED. The assailed Decisions of the Court of Appeals dated 4 August 2000 and of the Court of Tax Appeals dated 5 October 1995 are AFFIRMED, with modification that in lieu of the issuance of a Tax Credit Certificate, the amount of Twenty Million One Hundred Forty Nine Thousand Four Hundred Seventy Three Pesos and Seventy Seven Centavos (P20,149,473.77) be refunded to respondent Philippine Phosphate Fertilizer Corporation. No costs. SO ORDERED. Puno*, Austria-Martinez**, Callejo, Sr., and Chico-Nazario, JJ., concur. Footnotes
*

On Official Leave. Acting Chairwoman.

**

Rollo, p. 196. See Section 47, Rep. Act No. 7916 (1995). Rollo, p. 62. Id. at 196. Ibid. Id. at 30. Rollo, pp. 71-72. Id. at 73.

Rollo, pp. 85-97. Ponencia by Presiding Judge (now CTA Presiding Justice) Ernesto D. Acosta, concurred in by Associate Judges Manuel K. Gruba and Ramon O. De Veyra.
10

Rollo, pp. 29-41. In a Decision dated 4 August 2000, penned by Associate Justice O. Agcaoli, and concurred in by Associate Justices A. Sandoval-Guttierez and M. Gozo-Dadole.
11

As the Court of Tax Appeals held in its assailed Decision, "[W]ith regard to the claim for tax credit, there appears to be no dispute with respect to the amount claimed. Petitioner had satisfied the Court with the evidence presented that it is entitled to be credited the amount of P20,149,473.77." Rollo, p. 96.
12

Estate of Salud Jimenez v. Philippine Export Processing Zone, G.R. No. No. 137285, 16 January 2001, 349 SCRA 240, 262.

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13

Section 1, P.D. No. 166, as amended (1972). Rollo, p. 93.

14

15

When Importation Begins and Deemed Terminated. Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade therein. Importation is deemed terminated upon payment of the duties, taxes and other charges due upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs.
16

Finality of Liquidation. When articles been entered and passed free of duty or final adjustments of duties made, with subsequent delivery, such entry and passage free of duty or settlements of duties will, after the expiration of one year, from the date of the final payment of duties, in the absence of fraud or protest, be final and conclusive upon all parties, unless the liquidation of the import entry was merely tentative.
17

Rollo, p. 90. 413 Phil. 106 (2001). Id. at 119. Articles 2154 and 2155 of the New Civil Code read: "Art. 2154. 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. Art. 2155. Payment by reason of a mistake in the construction or application of a doubtful or difficult question of law may come within the scope of the preceding article."

18

19

20

21

"[I]t would seem clear that the taxes collected from appellee were paid, thru an error or mistake, which places said act of payment within the pale of the new Civil Code provisions on Solutio Indebiti." Gonzalo Puyat & Sons, Inc. v. City of Manila, et al., 117 Phil. 985, 989 (1963). See also Citibank N.A. v. Court of Appeals, 345 Phil. 695, 713 (2001).
22

Ramie Textiles, Inc. v. Hon. Mathay, Sr., G.R. No. L-32364, 30 April 1979, 89 SCRA 586, 592; National Development Company v. Cebu City, G.R. No. 51593, 5 November 1992, 215 SCRA 382, 396.
23

Erroneously cited as Section 18(1) by petitioner Commissioner of Customs. See Rollo, p. 19. See Section 18, P.D. 66, as amended. See, e.g., Section 229, Rep. Act No. 8424, "The Special Economic Zone Act of 1995."

24

25

26

27

See B. Aban, Law of Basic Taxation in the Philippines (1994 ed.), at 208. A similar argument is urged by the Commissioner of Customs, who argues that the issuance of tax credits under Page 121 of 327

Tax 2 Cases for FE Section 18(i) are similar, if not identical to Philphoss claim for a refund in the form of a tax credit. Rollo, p. 19.
28

Ibid.

29

Indeed, in its Memorandum before this Court, Philphos argues that "it is entitled to the refund or tax credit of customs duties and taxes." Rollo, p. 202.

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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 147188 September 14, 2004 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special Co-administrators Lorna Kapunan and Mario Luza Bautista, respondents. DECISION DAVIDE, JR., C.J.: This Court is called upon to determine in this case whether the tax planning scheme adopted by a corporation constitutes tax evasion that would justify an assessment of deficiency income tax. The petitioner seeks the reversal of the Decision1 of the Court of Appeals of 31 January 2001 in CAG.R. SP No. 57799 affirming the 3 January 2000 Decision2 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5328,3 which held that the respondent Estate of Benigno P. Toda, Jr. is not liable for the deficiency income tax of Cibeles Insurance Corporation (CIC) in the amount of P79,099,999.22 for the year 1989, and ordered the cancellation and setting aside of the assessment issued by Commissioner of Internal Revenue Liwayway Vinzons-Chato on 9 January 1995. The case at bar stemmed from a Notice of Assessment sent to CIC by the Commissioner of Internal Revenue for deficiency income tax arising from an alleged simulated sale of a 16-storey commercial building known as Cibeles Building, situated on two parcels of land on Ayala Avenue, Makati City. On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90 million.4 On 30 August 1989, Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public.5 For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million.6 On 16 April 1990, CIC filed its corporate annual income tax return7 for the year 1989, declaring, among other things, its gain from the sale of real property in the amount of P75,728.021. After crediting withholding taxes of P254,497.00, it paid P26,341,2078 for its net taxable income of P75,987,725.

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Tax 2 Cases for FE On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of Stocks.9 Three and a half years later, or on 16 January 1994, Toda died. On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an assessment notice10 and demand letter to the CIC for deficiency income tax for the year 1989 in the amount of P79,099,999.22. The new CIC asked for a reconsideration, asserting that the assessment should be directed against the old CIC, and not against the new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had undertaken to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-1989.11 On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan and Mario Luza Bautista, received a Notice of Assessment12 dated 9 January 1995 from the Commissioner of Internal Revenue for deficiency income tax for the year 1989 in the amount of P79,099,999.22, computed as follows: Income Tax 1989 Net Income per return Add: Additional gain on sale of real property taxable under ordinary corporate income but were substituted with individual capital gains(P200M 100M) Total Net Taxable Income per investigation Tax Due thereof at 35% Less: Payment already made 1. Per return 2. Thru Capital Gains Tax made by R.A. Altonaga P26,595,704.00 10,000,000.00 36,595,704.00 P 24,999,999.75 Add: 50% Surcharge 25% Surcharge Total Add: Interest 20% from 4/16/90-4/30/94 (.808) TOTAL AMT. DUE & COLLECTIBLE 35,349,999.65 P 79,099,999.22 ============== 12,499,999.88 6,249,999.94 P 43,749,999.57 Balance of tax due P 61,595,703.75 P75,987,725.00 100,000,000.00 P175,987,725.00

The Estate thereafter filed a letter of protest.13

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Tax 2 Cases for FE In the letter dated 19 October 1995,14 the Commissioner dismissed the protest, stating that a fraudulent scheme was deliberately perpetuated by the CIC wholly owned and controlled by Toda by covering up the additional gain of P100 million, which resulted in the change in the income structure of the proceeds of the sale of the two parcels of land and the building thereon to an individual capital gains, thus evading the higher corporate income tax rate of 35%. On 15 February 1996, the Estate filed a petition for review15 with the CTA alleging that the Commissioner erred in holding the Estate liable for income tax deficiency; that the inference of fraud of the sale of the properties is unreasonable and unsupported; and that the right of the Commissioner to assess CIC had already prescribed. In his Answer16 and Amended Answer,17 the Commissioner argued that the two transactions actually constituted a single sale of the property by CIC to RMI, and that Altonaga was neither the buyer of the property from CIC nor the seller of the same property to RMI. The additional gain of P100 million (the difference between the second simulated sale for P200 million and the first simulated sale for P100 million) realized by CIC was taxed at the rate of only 5% purportedly as capital gains tax of Altonaga, instead of at the rate of 35% as corporate income tax of CIC. The income tax return filed by CIC for 1989 with intent to evade payment of the tax was thus false or fraudulent. Since such falsity or fraud was discovered by the BIR only on 8 March 1991, the assessment issued on 9 January 1995 was well within the prescriptive period prescribed by Section 223 (a) of the National Internal Revenue Code of 1986, which provides that tax may be assessed within ten years from the discovery of the falsity or fraud. With the sale being tainted with fraud, the separate corporate personality of CIC should be disregarded. Toda, being the registered owner of the 99.991% shares of stock of CIC and the beneficial owner of the remaining 0.009% shares registered in the name of the individual directors of CIC, should be held liable for the deficiency income tax, especially because the gains realized from the sale were withdrawn by him as cash advances or paid to him as cash dividends. Since he is already dead, his estate shall answer for his liability. In its decision18 of 3 January 2000, the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due it. It ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax evasion. There being no proof of fraudulent transaction, the applicable period for the BIR to assess CIC is that prescribed in Section 203 of the NIRC of 1986, which is three years after the last day prescribed by law for the filing of the return. Thus, the governments right to assess CIC prescribed on 15 April 1993. The assessment issued on 9 January 1995 was, therefore, no longer valid. The CTA also ruled that the mere ownership by Toda of 99.991% of the capital stock of CIC was not in itself sufficient ground for piercing the separate corporate personality of CIC. Hence, the CTA declared that the Estate is not liable for deficiency income tax of P79,099,999.22 and, accordingly, cancelled and set aside the assessment issued by the Commissioner on 9 January 1995. In its motion for reconsideration,19 the Commissioner insisted that the sale of the property owned by CIC was the result of the connivance between Toda and Altonaga. She further alleged that the latter was a representative, dummy, and a close business associate of the former, having held his office in a property owned by CIC and derived his salary from a foreign corporation (Aerobin, Inc.) duly owned by Toda for representation services rendered. The CTA denied20 the motion for reconsideration, prompting the Commissioner to file a petition for review21 with the Court of Appeals. In its challenged Decision of 31 January 2001, the Court of Appeals affirmed the decision of the CTA, reasoning that the CTA, being more advantageously situated and having the necessary expertise in

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Tax 2 Cases for FE matters of taxation, is "better situated to determine the correctness, propriety, and legality of the income tax assessments assailed by the Toda Estate."22 Unsatisfied with the decision of the Court of Appeals, the Commissioner filed the present petition invoking the following grounds: I. THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT COMMITTED NO FRAUD WITH INTENT TO EVADE THE TAX ON THE SALE OF THE PROPERTIES OF CIBELES INSURANCE CORPORATION. II. THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE SEPARATE CORPORATE PERSONALITY OF CIBELES INSURANCE CORPORATION. III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF PETITIONER TO ASSESS RESPONDENT FOR DEFICIENCY INCOME TAX FOR THE YEAR 1989 HAD PRESCRIBED. The Commissioner reiterates her arguments in her previous pleadings and insists that the sale by CIC of the Cibeles property was in connivance with its dummy Rafael Altonaga, who was financially incapable of purchasing it. She further points out that the documents themselves prove the fact of fraud in that (1) the two sales were done simultaneously on the same date, 30 August 1989; (2) the Deed of Absolute Sale between Altonaga and RMI was notarized ahead of the alleged sale between CIC and Altonaga, with the former registered in the Notarial Register of Jocelyn H. Arreza Pabelana as Doc. 91, Page 20, Book I, Series of 1989; and the latter, as Doc. No. 92, Page 20, Book I, Series of 1989, of the same Notary Public; (3) as early as 4 May 1989, CIC received P40 million from RMI, and not from Altonaga. The said amount was debited by RMI in its trial balance as of 30 June 1989 as investment in Cibeles Building. The substantial portion of P40 million was withdrawn by Toda through the declaration of cash dividends to all its stockholders. For its part, respondent Estate asserts that the Commissioner failed to present the income tax return of Altonaga to prove that the latter is financially incapable of purchasing the Cibeles property. To resolve the grounds raised by the Commissioner, the following questions are pertinent: 1. Is this a case of tax evasion or tax avoidance? 2. Has the period for assessment of deficiency income tax for the year 1989 prescribed? and 3. Can respondent Estate be held liable for the deficiency income tax of CIC for the year 1989, if any? We shall discuss these questions in seriatim. Is this a case of tax evasion or tax avoidance? Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.23 Page 126 of 327

Tax 2 Cases for FE Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of action or failure of action which is unlawful.24 All these factors are present in the instant case. It is significant to note that as early as 4 May 1989, prior to the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40 million from RMI,25 and not from Altonaga. That P40 million was debited by RMI and reflected in its trial balance26 as "other inv. Cibeles Bldg." Also, as of 31 July 1989, another P40 million was debited and reflected in RMIs trial balance as "other inv. Cibeles Bldg." This would show that the real buyer of the properties was RMI, and not the intermediary Altonaga.lavvphi1.net The investigation conducted by the BIR disclosed that Altonaga was a close business associate and one of the many trusted corporate executives of Toda. This information was revealed by Mr. Boy Prieto, the assistant accountant of CIC and an old timer in the company.27 But Mr. Prieto did not testify on this matter, hence, that information remains to be hearsay and is thus inadmissible in evidence. It was not verified either, since the letter-request for investigation of Altonaga was unserved,28 Altonaga having left for the United States of America in January 1990. Nevertheless, that Altonaga was a mere conduit finds support in the admission of respondent Estate that the sale to him was part of the tax planning scheme of CIC. That admission is borne by the records. In its Memorandum, respondent Estate declared: Petitioner, however, claims there was a "change of structure" of the proceeds of sale. Admitted one hundred percent. But isnt this precisely the definition of tax planning? Change the structure of the funds and pay a lower tax. Precisely, Sec. 40 (2) of the Tax Code exists, allowing tax free transfers of property for stock, changing the structure of the property and the tax to be paid. As long as it is done legally, changing the structure of a transaction to achieve a lower tax is not against the law. It is absolutely allowed. Tax planning is by definition to reduce, if not eliminate altogether, a tax. Surely petitioner [sic] cannot be faulted for wanting to reduce the tax from 35% to 5%.29 [Underscoring supplied]. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud. Fraud in its general sense, "is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another."30 Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the 35% corporate income tax. Altonagas sole purpose of acquiring and transferring title of the subject properties on the same day was to create a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business purpose and

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Tax 2 Cases for FE economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability.lavvphi1.net In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion.31 Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated.32 The incidence of taxation depends upon the substance of a transaction. The tax consequences arising from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title. To permit the true nature of the transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress.33 To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale to Altonaga should be disregarded for income tax purposes.34 The two sale transactions should be treated as a single direct sale by CIC to RMI. Accordingly, the tax liability of CIC is governed by then Section 24 of the NIRC of 1986, as amended (now 27 (A) of the Tax Reform Act of 1997), which stated as follows: Sec. 24. Rates of tax on corporations. (a) Tax on domestic corporations.- A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, and partnerships, no matter how created or organized but not including general professional partnerships, in accordance with the following: Twenty-five percent upon the amount by which the taxable net income does not exceed one hundred thousand pesos; and Thirty-five percent upon the amount by which the taxable net income exceeds one hundred thousand pesos. CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5% individual capital gains tax provided for in Section 34 (h) of the NIRC of 198635 (now 6% under Section 24 (D) (1) of the Tax Reform Act of 1997) is inapplicable. Hence, the assessment for the deficiency income tax issued by the BIR must be upheld. Has the period of assessment prescribed? No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997) read: Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court after the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment

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Tax 2 Cases for FE which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection thereof . Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a return, the period within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the case may be. It is true that in a query dated 24 August 1989, Altonaga, through his counsel, asked the Opinion of the BIR on the tax consequence of the two sale transactions.36 Thus, the BIR was amply informed of the transactions even prior to the execution of the necessary documents to effect the transfer. Subsequently, the two sales were openly made with the execution of public documents and the declaration of taxes for 1989. However, these circumstances do not negate the existence of fraud. As earlier discussed those two transactions were tainted with fraud. And even assuming arguendo that there was no fraud, we find that the income tax return filed by CIC for the year 1989 was false. It did not reflect the true or actual amount gained from the sale of the Cibeles property. Obviously, such was done with intent to evade or reduce tax liability. As stated above, the prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery of the falsity. The false return was filed on 15 April 1990, and the falsity thereof was claimed to have been discovered only on 8 March 1991.37 The assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the correct assessment for deficiency income tax was well within the prescriptive period. Is respondent Estate liable for the 1989 deficiency income tax of Cibeles Insurance Corporation? A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa. There are, however, certain instances in which personal liability may arise. It has been held in a number of cases that personal liability of a corporate director, trustee, or officer along, albeit not necessarily, with the corporation may validly attach when: 1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons; 2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 3. He agrees to hold himself personally and solidarily liable with the corporation; or 4. He is made, by specific provision of law, to personally answer for his corporate action.38 It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987, 1988, and 1989. Paragraph g of the Deed of Sale of Shares of Stocks specifically provides: g. Except for transactions occurring in the ordinary course of business, Cibeles has no liabilities or obligations, contingent or otherwise, for taxes, sums of money or Page 129 of 327

Tax 2 Cases for FE insurance claims other than those reported in its audited financial statement as of December 31, 1989, attached hereto as "Annex B" and made a part hereof. The business of Cibeles has at all times been conducted in full compliance with all applicable laws, rules and regulations. SELLER undertakes and agrees to hold the BUYER and Cibeles free from any and all income tax liabilities of Cibeles for the fiscal years 1987, 1988 and 1989.39 [Underscoring Supplied]. When the late Toda undertook and agreed "to hold the BUYER and Cibeles free from any all income tax liabilities of Cibeles for the fiscal years 1987, 1988, and 1989," he thereby voluntarily held himself personally liable therefor. Respondent estate cannot, therefore, deny liability for CICs deficiency income tax for the year 1989 by invoking the separate corporate personality of CIC, since its obligation arose from Todas contractual undertaking, as contained in the Deed of Sale of Shares of Stock. WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED. The decision of the Court of Appeals of 31 January 2001 in CA-G.R. SP No. 57799 is REVERSED and SET ASIDE, and another one is hereby rendered ordering respondent Estate of Benigno P. Toda Jr. to pay P79,099,999.22 as deficiency income tax of Cibeles Insurance Corporation for the year 1989, plus legal interest from 1 May 1994 until the amount is fully paid. Costs against respondent. SO ORDERED. Quisumbing, Ynares-Santiago, Carpio, and Azcuna, JJ., concur. Item No. 135 Agenda OF 13 September 2004 FIRST DIVISION FORCONCURRENCE G.R. No. 147188 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special Co-administrators Lorna Kapunan and Mario Luza Bautista, respondents. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X COUNSEL FOR THE PETITIONER: ATTY. ALBERT C. ARPON Bureau of Internal Revenue Rms. 703, BIR Bldg. 1104 Diliman, Quezon City COURT OF TAX APPEALS

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Tax 2 Cases for FE Quezon Avenue 1100 Quezon City COUNSEL FOR THE RESPONDENTS: ATTY. JOSE MARIO C. BUAG BUAG & ASSOCIATES Suite 17-E, 17th Flr., Strata 100 Bldg. Emerald Ave., Ortigas Center 1605 Pasig City X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X Court of Appeals - Decision of 31 January 2001 Per Associate Justice Rodrigo V. Cosico, with Associate Justices Ramon A. Barcelona and Alicia J. Santos concurring. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X (Please return to the Office of Chief Justice HILARIO G. DAVIDE, JR.) Footnotes
1

Rollo, 22-31. Per Associate Justice Rodrigo V. Cosico, with Associate Justices Ramon A. Barcelona and Alicia J. Santos concurring.
2

Id., 32-41; CTA Records, 524-533. Per Presiding Judge Ernesto D. Acosta, with Associate Judges Ramon O. De Veyra and Amancio Q. Saga concurring.
3

Entitled "The Estate of Benigno P. Toda, Jr., represented by Special CoAdministrators Lorna Patajo-Kapunan and Mario Luza Bautista versus Commissioner of Internal Revenue."
4

CA Rollo, 73. CA Rollo, 74-78; 88-92. Exh. "E," CTA Records, 306. Exh. "L," CTA Records, 340. Exh. "M," "M-1," "N" and "N-1," CTA Records, 316-317. Exh. "P," CTA Records, 357-365. BIR Records, 448-449. Id., 446-447.

10

11

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Tax 2 Cases for FE

12

Id., 474-475. Exh. "H," CTA Records, 314-315. Exh. "G," CTA Records, 311-312. CTA Records, 1-15. CTA Records, 104-111. Id., 121-128. CTA Records 535-540. Id., 534, 539. Id., 550; CA Rollo, 32. CA Rollo, 7-20. Rollo, 30.

13

14

15

16

17

18

19

20

21

22

23

Jose C. Vitug and Ernesto D. Acosta, Tax Law and Jurisprudence 44 (2nd ed., 2000) (hereafter Vitug).
24

De Leon, Fundamentals of Taxation 53 (1988 ed.), citing Batter, Fraud under Federal Tax Law 15 (1953 ed.).
25

Exh. "3," CTA Records, 476. Exh. "6," CTA Records, 470. Exh. "1," CTA Records, 461. CTA Records, 466. Respondents Memorandum, 4-5; Rollo, 78-79. Commissioner of Internal Revenue v. Court of Appeals, 327 Phil. 1, 33 (1996).

26

27

28

29

30

31

See Commissioner of Internal Revenue v. Norton Harrison Co., 120 Phil. 684, 691 (1964); Commissioner of Internal Revenue v. Rufino, G.R. No. L-33665-68, 27 February 1987, 148 SCRA 42.
32

Vitug, 138. Commissioner v. Court Holding Co., 324 U.S. 334 (1945) .

33

34

See Gregory v. Helvering, 293 U.S. 465 (1935); Frank Lyon Co. v. United States, 435 U.S. 561 (1978); Commissioner of Internal Revenue v. Court of Appeals, 361 Phil. 103, 126 (1999) citing Asmussen v. CIR, 36 B.T.A. (F) 878; See also Neff v. U.S., 301 Page 132 of 327

Tax 2 Cases for FE F2d 330; Cohen v. U.S., 192 F Supp 216; Herman v. Comm., 283 F2d 227; Kessner v. Comm., 248 F2d 943; Comm. V. Pope, 239 F2d 881; U.S. v. Fewel, 255 F2d 396.
35

Sec. 34. Capital gains and loses. ... (h) The provisions of paragraph (b) of this section to the contrary notwithstanding, sales, exchanges or other dispositions of real property classified as capital assets, including pacto-de-retro sales and other forms of conditional sale, by individuals, including estates and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher.

36

Exh. "A," CTA Records, 296. Exh. "2," CTA Records, 464.

37

38

Atrium Management Corporation v. Court of Appeals, G.R. Nos. 109491 and 121794, 28 February 2001, 353 SCRA 23, 31, citing FCY Construction Group Inc. v. Court of Appeals, G.R. No. 123358, 1 February 2000, 324 SCRA 270.
39

CTA Records, 200-201.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 155591 September 22, 2004 DR. PABLO R. OLIVARES, DR. ROSARIO DE LEON OLIVARES, EDWIN D. OLIVAREZ and OLIVAREZ REALTY CORPORATION, petitioners, vs. MAYOR JOEY MARQUEZ, CITY TREASURER SILVESTRE A. DE LEON, ASSISTANT CITY TREASURER LIBERATO M. CARABEO, CITY ASSESSOR SOLEDED S. MEDINA CUE and ASSISTANT CITY ASSESSOR JOSE MARLEO P. DEL ROSARIO, respondents. DECISION AUSTRIA-MARTINEZ, J.:

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Tax 2 Cases for FE Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Order dated July 24, 2002 of the Regional Trial Court (Branch 257) of Paraaque City (RTC for brevity), dismissing Civil Case No. 98-0313 on the following grounds: 1. Questions involving tax assessment is within the jurisdiction of the Bureau of Internal Revenue (BIR). 2. It is improper for this Court to prohibit or annul a tax assessment issued by the City Assessors Office since it is legally inherent in the functions of their office. Any complaint or protest thereto should be coursed through the BIR. 3. It appears on record that the City Treasurers Office had already responded to the letterprotest of plaintiff. Hence, the prayer in the complaint asking that the City Treasurer be ordered to act on it is now moot. 4. It is also of judicial notice that at present there is no longer any publication regarding plaintiffs tax delinquency. Hence, the prayer that this kind of publication be ordered stopped is now, likewise, moot.1 Civil Case No. 98-0313 is a petition for certiorari, prohibition and mandamus filed by petitioners with the RTC on August 18, 1998, questioning the assessment and levy made by the Office of the City Treasurer of Paraaque City on petitioners properties. Petitioners alleged that on July 1, 1998, they received a final notice from the Office of the City Treasurer on their real estate tax delinquencies. They protested said notice in a letter dated July 7, 1998, and sought reinvestigation on the grounds that: (1) some of the taxes being collected have already prescribed and may no longer be collected as provided in Section 194 of the Local Government Code of 1991; (2) some properties have been doubly taxed/assessed; (3) some properties being taxed are no longer existent; (4) some properties are exempt from taxation as they are being used exclusively for educational purposes; and (5) some errors are made in the assessment and collection of taxes due on petitioners properties. They wrote another letter on July 24, 1998, but respondents failed to act thereon. Thus, petitioners sought, among others, the annulment of the assessments and respondents be ordered to act on their protest immediately.2 Respondents filed a motion to dismiss Civil Case No. 98-0313 on the grounds that: (1) the trial court has no jurisdiction over tax assessment matters; (2) petitioners failed to comply with the requirements of a tax protest; and (3) the petition states no cause of action.3 Petitioners opposed the motion, arguing that the trial court has jurisdiction over the case as the issue raised pertains to the authority of respondents to assess and collect the real estate taxes. Petitioners cite the case of Ty vs. Trampe,4 wherein the Court upheld the jurisdiction of the Regional Trial Court (Branch 163) of Pasig to entertain the petition for prohibition as it questions the power of the assessor to impose and collect any tax, and not merely the reasonableness thereof. Ruling in favor of respondents motion to dismiss, the trial court issued the herein assailed order dismissing Civil Case No. 98-0313. The trial court denied petitioners motion for reconsideration.5 Hence, petitioners filed the herein petition for review raising the following "questions of law" to be resolved by the Court: FIRST QUESTION OF LAW

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Tax 2 Cases for FE WHETHER OR NOT THE COURT A QUO HAS JURISDICTION TO TRY THE CASE INVOLVING MATTERS QUESTIONING THE VERY AUTHORITY AND POWER OF THE ASSESSOR TO IMPOSE ASSESSMENT AND OF THE CITY TREASURER TO COLLECT THE TAX. SECOND QUESTION OF LAW WHETHER OR NOT THE COURT A QUO BLATANTLY ERRED [IN] NOT DECLARING THE CONFISCATORY AND OPPRESSIVE NATURE OF THE ASSESSMENTS AS ILLEGAL, VOID AB INITIO, UNCONSTITUTIONAL AND CONSTITUTING DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW.6 The Court rules against petitioners. The petition has no merit. The extraordinary remedies of certiorari, prohibition and mandamus may be resorted to only when there is no other plain, available, speedy and adequate remedy in the course of law.7 Where administrative remedies are available, petitions for the issuance of these peremptory writs do not lie8 in order to give the administrative body the opportunity to decide the matter by itself correctly and to prevent unnecessary and premature resort to courts.9 Republic Act (R.A.) No. 7160, or the Local Government Code of 1991, clearly sets forth the administrative remedies available to a taxpayer or real property owner who is not satisfied with the assessment or reasonableness of the real property tax sought to be collected.10 Section 252 of R.A. No. 7160 provides: SEC. 252. Payment Under Protest. - (a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the words "paid under protest". The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Area, who shall decide the protest within sixty (60) days from receipt. (b) The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned. (c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested shall be refunded to the protestant, or applied as tax credits against his existing or future tax liability. (d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed in subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title Two, Book II11 of this Code. (Emphasis supplied) Chapter 3, Title Two, Book II of the Local Government Code, entitled "Assessment Appeals," refers to the appellate procedure before the Local Board of Assessment Appeals (LBAA), as provided in Section 226, et seq. of the Code, and the Central Board of Assessment Appeals (CBAA), as provided in Section 230 thereof. Thus, should the taxpayer/real property owner question the excessiveness or reasonableness of the assessment, Section 252 directs that the taxpayer should first pay the tax due before his protest can be entertained. There shall be annotated on the tax receipts the words "paid under protest." It is only after the taxpayer has paid the tax due that he may file a protest in writing within thirty days Page 135 of 327

Tax 2 Cases for FE from payment of the tax to the Provincial, City or Municipal Treasurer, who shall decide the protest within sixty days from receipt. In no case is the local treasurer obliged to entertain the protest unless the tax due has been paid. If the local treasurer denies the protest or fails to act upon it within the 60-day period provided for in Section 252, the taxpayer/real property owner may then appeal or directly file a verified petition with the LBAA within sixty days from denial of the protest or receipt of the notice of assessment, as provided in Section 226 of R.A. No. 7160, to wit: SEC. 226. Local Board of Assessment Appeals. - Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal. And, if the taxpayer is not satisfied with the decision of the LBAA, he may elevate the same to the CBAA, which exercises exclusive jurisdiction to hear and decide all appeals from the decisions, orders and resolutions of the Local Boards involving contested assessments of real properties, claims for tax refund and/or tax credits or overpayments of taxes.12 An appeal may be taken to the CBAA by filing a notice of appeal within thirty days from receipt thereof.13 From the CBAA, the dispute may then be taken to the Court of Appeals by filing a verified petition for review under Rule 43 of the Rules of Court. The Court is not convinced with petitioners argument that their recourse of filing a petition before the trial court is proper as they are questioning the very authority of respondents to assess and collect the real estate taxes due on their properties, and not merely the correctness of said amount. The well-established rule is that the allegations in the complaint and the character of the relief sought determine the nature of an action.14 A perusal of the petition before the RTC plainly shows that what is actually being assailed is the correctness of the assessments made by the local assessor of Paraaque on petitioners properties. The allegations in the said petition purportedly questioning the assessors authority to assess and collect the taxes were obviously made in order to justify the filing of the petition with the RTC. In fact, there is nothing in the said petition that supports their claim regarding the assessors alleged lack of authority. What petitioners raise are the following: (1) some of the taxes being collected have already prescribed and may no longer be collected as provided in Section 194 of the Local Government Code of 1991; (2) some properties have been doubly taxed/assessed; (3) some properties being taxed are no longer existent; (4) some properties are exempt from taxation as they are being used exclusively for educational purposes; and (5) some errors are made in the assessment and collection of taxes due on petitioners properties,15 and that respondents committed grave abuse of discretion in making the "improper, excessive and unlawful the collection of taxes against the petitioner[s]."16 Moreover, these arguments essentially involve questions of fact. Hence, the petition should have been brought, at the very first instance, to the LBAA. Under the doctrine of primacy of administrative remedies, an error in the assessment must be administratively pursued to the exclusion of ordinary courts whose decisions would be void for lack of jurisdiction. But an appeal shall not suspend the collection of the tax assessed without prejudice to a later adjustment pending the outcome of the appeal.17

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Tax 2 Cases for FE Even assuming that the assessors authority is indeed an issue, it must be pointed out that in order for the court a quo to resolve the petition, the issues of the correctness of the tax assessment and collection must also necessarily be dealt with. In Ty vs. Trampe,18 cited by petitioners, the Court held that jurisdiction over the case was properly vested with the trial court because what was being questioned is the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax, and not merely of amounts of the increase in the tax. The petitioners therein were questioning the increased real estate taxes imposed by and being collected in Pasig City effective from the year 1994, premised on the legal question of whether or not P.D. No. 921 was repealed by R.A. No. 7160. P.D. No. 921, particularly Section 9 thereof, requires that the schedule of values of real properties in the Metropolitan Manila area shall be prepared jointly by the city assessors in the districts created therein; while Sec. 212 of R.A. No. 7160 states that the schedule shall be prepared by the provincial, city or municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. In the present case, the authority of the assessor is not being questioned. Despite petitioners protestations, the petition filed before the court a quo primarily involves the correctness of the assessments, which are questions of fact, that are not allowed in a petition for certiorari, prohibition and mandamus. The court a quo is therefore precluded from entertaining the petition, and it appropriately dismissed the petition. WHEREFORE, the petition is DENIED for lack of merit. SO ORDERED. Puno, Callejo, Sr., Tinga, and Chico-Nazario*, JJ., concur. Footnotes
*

On Leave. Petition, Annex "A". Rollo, pp. 79-82. Id., p. 36. G.R. No. 117577, December 1, 1995, 250 SCRA 500. Rollo, p. 85. Petition, p. 4; Rollo, p. 6. Rule 65 of the Rules of Court.

Union Bank vs. Court of Appeals, G.R. No. 131729, May 19, 1998, 290 SCRA 198, 219; Manila Electric Company vs. Barlis, G.R. No. 114231, May 18, 2001, 357 SCRA 832, 843; and Systems Plus Computer College of Caloocan City vs. Local Government of Caloocan City, G.R. No. 146382, August 7, 2003. Page 137 of 327

Tax 2 Cases for FE

9

Lopez vs. City of Manila, G.R. No. 127139, February 19, 1999, 303 SCRA 448, 458.

10

Rep. Act No. 7160 or the Local Government Code of 1991, which took effect on January 1, 1992, repealed P.D. No. 464 or the Real Property Tax Code, as provided in Section 534 thereof.
11

Entitled "Assessment Appeals." Rule III, Section 1, Rules of Procedure of the Central Board of Assessment Appeals.

12

13

Section 229(c), Rep. Act No. 7160; Rule IV, Sections 2 and 3, Rules of Procedure of the Central Board of Assessment Appeals.
14

International Flavors and Fragrances (Phil.), Inc., vs. Argos, G.R. No. 130362, September 10, 2001, 364 SCRA 792, 797.
15

Rollo, p. 79. Rollo, p. 81. Manila Electric Company vs. Barlis, G.R. No. 114231, May 18, 2001, 357 SCRA 832, 843. Supra., Note No. 4.

16

17

18

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Tax 2 Cases for FE Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 119286 October 13, 2004 PASEO REALTY & DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. DECISION TINGA, J.: The changes in the reportorial requirements and payment schedules of corporate income taxes from annual to quarterly have created problems, especially on the matter of tax refunds.1 In this case, the Court is called to resolve the question of whether alleged excess taxes paid by a corporation during a taxable year should be refunded or credited against its tax liabilities for the succeeding year. Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two (2) parcels of land at Paseo de Roxas in Makati City, seeks a review of the Decision2 of the Court of Appeals dismissing its petition for review of the resolution3 of the Court of Tax Appeals (CTA) which, in turn, denied its claim for refund. The factual antecedents4 are as follows: On April 16, 1990, petitioner filed its Income Tax Return for the calendar year 1989 declaring a gross income of P1,855,000.00, deductions of P1,775,991.00, net income of P79,009.00, an income tax due thereon in the amount of P27,653.00, prior years excess credit of P146,026.00, and creditable taxes withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and credit balance of P172,477.00. On November 14, 1991, petitioner filed with respondent a claim for "the refund of excess creditable withholding and income taxes for the years 1989 and 1990 in the aggregate amount of P147,036.15." On December 27, 1991 alleging that the prescriptive period for refunds for 1989 would expire on December 30, 1991 and that it was necessary to interrupt the prescriptive period, petitioner filed with the respondent Court of Tax Appeals a petition for review praying for the refund of "P54,104.00 representing creditable taxes withheld from income payments of petitioner for the calendar year ending December 31, 1989." On February 25, 1992, respondent Commissioner filed an Answer and by way of special and/or affirmative defenses averred the following: a) the petition states no cause of action for failure to allege the dates when the taxes sought to be refunded were paid; b) petitioners claim for refund is still under investigation by respondent Commissioner; c) the taxes claimed are deemed to have been paid and collected in Page 139 of 327

Tax 2 Cases for FE accordance with law and existing pertinent rules and regulations; d) petitioner failed to allege that it is entitled to the refund or deductions claimed; e) petitioners contention that it has available tax credit for the current and prior year is gratuitous and does not ipso facto warrant the refund; f) petitioner failed to show that it has complied with the provision of Section 230 in relation to Section 204 of the Tax Code. After trial, the respondent Court rendered a decision ordering respondent Commissioner "to refund in favor of petitioner the amount of P54,104.00, representing excess creditable withholding taxes paid for January to July1989." Respondent Commissioner moved for reconsideration of the decision, alleging that the P54,104.00 ordered to be refunded "has already been included and is part and parcel of the P172,477.00 which petitioner automatically applied as tax credit for the succeeding taxable year 1990." In a resolution dated October 21, 1993 Respondent Court reconsidered its decision of July 29, 1993 and dismissed the petition for review, stating that it has "overlooked the fact that the petitioners 1989 Corporate Income Tax Return (Exh. "A") indicated that the amount of P54,104.00 subject of petitioners claim for refund has already been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax credit for the succeeding taxable year 1990." Petitioner filed a Motion for Reconsideration which was denied by respondent Court on March 10, 1994.5 Petitioner filed a Petition for Review6 dated April 3, 1994 with the Court of Appeals. Resolving the twin issues of whether petitioner is entitled to a refund of P54,104.00 representing creditable taxes withheld in 1989 and whether petitioner applied such creditable taxes withheld to its 1990 income tax liability, the appellate court held that petitioner is not entitled to a refund because it had already elected to apply the total amount of P172,447.00, which includes the P54,104.00 refund claimed, against its income tax liability for 1990. The appellate court elucidated on the reason for its dismissal of petitioners claim for refund, thus: In the instant case, it appears that when petitioner filed its income tax return for the year 1989, it filled up the box stating that the total amount of P172,477.00 shall be applied against its income tax liabilities for the succeeding taxable year. Petitioner did not specify in its return the amount to be refunded and the amount to be applied as tax credit to the succeeding taxable year, but merely marked an "x" to the box indicating "to be applied as tax credit to the succeeding taxable year." Unlike what petitioner had done when it filed its income tax return for the year 1988, it specifically stated that out of the P146,026.00 the entire refundable amount, only P64,623.00 will be made available as tax credit, while the amount of P81,403.00 will be refunded. In its 1989 income tax return, petitioner filled up the box "to be applied as tax credit to succeeding taxable year," which signified that instead of refund, petitioner will apply the total amount of P172,447.00, which includes the amount of P54,104.00 sought to be refunded, as tax credit for its tax liabilities in 1990. Thus, there is really nothing left to be refunded to petitioner for the year 1989. To grant petitioners Page 140 of 327

Tax 2 Cases for FE claim for refund is tantamount to granting twice the refund herein sought to be refunded, to the prejudice of the Government. The Court of Appeals denied petitioners Motion for Reconsideration7 dated November 8, 1994 in its Resolution8 dated February 21, 1995 because the motion merely restated the grounds which have already been considered and passed upon in its Decision.9 Petitioner thus filed the instant Petition for Review10 dated April 14, 1995 arguing that the evidence presented before the lower courts conclusively shows that it did not apply the P54,104.00 to its 1990 income tax liability; that the Decision subject of the instant petition is inconsistent with a final decision11 of the Sixteenth Division of the appellate court in C.A.-G.R. Sp. No. 32890 involving the same parties and subject matter; and that the affirmation of the questioned Decision would lead to absurd results in the manner of claiming refunds or in the application of prior years excess tax credits. The Office of the Solicitor General (OSG) filed a Comment12 dated May 16, 1996 on behalf of respondents asserting that the claimed refund of P54,104.00 was, by petitioners election in its Corporate Annual Income Tax Return for 1989, to be applied against its tax liability for 1990. Not having submitted its tax return for 1990 to show whether the said amount was indeed applied against its tax liability for 1990, petitioners election in its tax return stands. The OSG also contends that petitioners election to apply its overpaid income tax as tax credit against its tax liabilities for the succeeding taxable year is mandatory and irrevocable. On September 2, 1997, petitioner filed a Reply13 dated August 31, 1996 insisting that the issue in this case is not whether the amount of P54,104.00 was included as tax credit to be applied against its 1990 income tax liability but whether the same amount was actually applied as tax credit for 1990. Petitioner claims that there is no need to show that the amount of P54,104.00 had not been automatically applied against its 1990 income tax liability because the appellate courts decision in C.A.-G.R. Sp. No. 32890 clearly held that petitioner charged its 1990 income tax liability against its tax credit for 1988 and not 1989. Petitioner also disputes the OSGs assertion that the taxpayers election as to the application of excess taxes is irrevocable averring that there is nothing in the law that prohibits a taxpayer from changing its mind especially if subsequent events leave the latter no choice but to change its election. The OSG filed a Rejoinder14 dated March 5, 1997 stating that petitioners 1988 tax return shows a prior years excess credit of P81,403.00, creditable tax withheld of P92,750.00 and tax due of P27,127.00. Petitioner indicated that the prior years excess credit of P81,403.00 was to be refunded, while the remaining amount of P64,623.00 (P92,750.00 - P27,127.00) shall be considered as tax credit for 1989. However, in its 1989 tax return, petitioner included the P81,403.00 which had already been segregated for refund in the computation of its excess credit, and specified that the full amount of P172,479.00* (P81,403.00 + P64,623.00 + P54,104.00** - P27,653.00***) be considered as its tax credit for 1990. Considering that it had obtained a favorable ruling for the refund of its excess credit for 1988 in CA-G.R. SP. No. 32890, its remaining tax credit for 1989 should be the excess credit to be applied against its 1990 tax liability. In fine, the OSG argues that by its own election, petitioner can no longer ask for a refund of its creditable taxes withheld in 1989 as the same had been applied against its 1990 tax due. In its Resolution15 dated July 16, 1997, the Court gave due course to the petition and required the parties to simultaneously file their respective memoranda within 30 days from notice. In compliance with this directive, petitioner submitted its Memorandum16 dated September 18, 1997 in due time,

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Tax 2 Cases for FE while the OSG filed its Memorandum17 dated April 27, 1998 only on April 29, 1998 after several extensions. The petition must be denied. As a matter of principle, it is not advisable for this Court to set aside the conclusion reached by an agency such as the CTA which is, by the very nature of its functions, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority.18 This interdiction finds particular application in this case since the CTA, after careful consideration of the merits of the Commissioner of Internal Revenues motion for reconsideration, reconsidered its earlier decision which ordered the latter to refund the amount of P54,104.00 to petitioner. Its resolution cannot be successfully assailed based, as it is, on the pertinent laws as applied to the facts. Petitioners 1989 tax return indicates an aggregate creditable tax of P172,477.00, representing its 1988 excess credit of P146,026.00 and 1989 creditable tax of P54,104.00 less tax due for 1989, which it elected to apply as tax credit for the succeeding taxable year.19 According to petitioner, it successively utilized this amount when it obtained refunds in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300) and CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890), and applied its 1990 tax liability, leaving a balance of P54,104.00, the amount subject of the instant claim for refund.20 Represented mathematically, petitioner accounts for its claim in this wise: P172,477.00 Amount indicated in petitioners 1989 tax return to be applied as tax credit for the succeeding taxable year - 25,623.00 Claim for refund in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300)

P146,854.00 Balance as of April 16, 1990 - 59,510.00 P87,344.00 - 33,240.00 P54,104.00 Claim for refund in CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890) Balance as of January 2, 1991 Income tax liability for calendar year 1990 applied as of April 15, 1991 Balance as of April 15, 1991 now subject of the instant claim for refund21

Other than its own bare allegations, however, petitioner offers no proof to the effect that its creditable tax of P172,477.00 was applied as claimed above. Instead, it anchors its assertion of entitlement to refund on an alleged finding in C.A.-G.R. Sp. No. 3289022 involving the same parties to the effect that petitioner charged its 1990 income tax liability to its tax credit for 1988 and not its 1989 tax credit. Hence, its excess creditable taxes withheld of P54,104.00 for 1989 was left untouched and may be refunded. Note should be taken, however, that nowhere in the case referred to by petitioner did the Court of Appeals make a categorical determination that petitioners tax liability for 1990 was applied against its 1988 tax credit. The statement adverted to by petitioner was actually presented in the appellate courts decision in CA-G.R. Sp No. 32890 as part of petitioners own narration of facts. The pertinent portion of the decision reads: Page 142 of 327

Tax 2 Cases for FE It would appear from petitioners submission as follows: x x x since it has already applied to its prior years excess credit of P81,403.00 (which petitioner wanted refunded when it filed its 1988 Income Tax Return on April 14, 1989) the income tax liability for 1988 of P28,127.00 and the income tax liability for 1989 of P27,653.00, leaving a balance refundable of P25,623.00 subject of C.T.A. Case No. 4439, the P92,750.00 (P64,623.00 plus P28,127.00, since this second amount was already applied to the amount refundable of P81,403.00) should be the refundable amount. But since the taxpayer again used part of it to satisfy its income tax liability of P33,240.00 for 1990, the amount refundable was P59,510.00, which is the amount prayed for in the claim for refund and also in the petitioner (sic) for review. That the present claim for refund already consolidates its claims for refund for 1988, 1989, and 1990, when it filed a claim for refund of P59,510.00 in this case (CTA Case No. 4528). Hence, the present claim should be resolved together with the previous claims.23 The confusion as to petitioners entitlement to a refund could altogether have been avoided had it presented its tax return for 1990. Such return would have shown whether petitioner actually applied its 1989 tax credit of P172,477.00, which includes the P54,104.00 creditable taxes withheld for 1989 subject of the instant claim for refund, against its 1990 tax liability as it had elected in its 1989 return, or at least, whether petitioners tax credit of P172,477.00 was applied to its approved refunds as it claims. The return would also have shown whether there remained an excess credit refundable to petitioner after deducting its tax liability for 1990. As it is, we only have petitioners allegation that its tax due for 1990 was P33,240.00 and that this was applied against its remaining tax credits using its own "first in, first out" method of computation. It would have been different had petitioner not included the P54,104.00 creditable taxes for 1989 in the total amount it elected to apply against its 1990 tax liabilities. Then, all that would have been required of petitioner are: proof that it filed a claim for refund within the two (2)-year prescriptive period provided under Section 230 of the NIRC; evidence that the income upon which the taxes were withheld was included in its return; and to establish the fact of withholding by a copy of the statement (BIR Form No. 1743.1) issued by the payor24 to the payee showing the amount paid and the amount of tax withheld therefrom. However, since petitioner opted to apply its aggregate excess credits as tax credit for 1990, it was incumbent upon it to present its tax return for 1990 to show that the claimed refund had not been automatically credited and applied to its 1990 tax liabilities. The grant of a refund is founded on the assumption that the tax return is valid, i.e., that the facts stated therein are true and correct.25 Without the tax return, it is error to grant a refund since it would be virtually impossible to determine whether the proper taxes have been assessed and paid. Why petitioner failed to present such a vital piece of evidence confounds the Court. Petitioner could very well have attached a copy of its final adjustment return for 1990 when it filed its claim for refund on November 13, 1991. Annex "B" of its Petition for Review26 dated December 26, 1991 filed with the CTA, in fact, states that its annual tax return for 1990 was submitted in support of its claim. Yet, petitioners tax return for 1990 is nowhere to be found in the records of this case.

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Tax 2 Cases for FE Had petitioner presented its 1990 tax return in refutation of respondent Commissioners allegation that it did not present evidence to prove that its claimed refund had already been automatically credited against its 1990 tax liability, the CTA would not have reconsidered its earlier Decision. As it is, the absence of petitioners 1990 tax return was the principal basis of the CTAs Resolution reconsidering its earlier Decision to grant petitioners claim for refund. Petitioner could even still have attached a copy of its 1990 tax return to its petition for review before the Court of Appeals. The appellate court, being a trier of facts, is authorized to receive it in evidence and would likely have taken it into account in its disposition of the petition. In BPI-Family Savings Bank v. Court of Appeals,27 although petitioner failed to present its 1990 tax return, it presented other evidence to prove its claim that it did not apply and could not have applied the amount in dispute as tax credit. Importantly, petitioner therein attached a copy of its final adjustment return for 1990 to its motion for reconsideration before the CTA buttressing its claim that it incurred a net loss and is thus entitled to refund. Considering this fact, the Court held that there is no reason for the BIR to withhold the tax refund. In this case, petitioners failure to present sufficient evidence to prove its claim for refund is fatal to its cause. After all, it is axiomatic that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Tax refunds, like tax exemptions, are construed strictly against the taxpayer.28 Section 69, Chapter IX, Title II of the National Internal Revenue Code of the Philippines (NIRC) provides: Sec. 69. Final Adjustment Return.Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. [Emphasis supplied] Revenue Regulation No. 10-77 of the Bureau of Internal Revenue clarifies: SEC. 7. Filing of final or adjustment return and final payment of income tax. A final or an adjustment return on B.I.R. Form No. 1702 covering the total taxable income of the corporation for the preceding calendar or fiscal year shall be filed on or before the 15th day of the fourth month following the close of the calendar or fiscal year. The return shall include all the items of gross income and deductions for the taxable year. The amount of income tax to be paid shall be the balance of the total income tax shown on the final or adjustment return after deducting therefrom the total quarterly income taxes paid during the preceding first three quarters of the same calendar or fiscal year. Page 144 of 327

Tax 2 Cases for FE Any excess of the total quarterly payments over the actual income tax computed and shown in the adjustment or final corporate income tax return shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return its intention whether to request for refund of the overpaid income tax or claim for automatic credit to be applied against its income tax liabilities for the quarters of the succeeding taxable year by filling up the appropriate box on the corporate tax return (B.I.R. Form No. 1702). [Emphasis supplied] As clearly shown from the above-quoted provisions, in case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year. The carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only. In the recent case of AB Leasing and Finance Corporation v. Commissioner of Internal Revenue,29 where the Court declared that "[T]he carrying forward of any excess or overpaid income tax for a given taxable year then is limited to the succeeding taxable year only," we ruled that since the case involved a claim for refund of overpaid taxes for 1993, petitioner could only have applied the 1993 excess tax credits to its 1994 income tax liabilities. To further carry-over to 1995 the 1993 excess tax credits is violative of Section 69 of the NIRC. In this case, petitioner included its 1988 excess credit of P146,026.00 in the computation of its total excess credit for 1989. It indicated this amount, plus the 1989 creditable taxes withheld of P54,104.00 or a total of P172,477.00, as its total excess credit to be applied as tax credit for 1990. By its own disclosure, petitioner effectively combined its 1988 and 1989 tax credits and applied its 1990 tax due of P33,240.00 against the total, and not against its creditable taxes for 1989 only as allowed by Section 69. This is a clear admission that petitioners 1988 tax credit was incorrectly and illegally applied against its 1990 tax liabilities. Parenthetically, while a taxpayer is given the choice whether to claim for refund or have its excess taxes applied as tax credit for the succeeding taxable year, such election is not final. Prior verification and approval by the Commissioner of Internal Revenue is required. The availment of the remedy of tax credit is not absolute and mandatory. It does not confer an absolute right on the taxpayer to avail of the tax credit scheme if it so chooses. Neither does it impose a duty on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer.30 Contrary to petitioners assertion however, the taxpayers election, signified by the ticking of boxes in Item 10 of BIR Form No. 1702, is not a mere technical exercise. It aids in the proper management of claims for refund or tax credit by leading tax authorities to the direction they should take in addressing the claim. The amendment of Section 69 by what is now Section 76 of Republic Act No. 842431 emphasizes that it is imperative to indicate in the tax return or the final adjustment return whether a tax credit or refund is sought by making the taxpayers choice irrevocable. Section 76 provides: SEC. 76. Final Adjustment Return.Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made Page 145 of 327

Tax 2 Cases for FE during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of the tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore. [Emphasis supplied] As clearly seen from this provision, the taxpayer is allowed three (3) options if the sum of its quarterly tax payments made during the taxable year is not equal to the total tax due for that year: (a) pay the balance of the tax still due; (b) carry-over the excess credit; or (c) be credited or refunded the amount paid. If the taxpayer has paid excess quarterly income taxes, it may be entitled to a tax credit or refund as shown in its final adjustment return which may be carried over and applied against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. However, once the taxpayer has exercised the option to carry-over and to apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed. Had this provision been in effect when the present claim for refund was filed, petitioners excess credits for 1988 could have been properly applied to its 1990 tax liabilities. Unfortunately for petitioner, this is not the case. Taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. And since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception.32 WHEREFORE, the instant petition is DENIED. The challenged decision of the Court of Appeals is hereby AFFIRMED. No pronouncement as to costs. SO ORDERED. Puno, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur. Footnotes Page 146 of 327

Tax 2 Cases for FE

*

Should be P172,477.00. Representing the creditable taxes withheld at source for 1989. Representing the tax due for 1989.

**

***

The provision on the filing of corporate returns was first amended by P.D. 1158-A (June 3, 1977), which required the filing of quarterly income tax returns. The amendment was incorporated in the National Internal Revenue Code of 1977. P.D. 1705 (August 1, 1980) and P.D. 1773 (January 16, 1981) further amended the provision. The amendment was incorporated in subsequent tax codes up to the present Tax Reform Act of 1997.
2

Dated October 14, 1994 penned by Associate Justice Consuelo Ynares-Santiago (now an Associate Justice of this Court) and concurred in by Associate Justices Emeterio C. Cui and Conchita Carpio Morales (now also an Associate Justice of this Court); Annex "B" of the instant Petition for Review; Rollo, pp. 37-40.
3

Dated October 21, 1993; CTA Records, pp. 72-75. Supra, note 1. Id. at 37, pp. 1-2 of the Decision. Id. at 24-34, Annex "A" of the instant petition. Id. at 41-46, Annex "C" of the instant petition. Id. at 53, Annex "E" of the instant petition. Ibid. Rollo, pp. 10-64, with Annexes.

10

11

Penned by Associate Justice Minerva P. Gonzaga-Reyes (now retired Associate Justice of this Court); Annex "F" of the instant petition, Rollo, pp. 55-64.
12

Id. at 109-118. Id. at 123-131. Id. at 196-199. Id. at 201. Id. at 206-216. Id. at 251-264.

13

14

15

16

17

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18

Sea-Land Service, Inc. v. Court of Appeals, G.R. No. 122605, April 30, 201, 357 SCRA 441; Reyes v. Commissioner of Internal Revenue, G.R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198.
19

Supra, note 3 at 3; Exh. "A" of the petition for review dated December 26, 1991. Supra, note 2 at 212-213, petitioners Memorandum. Ibid. Supra, note 11. Supra, note 2 at 62-63. In this case, the lessee of petitioners properties, Citibank.

20

21

22

23

24

25

Commissioner of Internal Revenue v. Court of Tax Appeals, G.R. No. 106611, July 21, 1994, 234 SCRA 348.
26

Supra, note 3 at 16. 386 Phil. 719 (2000).

27

28

Citibank, N.A. v. Court of Appeals, 345 Phil. 695 (1997), 280 SCRA 459; Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd., 314 Phil. 220 (1995).
29

G.R. No. 138342, July 8, 2003, 405 SCRA 380.

30

San Carlos Milling Co. Inc. v. Commissioner of Internal Revenue, G.R. No. 103379, November 23, 1993.
31

Tax Reform Act of 1997.

32

Mactan Cebu International Airport Authority v. Marcos, 330 Phil. 392 (1996), citations omitted; See also Commissioner of Internal Revenue v. S.C. Johnson & Son, Inc., 368 Phil. 388 (1999).

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 148014 December 5, 2006 SPOUSES ANTONIO VIZARRA and BRENDA LOGATOC VIZARRA, TOMAS VIZARRA, JESUS PASTORAL, and MIGUEL RICAFRANCA, petitioners, vs. CONCHITA R. RODRIGUEZ and EVELYN R. RODRIGUEZ, respondents.

DECISION

TINGA, J.: In this Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure, petitioners assail the Decision2 dated 30 April 2001 of the Court of Appeals, Eighth Division, in CAG.R. CV No. 38286 which affirmed in toto the Decision3 dated 27 July 1991 of the Regional Trial Court (RTC) of Marinduque, Branch 38, in Civil Case No. 84-2. The antecedent facts involve two separate cases principally involving the same parcels of land and the same parties or their predecessors-in-interest. The first case, terminated way back in 1977, involved an action for recovery of possession of real property where it was eventually ruled that respondent Conchita R. Rodriguez (Conchita) is the owner of a parcel of land located in Bangwain, Torrijos, Marinduque, one of the subject properties of this petition. The second case, now before us for review, concerns a subsequent trial court decision, rendered in 1991, and enjoining petitioners from appropriating the fruits thereof, otherwise exercising acts of ownership over the land previously awarded to Conchita and another property owned in common by respondents and which was usurped by petitioners.4 Said decision likewise nullified a purported sale of the subject parcels of land in favor of petitioners. It is the incidents surrounding this sale, arising as it did from a levy and auction by the Provincial Assessor of Marinduque for non-payment of real property taxes, that provide this petition with some academic interest. The details follow. The first case stemmed from a Complaint5 filed on 31 August 1962 before the then Court of First Instance (CFI) of Boac, Marinduque by Manuel Vizarra (Manuel) against Conchita. The complaint, docketed as Civil Case No. 1245, was for recovery of possession of real property. Manuel narrated in his complaint that he was the owner of an unregistered parcel of land located at Barrio Bangwain, Torrijos, Marinduque. At the time of the institution of the complaint, the subject lot had not yet been surveyed but the alleged boundaries were embodied in Tax Declaration No. 5206 in his name. 6

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Tax 2 Cases for FE Manuel further asserted that in 1937, he and Conchita's late husband, Atty. Clemente Rodriguez (Atty. Rodriguez), allegedly entered into a bilateral written agreement allowing the latter to enter the land for purposes of locating mineral deposits therein. Subsequently, but prior to the Japanese occupation period, Atty. Rodriguez had started to raise cattle on the western portion of the land instead, and had even constructed a fence on the southern side of Manuel's land. Atty. Rodriguez died during the Japanese occupation, but his widow illicitly retained possession of the land and appropriated the fruits of the fruit-bearing trees.7 Answering the complaint, Conchita asserted ownership over the 57,000 square meter (sq. m.) property, which was then covered by Tax Declaration No. 45708 in the name of her deceased father, Vicente Rosales. She added that on 12 April 1950, Manuel had ceased to be the lawful owner of most of the land described in Tax Declaration No. 52069 when he voluntarily subdivided the land described under Tax Declaration No. 5206 between him and his seven (7) children,10 who were then in possession of their respective shares of the land.11 The dispute was referred by the CFI to court-appointed commissioners who then submitted a report ascertaining, among others, that the boundaries of the land were: On the northern part of the land is the property of Manuel Vizarra, on the Westbrook; East Brook and on the South is Bangwain river.12 That particular conclusion proved material to the disposition of the first complaint. For on 19 November 1963, Manuel caused the consolidation of the eight (8) tax declarations of the Vizarras into a single Tax Declaration No. 8494 in his name. Notably, the boundaries as stated in the new tax declaration were different from those ascertained by the commissioners.13 On 16 November 1977, the CFI of Marinduque ruled in favor of Conchita, finding that the latter was indeed the true owner of the disputed land. The CFI noted the disparity of the boundaries of the tax declarations Manuel initially presented in court and, how by "sleigh-of-the-hand improvisation," the location of the land, as indicated in the 1963 tax declaration, was changed in order to encompass Conchita's property.14 After the decision of the CFI became final and executory, a writ of execution,15 and, subsequently, an alias writ of execution16 were issued ordering petitioners to refrain from entering the disputed property. In the interim, Manuel died and was substituted by his heirs, including the present petitioners. Then in 1984, Conchita, joined by her daughter Evelyn, filed an action for injunction and damages with a prayer for a writ of preliminary injunction before the RTC of Boac, Marinduque, Branch 38. The second case, docketed as Civil Case No. 84-2, saw respondents asserting absolute ownership over two (2) parcels of land,17 one of which was the subject property in the first case, located at Bangwain, Torrijos, Marinduque. Even as Conchita's ownership was acknowledged by the CFI in the 1977 decision over one of the parcels of land, it was alleged that petitioners, along with twenty other persons, repeatedly entered the subject properties, harvested coconuts to be processed into copra and appropriated the fruits to themselves.18 Petitioners, on the other hand, narrated that the subject properties were actually purchased by petitioner spouses Antonio and Brenda Vizarra from the provincial government of Marinduque in a public auction sale conducted on 24 April 1979, which became final one year after. They presented in court the Final Bill of Sale executed on 14 May 1980, evidencing their claim over the subject Page 150 of 327

Tax 2 Cases for FE properties.19 It appeared that the auction sale was conducted at the instance of the Provincial Assessor of Marinduque, for real estate tax delinquency. Interestingly, the auction sale resulted from the failure of Manuel to pay the real property taxes, even though the CFI had ruled that it was Conchita Rodriguez who had actually owned one of the subject properties.20 On 27 July 1991, the RTC rendered its assailed decision, finding that the parcels of land in dispute were owned by respondent Conchita. In doing so, it established the following scenario: (a) In 1963, Manuel subdivided the property described in Tax Declaration No. 5206 into eight (8) unequal parts, between himself and his children. Afterwards, but prior to the rendition of the CFI decision in 1977, Manuel consolidated anew the subdivided properties into one tax declaration (Tax Declaration No. 8494).The boundaries as stated in this new tax declaration, however. had been altered to encompass the properties of Conchita, Parcel No. I, subject of Civil Case No. 1245, and Parcel No. II. 21 (b) Tax Declaration No. 8494 was later replaced by Tax Declaration No. 195 and subsequently, Tax Declaration No. 176, all in Manuel's name, and again improperly encompassing Conchita's properties. Manuel did not pay for the taxes on the properties subject of the tax declarations, prompting the provincial government of Marinduque to send notices of auction sale to sell the lot under Tax Declaration No. 176. The properties were then purchased at the auction sale by petitioners Antonio and Brenda Vizarra (Brenda), Antonio being a grandson of Manuel.22 (c) However, the properties covered by Tax Declaration No. 176 and subsequently sold on auction by the provincial government include the same property which the CFI had determined in 1977 as that of Conchita Rodriguez. Moreover, the same property and the other property also subject of this case were declared in the name of Conchita's daughter, Evelyn, in Tax Declaration No. 10178 and Tax Declaration No. 9792.23 The RTC considered the foregoing as an indicium of the bad faith attending the acts of Manuel and petitioners in seeking to obtain ownership over the subject properties. Petitioners appealed the RTC Decision to the Court of Appeals. The Court of Appeals agreed with the conclusions and affirmed in toto the judgment of the RTC. Hence, this petition. Petitioners come before the Court questioning essentially the findings of facts of both RTC and CA on the ownership of the subject parcels of land. Petitioners maintain that the land they entered were not the properties of Conchita and aver that they had bought the same in good faith. Brenda likewise admits having received two (2) notices of delinquency sale of different datesthe first one addressed to her husband Antonio Vizarra (Antonio) and Concepcion Rodriguez (referring to respondent Conchita), in the alternative; and the second notice addressed to her uncle, Antero Vizarra (Antero) and Concepcion Rodriguez, in the alternative. However, she states that the respondents did not forward the notices to Conchita Rodriguez in the belief that the latter was furnished copies of the same by the provincial assessor's office. It is further claimed that petitioners had consulted Atty. Eduardo Mirafuente (Atty. Mirafuente), the CFI clerk of court, regarding the propriety of bidding therein. Atty. Mirafuente had said that the property to be auctioned off covered the same land litigated in Civil Case No. 1245, but he nonetheless gave them the go-signal to participate in the bidding.24 As a rule, questions of facts are not to be entertained in this jurisdiction. Both the RTC and the Court of Appeals are in agreement as to the particulars of the case. In such a circumstance, the rule is that their findings on the facts will not be disturbed.25 The Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the contending parties during Page 151 of 327

Tax 2 Cases for FE the trial of the case considering that the findings of facts of the Court of Appeals are conclusive and binding on the Court.26 The fundamental issue of this case concerns the identity of the land in dispute. Petitioners would have us believe that the land they had bought at the auction sale did not cover the same land that the CFI of Marinduque adjudicated to respondent Conchita way back in 1977. The Court is not persuaded. The evidence on record reveals that the questioned auction sale included the land adjudicated to respondent Conchita by the CFI of Marinduque in Civil Case 1245. Notably, before the CFI, Manuel, petitioners' predecessor-in-interest, presented two apparently different and conflicting tax declaration certificates i.e., Tax Declaration Nos. 5206 and 8494 bearing totally different boundaries. The CFI of Marinduque had observed in its ruling that this was part of Manuel's scheme to acquire the ownership of a parcel of land which did not belong to him. The CFI decision, not having been contested by Manuel or his heirs, has long become final and executory and is thus binding and conclusive on the petitioners with regard to the ownership of Parcel No. I.27 Petitioners attempted once more to take the same property when they were furnished a copy of the notice of delinquency sale by the provincial assessor's office of the land in question and Parcel No. II both covered by Tax Declaration No. 176. In evident bad faith Brenda admitted in open court that Antero did not want to pay the delinquency tax as the land included therein, denominated as Parcel No. I, had already been adjudicated to Conchita. Petitioners Antonio and Brenda had known that they bid for the land owned by Conchita and that it was undeniably the land subject of Civil Case No. 1245 which was adjudicated to Conchita. Brenda herself testified as follows: Q: And your uncle Antero Vizarra also told you that he is not interested in paying the back taxes because that portion of the land of Manuel Vizarra was lost to Conchita Rodriguez or Concepcion Rodriguez in Civil Case No. 1245 and that Mrs. Rodriguez is in possession of the land publicly and that she should pay the taxes, do you remember having told Antero in that manner? A: My uncle told me that they would not pay the taxes because they lost the case to Mrs. Rodriguez, sir. And the possession of the property was in the hands of Mrs. Rodriguez. Q: And because of those inquiry of Atty. Mirafuente, it was clear to your mind that the subject matter of the auction sale is that property which was lost to Conchita Rodriguez in Civil Case No. 1245, is it not? A: Yes, sir.28 Moreover, by Brenda's own admission, the addressees of the first letter sent by the provincial assessor's office were her husband, Antonio Vizarra and Concepcion Rodriguez, in the alternative. The second notice of delinquency was also telling. It was addressed this time to Antero Vizarra and in the alternative, Concepcion Rodriguez. Thus, by the act of sending the notices of delinquency sale to the two parties, the provincial assessor of Marinduque recognized that there was a single parcel of land claimed by two persons. The only explanation why the provincial assessor sent the notice to the two addressees was he was unsure as to who between the two addressees was the owner of the land.29 Page 152 of 327

Tax 2 Cases for FE Parenthetically, when the provincial assessor failed to serve a separate notice to Conchita the true and lawful owner that her land was to be auctioned off due to non-payment of real estate taxes, he violated Section 7330 of Presidential Decree No. 464, otherwise known as the Real Property Tax Code, which provides that a copy of the notice shall forthwith be sent by registered mail, or by messenger or through the barrio captain to the delinquent taxpayer, at his address shown on the tax record cards or at his residence. The auction sale, therefore, was null and void for non-compliance with the provisions of the Real Property Tax Code on mandatory notice.31 In any event, the auctioneer in an auction sale does not warrant that the buyer shall, from the time of the sale, have and enjoy the legal and peaceful possession of the property sold.32 We agree with the findings of the Court of Appeals that there was indeed bad faith imputable to the petitioners. In ruling so, the Court of Appeals said: The general picture of this case readily shows the bad faith of the defendantappellees' right from the very start when Manuel Vizarra unscrupulously sub-divided and re-consolidated ownership of the property through various tax declarations together with the unexplained non-payment of real estate tax due thereon. Along with this, there is the RTC's finding that the defendants-appellants did not give the notice of the delinquency sale to the plaintiffs-appellees despite their knowledge that the property of the plaintiffs-appellees were about to be auctioned off. Finally, the fact that during the public auction sale, there was only one bidder, which by no coincidence happened to be Antonio Vizarra, there could be no clearer showing of defendants-appellants bad faith in purchasing the said property.33 Good faith, or the lack of it, is, in the last analysis, a question of intention. But in ascertaining the intention by which one is actuated on a given occasion, courts are necessarily controlled by the evidence as to the conduct and outward acts by which the inward may, with safety, be determined. So it is that 'the honesty of intention,' 'the honest lawful intent,' which constitutes good faith implies a 'freedom from knowledge and circumstances which ought to put a person on inquiry.'34 In this case, there was clearly bad faith in the purported acquisition of petitioner spouses Antonio and Brenda Vizarra of the subject properties. Petitioners went to great lengths in a bid to mislead this Court and the lower courts that the parcels of land they now have title to were not the properties of Conchita. But they slipped in one instance as they admitted that the properties they purchased at the auction sale included the same land that their grandfather lost to Conchita in Civil Case No. 1245. We disagree, however, with the pronouncement of the RTC and the Court of Appeals that petitioners had the obligation to convey the notice of delinquency to respondents. Rather, the responsibility lies with the provincial assessor's office to furnish copies of the notices to the parties concerned. Thus, the provincial assessor should have given a copy of the two (2) notices of delinquency sale to Conchita. Absent any ample evidence that the provincial assessor did so and that he observed the requisites set out in Section 7335 of Presidential Decree No. 464, the auction sale of the disputed parcels of land is truly null and void for non-observance of the statutory requirement of the Real Property Tax Code. The foregoing notwithstanding, the Court finds that the award of the RTC and the Court of Appeals for actual and compensatory damages improper.

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Tax 2 Cases for FE Respondent Conchita stated in open court that petitioners entered the subject property everytime the harvest of coconuts are due. She further claimed that in 1979, the year before petitioners entered the land and appropriated to themselves the fruits thereof, the harvest of the land was not less than 2,000 kilos. She also testified on the amount of money that could be yielded from the harvest from 1980 to 1986.36 The claims, however, are markedly self-serving, with nary a document to support them. The rule is that evidence should be taken of the damages claimed and the court should determine who are entitled to such indemnity. The power of courts to grant damages and attorney's fees demands factual, legal and equitable justifications, its basis cannot be left to speculation or conjecture.37 However, there is no question that respondents suffered pecuniary loss due to the acts of petitioners and thus, respondents are entitled to damages. As borne out by the records of the case, petitioners have continuously entered the land and appropriated the fruits to themselves to the prejudice of the rightful owner from 20 May 1980 to the present.38 Hence, it is but equitable that respondents be remunerated for their loss of the earnings due to the acts of petitioners. Since there is no sufficient evidence to prove actual and compensatory damages, the Court hereby awards temperate damages instead, which are more than nominal but less than compensatory damages, considering that respondent had indeed suffered some pecuniary loss but the amount cannot be proved with certainty.39 The amount of P90,000.00 is sufficient and reasonable under the circumstances. In consonance therewith, the award of nominal damages is hereby deleted. The Court also cancels the award for moral damages as there was no indication that respondents had suffered emotional hurt and injury. Finding bad faith and fraudulent acts on the part of petitioners, the Court hereby imposes an increased amount of P50,000.00 as exemplary damages. WHEREFORE, in view of the foregoing, the Decision dated 30 April 2001 of the Court of Appeals, Eighth Division, in CA-G.R. CV No. 38286 is AFFIRMED with MODIFICATION as follows: 1. The award of nominal and moral damages is hereby DELETED; 2. Petitioners are ordered to jointly and severally pay respondents P90,000.00 as temperate damages, in lieu of the award of actual and compensatory damages which is hereby DELETED; 3. Petitioners are likewise ordered to jointly and severally pay respondents P50,000.00 as exemplary damages. Costs against petitioners. SO ORDERED. Quisumbing, J., Chairperson, Carpio, Carpio Morales, and Velasco, Jr., JJ, concur.

Footnotes Page 154 of 327

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1

Rollo, pp. 20-38; Dated 22 June 2001.

Id. at 9-16. Penned by Associate Justice Bernardo P. Abesamis and concurred in by Associate Justices Godardo A. Jacinto and Eliezer R. Delos Santos.
3

Rollo, pp. 41-60; Penned by Executive Judge Romulo A. Lopez. Rollo, pp. 59-60. The dispositive portion reads in full: WHEREFORE, viewed fromthe [sic] above observations and findings, judgment is hereby rendered in favor of the plaintiffs and against the defendants: 1. [D]eclaring [sic] the plaintiffs to be the rightful owners and possessors of the land in question (Lot 6580, Cad. 612-D, Torrijos Cadastre; Exh. U-2 and U-4); 2. Declaring the sale of the above mentioned property by the Provincial Assessor to be null and void and that the Certificate of Sale Exh. Z and 20 have no force and effect against the plaintiffs; 3. Enjoining and prohibiting perpetually the defendants and all persons claiming under them to refrain, stop and desist from committing any and/or all of the acts complained of (including harvesting and gathering of the fruits of the plants and improvements therein); 4. Ordering the defendants to jointly and severally pay the plaintiffs the sum of P100,000.00 representing actual and compensatory damages for all the value of the coconuts harvested and gathered with interest until fully paid; 5. To jointly and severally pay the plaintiffs the sum of P10,000.00 as and for exemplary damages; 6. To jointly and severally pay the plaintiffs the sum of P15,000.00 as nominal damages and the further sum of P15,000.00 as moral damages; 7. To jointly and severally pay the plaintiffs the sum of P20,000.00 as and for attorney's fees and P5,000.00 for transportation and board and lodging expenses during the pendency of the trial; 8. To jointly and severally pay the cost of suit; and 9. Dismissing defendants' counterclaim for lack of merit. SO ORDERED. (Rollo, pp. 59-60).

CFI Records of Civil Case No. 1245, pp. 1-3.

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6

The land is more particularly described as follows: A parcel of land located at barrio Bangwain, Torrijos, Marinduque previously covered by Tax Declaration No. 5206 in the name of the herein plaintiff (Manuel Vizarra), planted principally with coconut trees, with an assessed value of P2260.00 (1949) and bounded on the: N-Ladislao Vizarra; E-Luis Frias; S-Luis Frias; W-Regino Rolluqui (now Alejandro Frias, Vicente Rosales & Francisco Reforma.
7

Records (Civil Case No. 1245), pp. 1-2. The boundaries of Conchita's land are as follows:

North Luis Grimaldo East Manuel Vizarra South Anastacio Rioflorido West - Banguayin River
9

Except a portion thereof which was then covered by Tax Declaration No. 6579; CFI Records of Civil Case No. 1245, p. 27.
10

Records (Civil Case No. 1245), p. 6. Tax Declaration No. 5206 was cancelled and thereafter, eight (8) new tax declarations were issued under the following names: Tax Declaration No. 6574 under the name of Antero Vizarra Tax Declaration No. 6575 under the name of Emilia Vizarra Tax Declaration No. 6576 under the name of Felicidad Vizarra Tax Declaration No. 6577 under the name of Jovita Vizarra Tax Declaration No. 6579 under the name of Manuel Vizarra Tax Declaration No. 6582 under the name of Pedro Vizarra Tax Declaration No. 6583 under the name of Rafael Vizarra Tax Declaration No. 6587 under the name of Marciana Vizarra
11

Id. at 207. Id. at 40.

12

13

Id. at 218; North Ladislao Vizarra, East brook, West River, South Banwain River.
14

Id. at 218-219. Page 156 of 327

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15

Id. at 235. Id. at 248.

16

17

Records (Civil Case No. 84-2), p. 1. The parcels of land were claimed to be the lots of respondents. They are described as follows: 1. Parcel No. I is the same parcel of land subject matter of Civil Case No. 1245 of this Court entitled MANUEL VIZARRA versus CONCHITA RORDIQUEZ, decided in favor of the plaintiffs, the decision in said case has long been final; [and] 2. Parcel No. II is a coconut land adjoing [sic] Parcel No. I to [the] Northwest segregated in the middles [sic] by a Brook containing an area of 7.1400 hectares[,] more or less, now covered by Tax Declaration No. 10178, series of 1982.
18

Records (Civil Case No. 84-2), pp. 2-3. Rollo, p. 44. Id. at 134. Rollo, p. 139; See footnote 17. TSN, 2 May 1989, p. 10.

19

20

21

22

23

Records (Civil Case No. 84-2). Exhibits "B" and "C" of Civil Case No. 84-2.; Evelyn is named Evelina in the cited tax declarations.
24

TSN, 3 May 1989, pp. 18-20. Veneracion v. People, G.R. No. 137447, 31 January 2005, 450 SCRA 216, 223. Rivera v. Roman, G.R. No. 142402, 20 September 2005, 470 SCRA 276, 287.

25

26

27

Lapulapu Development & Housing Corp. v. Group Management Corporation, G.R. No. 141407, 9 September 2002, 437 Phil. 297, 313 (2002); Jose Clavano, Inc. v. Housing and Land Use Regulatory Board, 428 Phil. 208, 232-233 (2002).
28

TSN, 13 June 1989, pp. 4-5. TSN, 8 September 1987, p. 10. The pertinent provision of the section states: SEC. 73. Advertisement of sale of real property at public auction.x x x x x x x x Copy of the notice shall forthwith be sent either by registered mail or by messenger, or through the barrio captain, to the delinquent taxpayer, at his address as shown in the tax rolls or property tax record cards of the Page 157 of 327

29

30

Tax 2 Cases for FE municipality or city where the property is located, or at his residence, if known to said treasurer or barrio captain: Provided, however, That a return of the proof of service under oath shall be filed by the person making the service with the provincial or city treasurer concerned.
31

Tan v. Bantegui, G.R. No. 154027, 24 October 2005, 473 SCRA 663, 673-674. Civil Code, Art. 1547 which reads: Art. 1547. In a contract of sale, unless a contrary intention appears, there is: (1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing; (2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer. This article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee, pledge, or other person professing to sell by virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or equitable interest. (n).

32

33

Rollo, p. 15. Ulep v. Court of Appeals, G.R. No. 125254, 11 October 2005, 472 SCRA 241, 254. Supra note 30. TSN, 22 July 1986, pp. 11-17. Ariaga v. Sulpico, G.R. No. 144320, 26 April 2006, 488 SCRA 332, 349-350.

34

35

36

37

38

Rollo, p. 90. Respondents averred in their Comment and/or Objection to the Petition dated 12 Septmeber 2001 that "at this point in time, the petitioners have continuously maintained and sustained their domination, occupation and enjoyment of the property through force and intimidation despite the Order and Decision of the RTC Court [sic]."
39

Public Estates Authority v. Chu, G.R. No. 145291, 21 September 2005, 470 SCRA 495, 506.

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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 178030 December 15, 2010 PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY (PFDA), Petitioner, vs. CENTRAL BOARD OF ASSESSMENT APPEALS, LOCAL BOARD OF ASSESSMENT APPEALS OF LUCENA CITY, CITY OF LUCENA, LUCENA CITY ASSESSOR AND LUCENA CITY TREASURER, Respondents. DECISION CARPIO, J.: The Case This petition for review1 assails the 9 May 2007 Decision2 of the Court of Tax Appeals in C.T.A. EB No. 193, affirming the 5 October 2005 Decision of the Central Board of Assessment Appeals (CBAA) in CBAA Case No. L-33. The CBAA dismissed the appeal of petitioner Philippine Fisheries Development Authority (PFDA) from the Decision of the Local Board of Assessment Appeals (LBAA) of Lucena City, ordering PFDA to pay the real property taxes imposed by the City Government of Lucena on the Lucena Fishing Port Complex. The Facts The facts as found by the CBAA are as follows: The records show that the Lucena Fishing Port Complex (LFPC) is one of the fishery infrastructure projects undertaken by the National Government under the Nationwide Fish Port-Package. Located at Barangay Dalahican, Lucena City, the fish port was constructed on a reclaimed land with an area of 8.7 hectares more or less, at a total cost of PHP 296,764,618.77 financed through a loan (L/A PH25 and 51) from the Overseas Economic Cooperation Fund (OECF) of Japan, dated November 9, 1978 and May 31, 1978, respectively. The Philippine Fisheries Development Authority (PFDA) was created by virtue of P.D. 977 as amended by E.O. 772, with functions and powers to (m)anage, operate, and develop the Navotas Fishing Port Complex and such other fishing port complexes that may be established by the Authority. Pursuant thereto, Petitioner-Appellant PFDA took over the management and operation of LFPC in February 1992. On October 26, 1999, in a letter addressed to PFDA, the City Government of Lucena demanded payment of realty taxes on the LFPC property for the period from 1993 to 1999 in the total amount of P39,397,880.00. This was received by PFDA on November 24, 1999.

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Tax 2 Cases for FE On October 17, 2000 another demand letter was sent by the Government of Lucena City on the same LFPC property, this time in the amount of P45,660,080.00 covering the period from 1993 to 2000. On December 18, 2000 Petitioner-Appellant filed its Appeal before the Local Board of Assessment Appeals of Lucena City, which was dismissed for lack of merit. On November 6, 2001 PetitionerAppellant filed its motion for reconsideration; this was denied by the Appellee Local Board on December 10, 2001.3 PFDA appealed to the CBAA. In its Decision dated 5 October 2005, the CBAA dismissed the appeal for lack of merit. The CBAA ruled: Ownership of LFPC however has, before hand, been handed over to the PFDA, as provided for under Sec. 11 of P.D. No. 977, as amended, and declared under the MCIAA case [Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, 11 September 1996, 261 SCRA 667]. The allegations therefore that PFDA is not the beneficial user of LFPC and not a taxable person are rendered moot and academic by such ownership of PFDA over LFPC. xxx PFDAs Charter, P.D. 977, provided for exemption from income tax under Par. 2, Sec. 10 thereof: "(t)he Authority shall be exempted from the payment of income tax". Nothing was said however about PFDAs exemption from payment of real property tax: PFDA therefore was not to lay claim for realty tax exemption on its Fishing Port Complexes. Reading Sec. 40 of P.D. 464 and Sec. 234 of R.A. 7160 however, provided such ground: LFPC is owned by the Republic of the Philippines, PFDA is only tasked to manage, operate, and develop the same. Hence, LFPC is exempted from payment of realty tax. xxx The ownership of LFPC as passed on by the Republic of the Philippines to PFDA is bourne by Direct evidence: P.D. 977, as amended (supra). Therefore, Petitioner-Appellants claim for realty tax exemption on LFPC is untenable. WHEREFORE, for all of the foregoing, the herein Appeal is hereby dismissed for lack of merit. SO ORDERED.4 PFDA moved for reconsideration, which the CBAA denied in its Resolution dated 7 June 2006.5 On appeal, the Court of Tax Appeals denied PFDAs petition for review and affirmed the 5 October 2005 Decision of the CBAA. Hence, this petition for review. The Ruling of the Court of Tax Appeals The Court of Tax Appeals held that PFDA is a government-owned or controlled corporation, and is therefore subject to the real property tax imposed by local government units pursuant to Section 232 in relation to Sections 193 and 234 of the Local Government Code. Furthermore, the Court of Tax Appeals ruled that PFDA failed to prove that it is exempt from real property tax pursuant to Section 234 of the Local Government Code or any of its provisions. Page 160 of 327

Tax 2 Cases for FE The Issue The sole issue raised in this petition is whether PFDA is liable for the real property tax assessed on the Lucena Fishing Port Complex. The Ruling of the Court The petition is meritorious. In ruling that PFDA is not exempt from paying real property tax, the Court of Tax Appeals cited Sections 193, 232, and 234 of the Local Government Code which read: Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or -controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. Section 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted. Section 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 subdivision except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings and improvements actually, directly, and exclusively used for religious, charitable or educational purposes; (c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; (d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and (e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code. The Court of Tax Appeals held that as a government-owned or controlled corporation, PFDA is subject to real property tax imposed by local government units having jurisdiction over its real Page 161 of 327

Tax 2 Cases for FE properties pursuant to Section 232 of the Local Government Code. According to the Court of Tax Appeals, Section 193 of the Local Government Code withdrew all tax exemptions granted to government-owned or controlled corporations. Furthermore, Section 234 of the Local Government Code explicitly provides that any exemption from payment of real property tax granted to government-owned or controlled corporations have already been withdrawn upon the effectivity of the Local Government Code. The ruling of the Court of Tax Appeals is anchored on the wrong premise that the PFDA is a government-owned or controlled corporation. On the contrary, this Court has already ruled that the PFDA is a government instrumentality and not a government-owned or controlled corporation. In the 2007 case of Philippine Fisheries Development Authority v. Court of Appeals,6 the Court resolved the issue of whether the PFDA is a government-owned or controlled corporation or an instrumentality of the national government. In that case, the City of Iloilo assessed real property taxes on the Iloilo Fishing Port Complex (IFPC), which was managed and operated by PFDA. The Court held that PFDA is an instrumentality of the government and is thus exempt from the payment of real property tax, thus: The Court rules that the Authority [PFDA] is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax. However, said exemption does not apply to the portions of the IFPC which the Authority leased to private entities. With respect to these properties, the Authority is liable to pay property tax. Nonetheless, the IFPC, being a property of public dominion cannot be sold at public auction to satisfy the tax delinquency. xxx Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a capital stock but it is not divided into shares of stocks. Also, it has no stockholders or voting shares. Hence it is not a stock corporation. Neither is it a non-stock corporation because it has no members. The Authority is actually a national government instrumentality which is defined as an 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. 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.7 (Emphasis supplied)1avvphi1 This ruling was affirmed by the Court in a subsequent PFDA case involving the Navotas Fishing Port Complex, which is also managed and operated by the PFDA. In consonance with the previous ruling, the Court held in the subsequent PFDA case that the PFDA is a government instrumentality not subject to real property tax except those portions of the Navotas Fishing Port Complex that were leased to taxable or private persons and entities for their beneficial use.8 Similarly, we hold that as a government instrumentality, the PFDA is exempt from real property tax imposed on the Lucena Fishing Port Complex, except those portions which are leased to private persons or entities.

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Tax 2 Cases for FE The exercise of the taxing power of local government units is subject to the limitations enumerated in Section 133 of the Local Government Code.9 Under Section 133(o)10 of the Local Government Code, local government units have no power to tax instrumentalities of the national government like the PFDA. Thus, PFDA is not liable to pay real property tax assessed by the Office of the City Treasurer of Lucena City on the Lucena Fishing Port Complex, except those portions which are leased to private persons or entities. Besides, the Lucena Fishing Port Complex is a property of public dominion intended for public use, and is therefore exempt from real property tax under Section 234(a)11 of the Local Government Code. Properties of public dominion are owned by the State or the Republic of the Philippines.12 Thus, Article 420 of the Civil Code provides: 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 Lucena Fishing Port Complex, which is one of the major infrastructure projects undertaken by the National Government under the Nationwide Fishing Ports Package, is devoted for public use and falls within the term "ports." The Lucena Fishing Port Complex "serves as PFDAs commitment to continuously provide post-harvest infrastructure support to the fishing industry, especially in areas where productivity among the various players in the fishing industry need to be enhanced."13 As property of public dominion, the Lucena Fishing Port Complex is owned by the Republic of the Philippines and thus exempt from real estate tax. WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 9 May 2007 of the Court of Tax Appeals in C.T.A. EB No. 193. We DECLARE the Lucena Fishing Port Complex EXEMPT from real property tax imposed by the City of Lucena. We declare VOID all the real property tax assessments issued by the City of Lucena on the Lucena Fishing Port Complex managed by Philippine Fisheries Development Authority, EXCEPT for the portions that the Philippine Fisheries Development Authority has leased to private parties. SO ORDERED. ANTONIO T. CARPIO Associate Justice WE CONCUR: ANTONIO EDUARDO B. NACHURA Associate Justice DIOSDADO M. PERALTA Associate Justice ROBERTO A. ABAD Associate Justice

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Tax 2 Cases for FE JOSE C. MENDOZA Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Footnotes
1

Under Rule 45 of the 1997 Rules of Civil Procedure.

Rollo, pp. 65-90. Penned by Associate Justice Juanito C. Castaeda, Jr., with Presiding Justice Ernesto D. Acosta and Associate Justices Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, and Olga Palanca-Enriquez, concurring.
3

Id. at 215-216. CTA rollo, pp. 60-62. Id. at 68-71. G.R. No. 169836, 31 July 2007, 528 SCRA 706. Id. at 710, 712-714.

Philippine Fisheries Development Authority v. Court of Appeals, G.R. No. 150301, 2 October 2007, 534 SCRA 490.
9

Manila International Airport Authority v. City of Pasay, G.R. No. 163072, 2 April 2009, 583 SCRA 234.
10

Section 133(o) of the Local Government Code reads: SECTION 133. Common Limitations on the Taxing Powers of the Local Government Units. Unless otherwise provided herein, the exercise of the Page 164 of 327

Tax 2 Cases for FE taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.
11

Section 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 subdivision except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
12

Manila International Airport Authority v. Court of Appeals, G.R. No. 155650, 20 July 2006, 495 SCRA 591, 644.
13

Lucena Fish Port Complex, <http://www.pfda.da.gov.ph/lfpc.html> (visited 13 December 2010).

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Tax 2 Cases for FE Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 162015 March 6, 2006 THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF QUEZON CITY, DR. VICTOR B. ENRIGA, Petitioners, vs. BAYAN TELECOMMUNICATIONS, INC., Respondent. DECISION GARCIA,J.: Before the Court, on pure questions of law, is this petition for review on certiorari under Rule 45 of the Rules of Court to nullify and set aside the following issuances of the Regional Trial Court (RTC) of Quezon City, Branch 227, in its Civil Case No. Q-02-47292, to wit: 1) Decision1 dated June 6, 2003, declaring respondent Bayan Telecommunications, Inc. exempt from real estate taxation on its real properties located in Quezon City; and 2) Order2 dated December 30, 2003, denying petitioners motion for reconsideration. The facts: Respondent Bayan Telecommunications, Inc.3 (Bayantel) is a legislative franchise holder under Republic Act (Rep. Act) No. 32594 to establish and operate radio stations for domestic telecommunications, radiophone, broadcasting and telecasting. Of relevance to this controversy is the tax provision of Rep. Act No. 3259, embodied in Section 14 thereof, which reads: SECTION 14. (a) The grantee shall be liable to pay the same taxes on its real estate, buildings and personal property, exclusive of the franchise, as other persons or corporations are now or hereafter may be required by law to pay. (b) The grantee shall further pay to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act, one and one-half per centum of all gross receipts from the business transacted under this franchise by the said grantee (Emphasis supplied). On January 1, 1992, Rep. Act No. 7160, otherwise known as the "Local Government Code of 1991" (LGC), took effect. Section 232 of the Code grants local government units within the Metro Manila Area the power to levy tax on real properties, thus: SEC. 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery and other improvements not hereinafter specifically exempted.

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Tax 2 Cases for FE Complementing the aforequoted provision is the second paragraph of Section 234 of the same Code which withdrew any exemption from realty tax heretofore granted to or enjoyed by all persons, natural or juridical, to wit: SEC. 234 - Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: xxx xxx xxx Except as provided herein, any exemption from payment of real property tax previously granted to, or enjoyed by, all persons, whether natural or juridical, including government-owned-or-controlled corporations is hereby withdrawn upon effectivity of this Code (Emphasis supplied). On July 20, 1992, barely few months after the LGC took effect, Congress enacted Rep. Act No. 7633, amending Bayantels original franchise. The amendatory law (Rep. Act No. 7633) contained the following tax provision: SEC. 11. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof. Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code . xxx. *Emphasis supplied] It is undisputed that within the territorial boundary of Quezon City, Bayantel owned several real properties on which it maintained various telecommunications facilities. These real properties, as hereunder described, are covered by the following tax declarations: (a) Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072 and D-096-04073 pertaining to Bayantels Head Office and Operations Center in Roosevelt St., San Francisco del Monte, Quezon City allegedly the nerve center of petitioners telecommunications franchise operations, said Operation Center housing mainly petitioners Network Operations Group and switching, transmission and related equipment; (b) Tax Declaration Nos. D-124-01013, D-124-00939, D-124-00920 and D-124-00941 covering Bayantels land, building and equipment in Maginhawa St., Barangay East Teachers Village, Quezon City which houses telecommunications facilities; and (c) Tax Declaration Nos. D-011-10809, D-011-10810, D-011-10811, and D-011-11540 referring to Bayantels Exchange Center located in Proj. 8, Brgy. Bahay Toro, Tandang Sora, Quezon City which houses the Network Operations Group and cover switching, transmission and other related equipment. In 1993, the government of Quezon City, pursuant to the taxing power vested on local government units by Section 5, Article X of the 1987 Constitution, infra, in relation to Section 232 of the LGC, supra, enacted City Ordinance No. SP-91, S-93, otherwise known as the Quezon City Revenue Code (QCRC),5 imposing, under Section 5 thereof, a real property tax on all real properties in Quezon City, Page 167 of 327

Tax 2 Cases for FE and, reiterating in its Section 6, the withdrawal of exemption from real property tax under Section 234 of the LGC, supra. Furthermore, much like the LGC, the QCRC, under its Section 230, withdrew tax exemption privileges in general, as follows: SEC. 230. 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 RA 6938, non-stock and non-profit hospitals and educational institutions, business enterprises certified by the Board of Investments (BOI) as pioneer or nonpioneer for a period of six (6) and four (4) years, respectively, are hereby withdrawn effective upon approval of this Code (Emphasis supplied). Conformably with the Citys Revenue Code, new tax declarations for Bayantels real properties in Quezon City were issued by the City Assessor and were received by Bayantel on August 13, 1998, except one (Tax Declaration No. 124-01013) which was received on July 14, 1999. Meanwhile, on March 16, 1995, Rep. Act No. 7925,6 otherwise known as the "Public Telecommunications Policy Act of the Philippines," envisaged to level the playing field among telecommunications companies, took effect. Section 23 of the Act provides: SEC. 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise. On January 7, 1999, Bayantel wrote the office of the City Assessor seeking the exclusion of its real properties in the city from the roll of taxable real properties. With its request having been denied, Bayantel interposed an appeal with the Local Board of Assessment Appeals (LBAA). And, evidently on its firm belief of its exempt status, Bayantel did not pay the real property taxes assessed against it by the Quezon City government. On account thereof, the Quezon City Treasurer sent out notices of delinquency for the total amount of P43,878,208.18, followed by the issuance of several warrants of levy against Bayantels properties preparatory to their sale at a public auction set on July 30, 2002. Threatened with the imminent loss of its properties, Bayantel immediately withdrew its appeal with the LBAA and instead filed with the RTC of Quezon City a petition for prohibition with an urgent application for a temporary restraining order (TRO) and/or writ of preliminary injunction, thereat docketed as Civil Case No. Q-02-47292, which was raffled to Branch 227 of the court. On July 29, 2002, or in the eve of the public auction scheduled the following day, the lower court issued a TRO, followed, after due hearing, by a writ of preliminary injunction via its order of August 20, 2002. And, having heard the parties on the merits, the same court came out with its challenged Decision of June 6, 2003, the dispositive portion of which reads:

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Tax 2 Cases for FE WHEREFORE, premises considered, pursuant to the enabling franchise under Section 11 of Republic Act No. 7633, the real estate properties and buildings of petitioner [now, respondent Bayantel] which have been admitted to be used in the operation of petitioners franchise described in the following tax declarations are hereby DECLARED exempt from real estate taxation: (1) Tax Declaration No. D-096-04071 (2) Tax Declaration No. D-096-04074 (3) Tax Declaration No. D-124-01013 (4) Tax Declaration No. D-011-10810 (5) Tax Declaration No. D-011-10811 (6) Tax Declaration No. D-011-10809 (7) Tax Declaration No. D-124-00941 (8) Tax Declaration No. D-124-00940 (9) Tax Declaration No. D-124-00939 (10) Tax Declaration No. D-096-04072 (11) Tax Declaration No. D-096-04073 (12) Tax Declaration No. D-011-11540 The preliminary prohibitory injunction issued in the August 20, 2002 Order of this Court is hereby made permanent. Since this is a resolution of a purely legal issue, there is no pronouncement as to costs. SO ORDERED. Their motion for reconsideration having been denied by the court in its Order dated December 30, 2003, petitioners elevated the case directly to this Court on pure questions of law, ascribing to the lower court the following errors: I. [I]n declaring the real properties of respondent exempt from real property taxes notwithstanding the fact that the tax exemption granted to Bayantel in its original franchise had been withdrawn by the [LGC] and that the said exemption was not restored by the enactment of RA 7633. II. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the enactment of the [QCRC] which withdrew the tax exemption which may have been granted by RA 7633. III. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the vague and ambiguous grant of tax exemption provided under Section 11 of RA 7633.

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Tax 2 Cases for FE IV. [In] declaring the real properties of respondent exempt from real property taxes notwithstanding the fact that [it] had failed to exhaust administrative remedies in its claim for real property tax exemption. (Words in bracket added.) As we see it, the errors assigned may ultimately be reduced to two (2) basic issues, namely: 1. Whether or not Bayantels real properties in Quezon City are exempt from real property taxes under its legislative franchise; and 2. Whether or not Bayantel is required to exhaust administrative remedies before seeking judicial relief with the trial court. We shall first address the second issue, the same being procedural in nature. Petitioners argue that Bayantel had failed to avail itself of the administrative remedies provided for under the LGC, adding that the trial court erred in giving due course to Bayantels petition for prohibition. To petitioners, the appeal mechanics under the LGC constitute Bayantels plain and speedy remedy in this case. The Court does not agree. Petitions for prohibition are governed by the following provision of Rule 65 of the Rules of Court: SEC. 2. Petition for prohibition. When the proceedings of any tribunal, are without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered commanding the respondent to desist from further proceedings in the action or matter specified therein, or otherwise, granting such incidental reliefs as law and justice may require. With the reality that Bayantels real properties were already levied upon on account of its nonpayment of real estate taxes thereon, the Court agrees with Bayantel that an appeal to the LBAA is not a speedy and adequate remedy within the context of the aforequoted Section 2 of Rule 65. This is not to mention of the auction sale of said properties already scheduled on July 30, 2002. Moreover, one of the recognized exceptions to the exhaustion- of-administrative remedies rule is when, as here, only legal issues are to be resolved. In fact, the Court, cognizant of the nature of the questions presently involved, gave due course to the instant petition. As the Court has said in Ty vs. Trampe:7 xxx. Although as a rule, administrative remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but only of law. xxx. Lest it be overlooked, an appeal to the LBAA, to be properly considered, required prior payment under protest of the amount of P43,878,208.18, a figure which, in the light of the then prevailing Asian financial crisis, may have been difficult to raise up. Given this reality, an appeal to the LBAA may not be considered as a plain, speedy and adequate remedy. It is thus understandable why Bayantel opted to withdraw its earlier appeal with the LBAA and, instead, filed its petition for

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Tax 2 Cases for FE prohibition with urgent application for injunctive relief in Civil Case No. Q-02-47292. The remedy availed of by Bayantel under Section 2, Rule 65 of the Rules of Court must be upheld. This brings the Court to the more weighty question of whether or not Bayantels real properties in Quezon City are, under its franchise, exempt from real property tax. The lower court resolved the issue in the affirmative, basically owing to the phrase "exclusive of this franchise" found in Section 11 of Bayantels amended franchise, Rep. Act No. 7633. To petitioners, however, the language of Section 11 of Rep. Act No. 7633 is neither clear nor unequivocal. The elaborate and extensive discussion devoted by the trial court on the meaning and import of said phrase, they add, suggests as much. It is petitioners thesis that Bayantel was in no time given any express exemption from the payment of real property tax under its amendatory franchise. There seems to be no issue as to Bayantels exemption from real estate taxes by virtue of the term "exclusive of the franchise" qualifying the phrase "same taxes on its real estate, buildings and personal property," found in Section 14, supra, of its franchise, Rep. Act No. 3259, as originally granted. The legislative intent expressed in the phrase "exclusive of this franchise" cannot be construed other than distinguishing between two (2) sets of properties, be they real or personal, owned by the franchisee, namely, (a) those actually, directly and exclusively used in its radio or telecommunications business, and (b) those properties which are not so used. It is worthy to note that the properties subject of the present controversy are only those which are admittedly falling under the first category. To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively works to grant or delegate to local governments of Congress inherent power to tax the franchisees properties belonging to the second group of properties indicated above, that is, all properties which, "exclusive of this franchise," are not actually and directly used in the pursuit of its franchise. As may be recalled, the taxing power of local governments under both the 1935 and the 1973 Constitutions solely depended upon an enabling law. Absent such enabling law, local government units were without authority to impose and collect taxes on real properties within their respective territorial jurisdictions. While Section 14 of Rep. Act No. 3259 may be validly viewed as an implied delegation of power to tax, the delegation under that provision, as couched, is limited to impositions over properties of the franchisee which are not actually, directly and exclusively used in the pursuit of its franchise. Necessarily, other properties of Bayantel directly used in the pursuit of its business are beyond the pale of the delegated taxing power of local governments. In a very real sense, therefore, real properties of Bayantel, save those exclusive of its franchise, are subject to realty taxes. Ultimately, therefore, the inevitable result was that all realties which are actually, directly and exclusively used in the operation of its franchise are "exempted" from any property tax. Bayantels franchise being national in character, the "exemption" thus granted under Section 14 of Rep. Act No. 3259 applies to all its real or personal properties found anywhere within the Philippine archipelago. However, with the LGCs taking effect on January 1, 1992, Bayantels "exemption" from real estate taxes for properties of whatever kind located within the Metro Manila area was, by force of Section 234 of the Code, supra, expressly withdrawn. But, not long thereafter, however, or on July 20, 1992, Congress passed Rep. Act No. 7633 amending Bayantels original franchise. Worthy of note is that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax provision, i.e., Section 14, supra, of Bayantels original franchise under Rep. Act No. 3259. Stated otherwise, Section 14 of Rep. Act No. Page 171 of 327

Tax 2 Cases for FE 3259 which was deemed impliedly repealed by Section 234 of the LGC was expressly revived under Section 14 of Rep. Act No. 7633. In concrete terms, the realty tax exemption heretofore enjoyed by Bayantel under its original franchise, but subsequently withdrawn by force of Section 234 of the LGC, has been restored by Section 14 of Rep. Act No. 7633. The Court has taken stock of the fact that by virtue of Section 5, Article X of the 1987 Constitution,8 local governments are empowered to levy taxes. And pursuant to this constitutional empowerment, juxtaposed with Section 2329 of the LGC, the Quezon City government enacted in 1993 its local Revenue Code, imposing real property tax on all real properties found within its territorial jurisdiction. And as earlier stated, the Citys Revenue Code, just like the LGC, expressly withdrew, under Section 230 thereof, supra, all tax exemption privileges in general. This thus raises the question of whether or not the Citys Revenue Code pursuant to which the city treasurer of Quezon City levied real property taxes against Bayantels real properties located within the City effectively withdrew the tax exemption enjoyed by Bayantel under its franchise, as amended. Bayantel answers the poser in the negative arguing that once again it is only "liable to pay the same taxes, as any other persons or corporations on all its real or personal properties, exclusive of its franchise." Bayantels posture is well-taken. While the system of local government taxation has changed with the onset of the 1987 Constitution, the power of local government units to tax is still limited. As we explained in Mactan Cebu International Airport Authority:10 The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely be virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of local autonomy. (at p. 680; Emphasis supplied.) Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X, Section 5 of the 1987 Constitution now in place, .the basic doctrine on local taxation remains essentially the same. For as the Court stressed in Mactan, "the power to tax is [still] primarily vested in the Congress." This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a Commissioner of the 1986 Constitutional Commission which crafted the 1987 Constitution, thus: What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the doctrine that municipal corporations do not possess inherent powers of taxation. What it does is to confer municipal corporations a general power to levy taxes and otherwise create sources of revenue. They no longer have to wait for a statutory grant of these powers. The power of the legislative authority relative to the fiscal powers of local governments has been reduced to the authority to impose limitations on municipal powers. Moreover, these limitations must be "consistent with the basic policy of local autonomy." The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved against municipal corporations. Henceforth, in interpreting statutory provisions on municipal fiscal powers, doubts will be resolved in favor of municipal corporations. It is understood, however, that taxes imposed by local government must be

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Tax 2 Cases for FE for a public purpose, uniform within a locality, must not be confiscatory, and must be within the jurisdiction of the local unit to pass.11 (Emphasis supplied). In net effect, the controversy presently before the Court involves, at bottom, a clash between the inherent taxing power of the legislature, which necessarily includes the power to exempt, and the local governments delegated power to tax under the aegis of the 1987 Constitution. Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real properties within the citys territory and removed exemptions theretofore "previously granted to, or presently enjoyed by all persons, whether natural or juridical .,"12 there can really be no dispute that the power of the Quezon City Government to tax is limited by Section 232 of the LGC which expressly provides that "a province or city or municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted." Under this law, the Legislature highlighted its power to thereafter exempt certain realties from the taxing power of local government units. An interpretation denying Congress such power to exempt would reduce the phrase "not hereinafter specifically exempted" as a pure jargon, without meaning whatsoever. Needless to state, such absurd situation is unacceptable. For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao,13 this Court has upheld the power of Congress to grant exemptions over the power of local government units to impose taxes. There, the Court wrote: Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations. (Emphasis supplied.) As we see it, then, the issue in this case no longer dwells on whether Congress has the power to exempt Bayantels properties from realty taxes by its enactment of Rep. Act No. 7633 which amended Bayantels original franchise. The more decisive question turns on whether Congress actually did exempt Bayantels properties at all by virtue of Section 11 of Rep. Act No. 7633. Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC has already withdrawn Bayantels former exemption from realty taxes, Congress opted to pass Rep. Act No. 7633 using, under Section 11 thereof, exactly the same defining phrase "exclusive of this franchise" which was the basis for Bayantels exemption from realty taxes prior to the LGC. In plain language, Section 11 of Rep. Act No. 7633 states that "the grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay." The Court views this subsequent piece of legislation as an express and real intention on the part of Congress to once again remove from the LGCs delegated taxing power, all of the franchisees (Bayantels) properties that are actually, directly and exclusively used in the pursuit of its franchise. WHEREFORE, the petition is DENIED. No pronouncement as to costs. SO ORDERED.

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Tax 2 Cases for FE CANCIO C. GARCIA Associate Justice WE CONCUR: REYNATO S. PUNO Associate Justice Chairperson ANGELINA SANDOVAL-GUTIERREZ Associate Justice ADOLFO S. AZCUNA Associate Justice ATTESTATION I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's Attestation, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. ARTEMIO V. PANGANIBAN Chief Justice RENATO C. CORONA Asscociate Justice

Footnotes
1

Penned by then Judge Vicente Q. Roxas, now Associate Justice of the Court of Appeals; Rollo, pp. 46-71.
2

Rollo, p. 72. Formerly named International Communications Corporation.

"An Act Granting the International Communications Corporation a Franchise to Establish Radio Stations for Domestic Telecommunications, Radiophone, Broadcasting and Telecasting." Approved on June 17, 1961. This franchise was later extended with the enactment of Republic Act No. 4905 on June 17, 1967, stating that: "SEC. 4. This franchise shall continue for Page 174 of 327

Tax 2 Cases for FE a period of twenty-five years from the date the first of said stations shall be placed in operation, and is granted upon the express condition that the same shall be void unless the construction of said station be begun within two years from the date of the approval of this amendatory Act and be completed within four years from said date."
5

This took effect on July 1, 1993.

Entitled "An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of Public Telecommunication Services."
7

250 SCRA 500 (1995).

Sec. 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. xxx. Mactan Cebu International Airport Authority vs. Marcos, 261 SCRA 667 (1996), per then Associate Justice, now retired Chief Justice Hilario G. Davide, Jr., ponente.
9

SEC. 232. Power to Levy Real Property Tax. A province or city or municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted.
10

See Footnote #8, supra.

11

Bernas, The Constitution of the Republic of the Philippines, a Commentary, Vol. 11, 1988 ed., p. 381.
12

Section 6, Quezon City Revenue Code, quoted in Petitioners Memorandum; Rollo, p. 323.
13

363 SCRA 522 (2001), per Associate Justice Vicente V. Mendoza, ponente.

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Tax 2 Cases for FE

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 146523 June 15, 2006 SPOUSES ANICETO AND THELMA CIRELOS, Petitioners, vs. SPOUSES WILLIAM G. HERNANDEZ, AND ROSEMARIE ZAFE AND THE HON. COURT OF APPEALS, Respondents. DECISION AUSTRIA-MARTINEZ, J.: Before this Court is a petition for review seeking the reversal of the Decision of the Court of Appeals (CA) in CA-G.R. CV No. 55835 promulgated on December 18, 2000,1 which affirmed the Decision2 dated May 8, 1996 of the Regional Trial Court (RTC) of Quezon City, Branch 92 in Civil Case No. Q-9315226. On March 10, 1993, spouses Aniceto and Thelma Cirelos (petitioners) filed a complaint for Breach of Contract, Annulment of Sale and Damages before the RTC, against spouses William G. Hernandez and Rosemarie Zafe (private respondents) alleging that: they are the registered owners of a house and lot located at No. 10 Kennedy Drive, Tandang Sora, Quezon City, consisting of 302 square meters and covered by TCT No. 244566; on March 5, 1991, petitioner Thelma Cirelos (Cirelos) obtained a loan from respondent William Hernandez (Hernandez), a money lender, in the amount of P450,000.00 and as security therefor, executed a Deed of Real Estate Mortgage in favor of Hernandez covering the said property; in order to effect the immediate release of the loan, Hernandez asked Cirelos to sign a blank bond paper containing nothing but her name which Hernandez said will be converted into promissory note; on February 15, 1993, petitioners received a letter from respondents asking them to vacate the property because respondents already own the same; Cirelos went to the Register of Deeds and learned that there was already a Deed of Sale in favor of respondents annotated at the back of the title as Entry No. PE-2060/T-244566, PR-24978, and a Release of Real Estate Mortgage annotated as Entry No. PE-2059/TCT-244566, PR-23978; Cirelos also discovered that the blank paper she signed, which Hernandez said will only be used as promissory note, was converted into a Deed of Absolute Sale;3 moreover, the Deed did not have the consent of Aniceto, husband of Cirelos, and the Release of Real Estate Mortgage is fictitious as petitioners have not yet paid their loan.4 Respondents in their Answer countered that: Thelma did not sign any blank paper neither did they require her to do so; the execution of the Release of Real Estate Mortgage and Deed of Absolute Sale was out of the free will and volition of petitioners who could no longer pay the loan plus interest;5 in the execution of the promissory note, Real Estate Mortgage and Deed of Absolute Sale, Thelma was authorized by her husband, Aniceto, through a power of attorney executed way back on January 27, 1990;6 and it is not true that petitioners learned of the sale only after receiving a letter from respondents lawyer dated February 15, 1993 and thereafter verifying with the Register of

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Tax 2 Cases for FE Deeds, because as early as September 5, 1991, respondents counsel had been writing petitioners asking them to vacate the property.7 Trial ensued and on May 8, 1996, the RTC dismissed petitioners complaint, based on the following findings: After a careful study of the evidence of both parties, the Court finds that the Deed of Absolute Sale covering the subject property is not fabricated by the defendants. First of all, plaintiff Thelma Cirelos alleges that defendant made her sign a blank paper from which the latter later on made on [sic] Deed of Absolute Sale. However, plaintiff admitted during trial that it was not her habit of signing blank papers although in this particular case, she claimed she signed a blank paper to effect the immediate release of the loan. Furthermore, the paper used, the type of their contents, the signature of the parties, their subscribing witnesses and of the notary public, as well as the spacing and the wordings thereof, the entry number in the notarial register, all these are incontestable evidence that the document is what it purports to be. Second, Atty. Campos testified under oath in Court that both plaintiff and defendant appeared and signed the deed of sale before him. In this case, the presumption of regularity applies. Also, Atty. Campos is a disinterested third party who will not risk his name as well as his professional license for the benefit of his retaining client. Third, plaintiff admitted that defendant never made a demand on her to pay nor did she ever offered [sic] to pay the debt. This may be premised on the fact that plaintiff already knew that she had executed a Deed of Absolute Sale over the lot in question in favor of defendant Hernandez due to her inability to pay the debt. Another is the fact that plaintiffs never made any effort of reconstituting the original TCT which was burned during the fire that occurred in the Quezon City Hall where it was kept. Such omission only shows that plaintiffs are no longer interested in the land. Finally, the letter of plaintiffs asking for an extension of time to vacate the premises is an admission and recognition of the right of the defendants over the subject property.8 Petitioners appealed to the CA which denied their appeal, finding that: Cireloss testimony that she was made to sign a blank paper which will be converted into a promissory note is not worthy of belief as there was already a promissory note at the time the Real Estate Mortgage was executed; petitioners failed to impeach the credibility of Atty. Danilo Campos (Atty. Campos), the notary public before whom the Deed of Absolute Sale was acknowledged and they were not able to overthrow the presumption that official duty has been regularly performed; respondents were able to present the questioned deed of sale which appeared to be genuine and untampered and petitioners were not able to present proof to the contrary other than Cireloss testimony; the RTC correctly noted the failure of Cirelos to pay their debt despite the lapse of reasonable length of time and her failure to take steps towards the reconstitution of the burned title; gross inadequacy of the price does not affect a contract of sale and there was no sufficient evidence to show defect in consent or show an intent other than a contract of sale.9 Petitioners now come before this Court claiming that: "[T]he judgment of the Honorable Court of Appeals is not in accord with law; committed grave abuse of discretion in the appreciation of the evidence on record; and the failure to apply or the misapplication of the aforecited provisions of the Civil Code and the Rules of Court."[10] Petitioners argue that: the true agreement between the parties is mortgage and not sale;11 there was lack of written demand on petitioners to comply with the mortgage agreement, thus the mortgage agreement subsists; the amount of the loan secured by the real estate mortgage is the same amount stated in the deed of absolute sale; the CA failed to apply Art. 1602 of the Civil Code which provides that the contract shall be presumed to be an equitable mortgage when the price is Page 177 of 327

Tax 2 Cases for FE inadequate, when the vendor remains in possession of the property or when it can be inferred that the real intention of the parties is to make the transaction secure the payment of a debt or the performance of any other obligation; in this case, the market value of the house and lot is P1.2 Million while the amount of the sale is only P450,000.00; petitioners remain in possession of the property despite the execution of the assailed deed of absolute sale, and it was only in February 1993 or a year and a half after the date of the purported sale that the respondents demanded in writing that the petitioners vacate the premises.12 Petitioners also claim that: the Deed of Absolute Sale is void as there was no cause or consideration;13 the consent of Cirelos was obtained through fraud as she was made to sign a blank bond paper in the pretext that it will be converted into a promissory note in favor of Hernandez in his personal capacity;14 the sale also did not have the consent of Cireloss husband, as the Special Power of Attorney (SPA) relied upon by respondents were merely tampered with, i.e., the words "sell", "absolute sale" and "sale" were written with another typewriter;15 Atty. Campos, who notarized the Real Estate Mortgage, the release thereof and the Deed of Absolute Sale is a biased witness since he is a retained counsel of respondents for eight years.16 Petitioners pray that the entire records of the case be reviewed by this Court; that the decisions of the RTC and the CA be reversed and set aside; that the Deed of Absolute Sale and Release of Real Estate Mortgage be declared null and void; that respondents be ordered to comply with the terms and conditions of the Real Estate Mortgage; and that damages be awarded to petitioners, plus costs.17 Respondents filed an Answer18 to the petition asserting that the Deed of Absolute Sale is complete in all details as the object, subject matter and consideration therefor are specified therein and the notary public before whom the document was signed even testified to its regularity;19 that the failure of petitioners to act on their alleged discovery of the transfer of title to respondents makes their claim hard to believe;20 that the decision of the trial court as affirmed by the CA has already settled the validity of the deed of sale on the basis of the credibility of the witnesses presented during trial;21 that the contents of the petition are evidentiary in nature and no error of law was raised in this petition for review; and that the argument that the true agreement between the parties is mortgage and not sale was raised for the first time in this Court.22 Petitioners filed a Reply23 and both parties filed their respective Memoranda24 which reiterated their arguments on the matter. Stated simply, the arguments of petitioners are as follows: Cireloss signature in the Deed of Absolute Sale was obtained through fraud; there was no consent from Cireloss husband; and the sale had no cause or consideration. Petitioners also argue that at most, the sale must be considered only as equitable mortgage as the amount stated in the deed of sale is inadequate, petitioners remain in possession of the property, and it took a year and a half after the date of the purported sale before respondents demanded that petitioners leave the premises. The Court finds the petition devoid of merit. As a rule, only questions of law are entertained by this Court in petitions for review on certiorari under Rule 45 of the Rules of Court.25 It is not our function to analyze or weigh all over again the evidence presented.26 Indeed, the findings of fact of the trial court, especially when affirmed by the CA are binding and conclusive on us, unless: (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of fact Page 178 of 327

Tax 2 Cases for FE are conflicting; (6) there is no citation of specific evidence on which the factual findings are based; (7) the finding of absence of facts is contradicted by the presence of evidence on record; (8) the findings of the CA are contrary to the findings of the trial court; (9) the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would justify a different conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such findings are contrary to the admissions of both parties.27 In the present petition, the Court finds no cogent reason to depart from the general rule. The CA did not commit any reversible error in affirming the RTC. The Deed of Absolute Sale being impugned by petitioners is a public document having been notarized by Atty. Campos. As a public document, the deed has in its favor the presumption of regularity, and carries the evidentiary weight conferred upon it with respect to its due execution, i.e., it is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.28 To rebut the same, there must be evidence that is clear, convincing and more than merely preponderant; otherwise the document shall be upheld.29 In this case, all petitioners could offer by way of evidence was Cireloss bare denial that she signed the subject deed of sale and her claim that what was given her to sign was a blank piece of paper which Hernandez later turned into said deed. Such denial is insufficient to overcome the positive value of the deed of sale which is a notarized document.30 As held in Veloso v. Court of Appeals,31 Documents acknowledged before a notary public have the evidentiary weight with respect to their due execution. The questioned x x x deed of sale, [was] notarized and therefore, presumed to be valid and duly executed.32 One who denies the due execution of a notarized document, has the burden of proving that contrary to the recital in the Acknowledgment, he has never appeared before the notary public and acknowledged the deed to be his voluntary act.33 Cirelos testified that she has never seen Atty. Campos neither has she signed any deed of sale in his presence. Atty. Campos however testified that Cirelos appeared before him and signed the deed of sale in his presence.34 Petitioners claim that since Atty. Campos is a retained counsel of Hernandez, his (Atty. Camposs) testimony is biased and not worthy of belief. Petitioners also claim that Cireloss testimony is more credible than that of Atty. Campos and that therefore, her testimony that her signature in the deed of sale was obtained through fraud must be given credence. On this point, it is well to remind petitioners that: The oft-repeated principle is that where the credibility of a witness is an issue, the established rule is that great respect is accorded to the evaluation of the credibility of witnesses by the trial court. The trial court is in the best position to assess the credibility of witnesses and their testimonies because of its unique opportunity to observe the witnesses firsthand and note their demeanor, conduct and attitude under grilling examination.35 Indeed, the assessment by the RTC of the credibility of witnesses is entitled to great respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses Page 179 of 327

Tax 2 Cases for FE while testifying.36 The RTC found it unbelievable that Cirelos, who admitted that it is not her habit to sign blank papers, should sign a blank bond paper which Hernandez purportedly later turned into an Absolute Deed of Sale. This was correctly affirmed by the CA which also noted that Cireloss story that Hernandez told her that the blank paper she signed will be turned into a promissory note, is not worthy of belief as there was already a promissory note (Exhibit "F") signed at the time the Real Estate Mortgage was executed. Apart from the allegations of petitioners no other proof was presented to justify a reversal or modification in the findings of the trial court which had the occasion to see the deportment of the witnesses as they testified in court. Petitioners further claim that the Deed of Absolute Sale is void since it did not have the consent of Cireloss husband. It is true that in the sale of conjugal properties, the consent of both the husband and the wife is required and the absence of the consent of one renders the entire sale null and void including the portion of the conjugal property pertaining to the spouse who contracted the sale.37 In this case, while the Deed of Absolute Sale mentioned that Thelma Cirelos is "married to Aniceto Cirelos",38 and the Acknowledgment thereof stated that it is "signed by the vendor (Cirelos) with the marital consent of her spouse,"39 the Deed however does not actually contain any signature of Aniceto showing his consent. In asserting that the Deed of Absolute Sale was executed by Cirelos with the consent of her husband, respondents formally offered said SPA as Exhibit "7," pertinent portions of which read: SPECIAL POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That I, ANECITO40 CIRELOS, of legal age, Filipino, married to Thelma Morcilla Cirelos, and a resident of 19 Kennedy Drive, Pleasant View Subdivision, Tandang Sora, Quezon City, have this day, named, appointed and constituted and by these presents do hereby NAME, APPOINT and CONSITUTE as my true and lawful ATTORNEY-IN-FACT, my wife, THELMA MORCILLA Cirelos, of legal age, Filipino, and a resident of 19 Kennedy Drive, Pleasant View Subdivision, Tandang Sora, Quezon City, for me and my name, place and stead, to do and perform any or all of the following acts or things, with the same force and legal effect as if I were personally present and could lawfully do the same, to wit: sell, aBC 1. To /secure, negotiate or obtain a loan from any private individual, banking or financial institution, using as collateral a parcel of land situated in the District of Banlat, Quezon City, covered by Transfer Certificate of Title No. 244566 issued by the Register of Deeds of Quezon City, and more particularly bounded and described as follows: TRANSFER CERTIFICATE OF TITLE NO. 244566 xxx which parcel of land is our conjugal property but is registered in the name of my wife, Thelma Morcilla Cirelos; Page 180 of 327

Tax 2 Cases for FE absolute sale aBC 2. To sign, execute and deliver any deed of /mortgage or instrument in favor of the lender encumbering the above-described parcel of land to any private individual, banking or financial institution with whom my said ATTORNEY-IN-FACT may obtain the loan, under such terms and conditions as she may deem just and reasonable; aBC 3. To receive, sign for, acknowledge the proceeds of the sale loan obtained by virtue of this POWER OF ATTORNEY and to endorse and encash any check or warrant that may be issued in lieu of cash for the loan so obtained; and HEREBY GIVING AND GRANTING unto my said ATTORNEY-IN-FACT full power and authority to do and perform any act or thing requisite or necessary to be done in or about the premises with the same force and legal effect as if I were personally present and could lawfully do the same and hereby CONFIRMING and RATIFYING all that my said ATTORNEY-IN-FACT may do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto signed my name this 7th day of ___Jan.____, 1990, at ____________________. ACCEPTED: (sgd.) THELMA MORCILLA CIRELOS Attorney-In -Fact42 (sgd.) ANECITO41 CIRELOS Principal

Aniceto testified that the words "sell," "absolute sale" and "sale" were not in the SPA when he signed it and that his intention was only to authorize his wife to mortgage and not to sell the property;43 he also said that while his initials are ABC, he was not the one who placed the same in the SPA.44 Cirelos testified that she gave her only copy of the SPA to Hernandez when she mortgaged their property;45 and that when she gave the said SPA to Hernandez the words "sell", "absolute sale", and "sale" were not yet inserted in the said document.46 Hernandez on the other hand testified that when Cirelos gave him the SPA, there were already insertions and when he asked Cirelos about them, Cirelos countered that it was made before the Notary Public when she had it notarized.47 Under Rule 132, Section 31 of the Rules of Court, the party producing a document as genuine which has been altered, in a part material to the question in dispute must account for the alteration. Said provision reads: Sec. 31. Alterations in document, how to explain. --- The party producing a document as genuine which has been altered and appears to have been altered after its execution, in a part material to the question in dispute, must account for the alteration. He may show that the alteration was made by another, without his concurrence, or was made with the consent of the parties affected by it, or Page 181 of 327

Tax 2 Cases for FE was otherwise properly or innocently made, or that the alteration did not change the meaning or language of the instrument. If he fails to do that, the document shall not be admissible in evidence. In this case, since it is the respondents who presented the SPA, the burden is on them to account for the alterations. On this score, Atty. Campos, testifying for the respondents stated that while the Deed of Absolute Sale which he notarized involved a property registered in the names of the spouses, and the deed was signed only by Cirelos, he allowed the same, as an SPA (Exhibit "7") was shown to him with the words "sell", "absolute sale", and "sale" with the initials ABC;48 and that said SPA was already annotated at the back of the title49 as Entry No. 9115 and marked as Exhibits "1-B" and "1-B-1."50 Entry No. 9115 reads: Entry No. 9115/ T244566 x x x POWER OF ATTORNEY In favor of THELMA M. CIRELOS______________________ With power to SELL, MORTGAGE____________________ in behalf of ANECETO CIRELOS_______________________ Other conditions set forth in Doc. No. 131________________ Page No. 38________Book No. 3_________of the Not. Public of QUIRINO D. CARPIO_____________________________ Date of Instrument _____1/27/90_______ Date of Inscription ______7/10/90______51 (Emphasis supplied) As respondents were able to show that there was already an annotation on the title anent the SPA dated January 27, 1990 executed by Aniceto in favor of Cirelos, with power to sell as well as mortgage, which was inscribed on July 10, 1990 or before Cirelos started transacting with Hernandez, we find that respondents were able to comply with the requirements of Rule 132, Section 31 and were able to show, by convincing evidence that the insertions in the SPA were already existing when it was given to them by Cirelos. The claim of petitioners that the contract is void for lack of cause or consideration also does not persuade the Court. As explained by respondents, the parties changed their agreement from that of loan to an absolute sale when petitioners could no longer pay their obligation. The P450,000.00 loan was therefore converted to a purchase price when the parties modified the agreement between them. Petitioners further argue that even if a contract is an absolute sale on its face, applying Art. 1602 of the Civil Code, still the agreement between them and respondents should be considered as equitable mortgage and not that of sale. This argument is raised for the first time by petitioners in view of the ruling of the CA, to wit: In the instant case, no sufficient evidence to show defect in consent or to show an intent other than a contract of sale was presented by appellants.52 While the issue that the real contract between the parties is that of an equitable mortgage may not be raised for the first time on appeal,53 considering that said issue was triggered by the

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Tax 2 Cases for FE pronouncement of the CA, the Court will proceed to resolve the same to settle once and for all the controversy between the parties involving the subject property. Petitioners claim is not meritorious. Equitable mortgage, defined, is a contract that although lacking the formality, the form or words or other requisites demanded by a statute nevertheless reveals the intention of the parties to burden a piece of real property as security for a debt. Its essential requisites are: (1) the parties enter into what appears to be a contract of sale; and (2) their intention, however, is to secure an existing debt by way of a mortgage.54 While there is no single conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage,55 the Civil Code enumerates several instances when a contract is presumed to be an equitable mortgage, thus: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: 1. When the price of a sale with right to repurchase is unusually inadequate; 2. When the vendor remains in possession as lessee or otherwise; 3. When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; 4. When the purchaser retains for himself a part of the purchase price; 5. When the vendor binds himself to pay the taxes on the thing sold; 6. In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. The presence of even just one of the circumstances set forth in this provision suffices to convert a contract to an equitable mortgage.56 No concurrence or an overwhelming number is needed.57 Article 1604 of the Civil Code provides: Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. While there is a presumption in favor of equitable mortgage, such presumption, however, is not conclusive and may be rebutted by competent and satisfactory proof to the contrary.58 In this case, petitioners claim that the agreement between them is one of equitable mortgage for three reasons, i.e., there was inadequacy of the price, they remained in possession of the property, and, their intention was only that of mortgage and not sale.

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Tax 2 Cases for FE Petitioners claim that there was inadequacy of the price is not supported by the evidence on record. They did not present any proof that the fair market value of the real property in the area at the time of the transaction were much higher than the selling price of the lot in question. Mere allegation that the price paid is inadequate, without more, does not make a case favorable to petitioners.59 As held in San Pedro v. Lee60 Absent any evidence of the market value of the locale as of the date of the contract, it cannot be concluded that the price at which the property was sold x x x was grossly inadequate. Mere inadequacy of price would not be sufficient. The price must be grossly inadequate, or purely shocking to the conscience.61 Cirelos, in her testimony, not only failed to present sufficient evidence, she even admitted her uncertainty as to the real value of the property at the time of the sale.62 Petitioners also claim that since they remained in possession of the property, the presumption of equitable mortgage should govern. It is true, that where the vendor remains in physical possession of the land as lessee or otherwise, the contract should be treated as an equitable mortgage.63 Respondents presented proof however that as early as September 5, 1991, or more than a month from July 30, 1991, the date of the deed of sale, they already sent a letter to petitioners asking them to vacate the premises.64 Reacting thereon, Cirelos went to Hernandez personally and requested for more time;65 she then made a handwritten letter dated January 14, 1992 which reads: Sir, Kung maari po pag bigyan ninyo ako hanggan Feb. 15, 1992 at gumagawa po ako ng paraan. Sana po maunawaan ninyo ako. Salamat po. Lubos na gumagalang, Mrs. Cirelos Cirelos66 Respondents sent another demand letter by registered mail dated January 15, 199267 which petitioners still did not heed. Respondents then sent a third letter, dated February 15, 1993 again asking that petitioners vacate the premises.68 It is only the third letter which petitioners claimed to have received.69 However, respondents presented the first two letters to the trial court with their corresponding registry receipts and registry return cards, the authenticity of which respondents did not question.70 Thus, respondent had shown by preponderance of evidence that the possession of petitioners of the subject property after the date of the absolute sale is without the acquiescence of respondents. The Court also notes that, as admitted by Cirelos in her testimony, petitioners have not been paying real estate taxes for the lot since 1990 up to the time of her testimony in 1993.71 In Bernardo vs. Court of Appeals,72 this Court noted that a partys nonpayment of realty taxes on the subject land from the time the document of sale was signed, was inconsistent with his claim of continued ownership.73

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Tax 2 Cases for FE Thus, having no cogent reason to reverse the ruling of the CA, the Court is constrained not to grant the present petition. WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners. SO ORDERED. MA. ALICIA AUSTRIA-MARTINEZ Associate Justice WE CONCUR: ARTEMIO V. PANGANIBAN Chief Justice Chairperson CONSUELO YNARES-SANTIAGO Associate Justice ROMEO J. CALLEJO, SR. Asscociate Justice

MINITA V. CHICO-NAZARIO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice

Footnotes
1

Penned by Associate Justice Eloy R. Bello, Jr. and concurred in by Associate Justices Eugenio S. Labitoria and Eliezer R. De Los Santos; rollo, pp. 34-40.
2

CA rollo, pp. 47-51. Dated July 30, 1991; Exhibits "D" and "4". Records, pp. 1-7. Id. at 41-42. Id. at 48; Exhibit "7".

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7

Id. at 43. CA rollo, pp. 50-51. Rollo, pp. 38-39. Id. at 13. Id. Rollo, pp. 16-18. Id. at 18. Id. at 19. Id. at 26. Id. at 24. Id. at 30. Should be a "Comment." Rollo, p. 85. Id. at 86. Id. at 90. Id. at 89-90. Id. at 93-109. Id. at 125-186; 188-244.

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

Samala v. Court of Appeals, G.R. No. 130826, February 17, 2004, 423 SCRA 142, 145.
26

Potenciano v. Reynoso, 449 Phil. 396, 405 (2003). Supra, note 25, at 146.

27

28

Mendezona v. Ozamiz, 426 Phil. 888, 903-904 (2002); Potenciano v. Reynoso, supra, at 406.
29

Ladignon v. Court of Appeals, 390 Phil. 1161, 1169 (2000). Id. at 1170.

30

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Tax 2 Cases for FE

31

329 Phil. 398 (1996). Id. at 407. Aznar Brothers Realty Co. v. Court of Appeals, 384 Phil. 95, 112 (2000). TSN, August 28, 1995, pp. 14-15.

32

33

34

35

YHT Realty Corporation v. Court of Appeals, G.R. No. 126780, February 17, 2005, 451 SCRA 638, 654.
36

Lustan v. Court of Appeals, 334 Phil. 609, 616-617 (1997).

37

Homeowners Savings & Loan Bank v. Dailo, G.R. No. 153802, March 11, 2005, 453 SCRA 283, 289-290; Family Code, Art. 124 also provides: Art. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husbands decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors.
38

Exhibit "D" and Exhibit "4", rollo, p. 12. Exhibit "4-A", rollo, p. 13. Spelled as "Aniceto" in the other parts of the records. Id. Records, p. 61. TSN, January 19, 1994, pp. 9-10, 13. Id. at 18-19. TSN, November 19, 1993, pp. 59-62. Id. at 64-66. Page 187 of 327

39

40

41

42

43

44

45

46

Tax 2 Cases for FE

47

TSN, September 14, 1994, pp. 11-13. TSN, August 28, 1995, pp. 18-21A. Id. at 23-24, 35. Id. at 40-41. Exhibit "1-B-1" Rollo, p. 39. See Sawadjaan v. Court of Appeals, G.R. No. 141735, June 8, 2005. Ramos v. Sarao, G.R. No. 149756, February 11, 2005, 451 SCRA 103, 113. Id. at 114. Id. at 115. Aguirre v. Court of Appeals, 380 Phil. 736, 742 (2000).

48

49

50

51

52

53

54

55

56

57

58

Austria v. Sps. Gonzales, Jr., G.R. No. 147321, January 21, 2004, 420 SCRA 414, 422.
59

Id. G.R. No. 156522, May 28, 2004, 430 SCRA 339. Id. at 349. TSN, November 19, 1993, pp. 75-83. Legaspi v. Ong, G.R. No. 141311, May 26, 2005, 459 SCRA 122, 142.

60

61

62

63

64

TSN, William G. Hernandez, December 16, 1994, pp. 12-13; Records, p. 184, Exh. "8".
65

Id. at 14.

66

Records, p. 185, Exh. "9"; See also TSN, William G. Hernandez, December 16, 1994, pp. 14-15.
67

TSN, William G. Hernandez, December 16, 1994, pp. 16-17; Records, p. 185-a, Exh. "10".
68

Id. at 19; Folder of Plaintiffs Formal Offer of Evidence, p. 14, Exh. "E" and Exh. "11."
69

TSN, Thelma Cirelos, October 22, 1993, p. 31. Page 188 of 327

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70

Records, pp. 184-187, Exhs. "8", "8-A", "8-B", "10", "10-A", "10-B"; TSN, William G. Hernandez, December 16, 1994, pp. 12-18.
71

TSN, November 19, 1993, pp. 88-89. 387 Phil. 736 (2000). Id. at 749.

72

73

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Tax 2 Cases for FE Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 137534 August 3, 2006 EFREN AQUINO and ANGELICA AQUINO, Petitioners, vs. QUEZON CITY, represented by its OIC, BRIGIDO SIMON, ANSELMO O. REGIS, VICENTE N. COLOYAN, as the Acting Register of Deeds of Quezon City, and AIDA LINAO, accompanied by her husband PETE LINAO, Respondents. x --------------------------------------------- x G.R. No. 138624 August 3, 2006 SOLOMON TORRADO, represented herein by his heirs, namely: VICTOR SILVANO TORRADO, MONALISA TORRADO CARLET, CELIA TORRADO APTER, ROBERTO SILVANO TORRADO, SOLOMON SILVANO TORRADO, TITA SILVANO TORRADO, HILARIO SILVANO TORRADO, EMMANUEL SILVANO TORRADO, and AUGUSTUS CAESAR SILVANO TORRADO, Petitioners, vs. VERONICA BALUYOT and RUPERTO BALUYOT, CORAZON and MAXIMO UY, DNX DEVELOPMENT CORP., CITY TREASURER OF QUEZON CITY, REGISTER OF DEEDS OF QUEZON CITY, AND THE HONORABLE COURT OF APPEALS, Respondents. DECISION AZCUNA, J.: In an order issued by this Court dated October 18, 2000, two petitions for review on certiorari involving the decisions of the Court of Appeals in CA-G.R. CV Nos. 37487 and 49241, declaring valid the auction sales of two real properties by the Quezon City local government for failure to pay real property taxes, were consolidated for the Courts consideration. G.R. No. 137534 The first case, docketed as G.R. No. 137534, deals with a 612-square meter lot in East Avenue Subdivision, Diliman, Quezon City. The lot was formerly owned by petitioner spouses Efren and Angelica Aquino (Petitioners Aquino) under Transfer Certificate of Title (TCT) No. 260878. By their own admission, Petitioners Aquino withheld payment of the real property taxes thereto from 1975 to 1982 as a form of protest against the government of then President Marcos. As a result of the nonpayment, the property was sold by the Quezon City local government, through the Treasurers Office, at public auction on February 29, 1984 to private respondent Aida Linao, the highest bidder. Aida Linao eventually consolidated her ownership under a petition granted by the Regional Trial Court (RTC) of Quezon City on September 25, 1985. 1 Accordingly, TCT No. 260878 was cancelled and a new one was issued under TCT No. 339476 in the name of Aida Linao. 2

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Tax 2 Cases for FE Petitioners Aquino claimed that they learned of the sale only in April 1987 after they were informed by people "squatting" on the property that Aida Linao was taking steps to eject them. They then filed an action for annulment of title, reconveyance and damages against respondents Quezon City local government, its Treasurer, the Register of Deeds of Quezon City and Aida Linao 3 before the RTC of Quezon City. 4 They charged that the Quezon City local government sold their property without informing them of their tax default, in derogation of the notice requirements of the law. They also impute bad faith upon Aida Linao in buying their property despite knowledge of the infirmities leading to the auction sale. On February 25, 1995, after the parties presented their case, the RTC of Quezon City rendered a decision dismissing the complaint. The dismissal was later affirmed by the Court of Appeals on February 3, 1999. In this petition, Petitioners Aquino raise two issues: 1. Whether there was failure on the part of the Quezon City local government to satisfy the notice requirements before selling the property for tax delinquency; and 2. Whether there was failure on the part of the Quezon City local government to give actual notice of the impending sale despite knowing that the mailed notices were returned unclaimed. 3. Whether or not Petitioners Aquino were estopped to question the absence of notice given their admission that they deliberately did not pay their taxes. G.R. No. 138624 The second case, docketed as G.R. No. 138624, deals with a 407-square meter property located at No. 20 North Road, Cubao, Quezon City under TCT No. 21996 in the name of Solomon Torrado. 5 TCT No. 21996 covers two lots, Lots 7 & 8, but only the latter is the subject of the controversy. According to the Heirs of Solomon Torrado (Petitioner Heirs), 6 Solomon Torrado paid taxes on the improvements on Lot 8 for 1976, 1977, 1978, 1979, 1981 and 1982 but not on the lot itself because the Treasurers Office could not locate the index card for that property. For failure to pay real property taxes on Lot 8 from 1976 to 1982, the City Treasurer sent a Notice of Intent to Sell dated October 6, 1982 to Solomon Torrado to his address indicated in the tax register, which simply states as "Butuan City." The notice was returned by reason of "Insufficient Address." Next sent was a Notice of Sale of Delinquent Property dated December 10, 1982. This was sent to the same address and similarly returned unclaimed. 7 Thereafter, a public auction for Lot 8 was held on February 23, 1983 and the lot was sold to Veronica Baluyot, the winning bidder. A Notice of Sold Property was subsequently sent to Solomon Torrado to "Butuan City," which was returned unclaimed. On May 29, 1985, a Final Bill of Sale was executed by the City Treasurer. On that basis, TCT No. 21996 was cancelled in part and TCT No. 355133, covering Lot 8, was issued in the name of Veronica Baluyot. Veronica Baluyot later mortgaged the property to spouses Corazon and Maximino Uy. For failure to pay the mortgage debt, Lot 8 was foreclosed and TCT No. 355133 was cancelled and substituted with TCT No. 45536 in the name of spouses Uy. Spouses Uy then sold the lot to DNX Corporation and TCT No. 45536 was cancelled and substituted with TCT No. N-162170, in the name of DNX Corporation. Meanwhile, on January 13, 1989, Solomon Torrado commenced an action with the RTC of Quezon City against the spouses Baluyot, the Quezon City local government, the City Treasurer and Register

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Tax 2 Cases for FE of Deeds. 8 On March 12, 1992, the RTC of Quezon City dismissed the action. Recourse to the Court of Appeals was made but on March 24, 1998, the appeal was dismissed. Before this Court, Petitioner Heirs raise the following questions: 1. In the auction sale of tax delinquent property, is constructive notice sufficient? 2. Was the City Treasurer negligent in continuing to send notices to an "insufficient address" notwithstanding a tax declaration in the tax records pertaining to another property bearing Solomon Torrados complete address? 3. Was the auction sale conducted in accordance with P.D. 464? 4. Was the title of Veronica Baluyot, the purchaser of the property, void as well as those of the subsequent transferees? 5. Is DNX Corporation, the subsequent purchaser of the property, a buyer in good faith? Issues common to both petitions The Court will first discuss the issues that were raised in common by petitioners. The first issue in common relates to the interpretation of the notice requirements under Sections 65 and 73 of Presidential Decree (P.D.) No. 464 (the Real Property Tax Code then in force): 9 xxx SECTION 65. Notice of delinquency in the payment of the real property tax. Upon the real property tax or any installment thereof becoming delinquent, the provincial or city treasurer shall immediately cause notice of the fact to be posted at the main entrance of the provincial building and of all municipal buildings or municipal or city hall and in a public and conspicuous place in each barrio of the municipality of the province or city as the case may be. The notice of delinquency shall also be published once a week for three consecutive weeks, in a newspaper of general circulation in the province or city, if any there be, and announced by a crier at the market place for at least three market days. Such notice shall specify the date upon which tax became delinquent, and shall state that personal property may be seized to effect payment. It shall also state that, at any time, before the seizure of personal property, payment may be made with penalty in accordance with the next following section, and further, that unless the tax and penalties be paid before the expiration of the year for which the tax is due, or the tax shall have been judicially set aside, the entire delinquent real property will be sold at public auction, and that thereafter the full title to the property will be and remain with the purchaser, subject only to the right of delinquent taxpayer or any other person in his behalf to redeem the sold property within one year from the date of sale. xxx SECTION 73. Advertisement of sale of real property at public auction. After the expiration of the year for which the tax is due, the provincial or city treasurer shall advertise the sale at public auction of the entire delinquent real property, except real property mentioned in subsection (a) of Section forty hereof, to satisfy all the taxes and penalties due and the costs of sale. Such advertisement shall Page 192 of 327

Tax 2 Cases for FE be made by posting a notice for three consecutive weeks at the main entrance of the provincial building and of all municipal buildings in the province, or at the main entrance of the city or municipal hall in the case of cities, and in a public and conspicuous place in the barrio or district wherein the property is situated, in English, Spanish and the local dialect commonly used, and by announcement at least three market days at the market by crier, and, in the discretion of the provincial or city treasurer, by publication once a week for three consecutive weeks in a newspaper of general circulation published in the province or city. The notice, publication, and announcement by crier shall state the amount of the taxes, penalties and costs of sale; the date, hour, and place of sale, the name of the taxpayer against whom the tax was assessed; and the kind or nature of property and, if land, its approximate areas, lot number, and location stating the street and block number, district or barrio, municipality and the province or city where the property to be sold is situated. Copy of the notice shall forthwith be sent either by registered mail or by messenger, or through the barrio captain, to the delinquent taxpayer, at his address as shown in the tax rolls or property tax record cards of the municipality or city where the property is located, or at his residence, if known to said treasurer or barrio captain: Provided, however, That a return of the proof of service under oath shall be filed by the person making the service with the provincial or city treasurer concerned. Both petitioners construe the above-quoted provisions to mean that two sets of notices, one under Section 65 and the other under Section 73, are required before a delinquent property could be sold for failure to pay real property taxes. With respect to the first notice under Section 65, the owner of the real property subject to tax is supposed to be given a Notice of Tax Delinquency stating that if the property tax is not paid, the local government would sell the real property to satisfy the tax in arrears. This consists of four separate measures: 1) posting of the notice of tax delinquency at the main entrance of the city hall; 2) posting of the notice of tax delinquency in a public and conspicuous place in each barangay of the city; 3) publication of the notice of tax delinquency once a week for three consecutive weeks in a newspaper of general circulation in the city; and 4) verbal announcement of the existence of the notice of tax delinquency by a crier at the market place for at least three market days. The second notice under Section 73 pertains to a Notice of Sale at Public Auction notifying the owner of the real property that since there was failure to heed the first notice, the local government would now be selling his delinquent property at public auction on a specified date to satisfy the tax in arrears. For Petitioners Aquino, while it seems the Quezon City local government complied with the second set of requirements in selling their lot, it failed to do the same with the first. 10 The only compliance by the Quezon City local government was the sending of a Notice of Intent to Sell by registered mail to the last known address of Petitioners Aquino. No posting or publication of any kind was done. Petitioner Heirs, on the other hand, push for the same construction and claim that there was failure on the part of the City Treasurer to send Solomon Torrado a Notice of Delinquency at all. Respondents, on the other hand, counter with their own interpretation of P.D. No. 464. Instead of a two-step notice requirement, respondents put forward the view that there are three methods of enforcement on tax delinquent real property provided under P.D. No. 464. The first method is by distraint of personal property under Sections 65, 68, 70, 71 and 72. The second method is by sale of the delinquent real property itself under Sections 73 to 81. The third method is by filing a case in Page 193 of 327

Tax 2 Cases for FE court under Section 82. Respondents submit that the real property in issue was sold under the second method. That being the case, while they admit that there was only partial compliance with the provisions of Section 65 11 this would be relevant had the local government chosen the method of distraint of personal property. In this case, the Quezon City local government chose the second method of sale and there was full compliance with the provisions of Section 73. Hence, the auction sale was valid. A simple application of the elementary rules of statutory construction provides a straightforward resolution to this conflict. Section 65 basically provides that upon delinquency of a real property tax, a notice of delinquency shall be given. This is followed by Section 66, penalty for delinquency, and Section 67, application of the remedies. The latter reads in its entirety as follows: SECTION 67. Remedies cumulative, simultaneous and unconditional. Collection of the real property tax may be enforced through any or all of the remedies provided under this Code, and the use or non-use of one remedy shall not be a bar against the institution of the others. Formal demand for the payment of the delinquent taxes and penalties due need not be made before any of such remedies may be resorted to; notice of delinquency as required in Section sixty-five hereof shall be sufficient for the purpose. Following Section 67 are provisions on distraint of personal property (Sections 68, 69, 70, 71 and 72), provisions concerning the sale of real property (Sections 73 to 81) and the provision on collection of real property tax through the courts (Section 82). A rule of statutory construction is that a statute must be construed as a whole. The meaning of the law is not to be extracted from a single part, portion or section or from isolated words and phrases, clauses or sentences, but from a general consideration or view of the act as a whole. Every part of the statute must be interpreted with reference to the context. 12 In line with this rule, the Court finds that Section 65s notice of delinquency should be read in line with the Section 67s statement that the different tax remedies do not require a formal demand for the payment but may be substituted by the notice of delinquency. Reference to the notice of delinquency in relation to tax remedies, in general, illustrates the formers function as a prerequisite to all the individual tax remedies subsequently detailed. Also, the phrase "notice of delinquency as required in Section sixty-five" found on the last part of Section 67 further underscores its mandatory nature and interrelation to the three remedies. It is incorrect for the respondents to claim that notice of delinquency has limited application only to distraint of personal property. They mistakenly lumped Section 65 exclusively with Sections 68 to 72 and, in so doing, restricted its application from the other tax remedies. Section 65 is to be construed together with Sections 66 and 78 and all three operate in reference to tax methods in general. Definitely, there is no more logical way to construe the whole chapter on "Collection of Real Property Tax" (Sections 56 to 85) than to stress that while three methods are provided to enforce collection on real property taxes, a notice of delinquency is a requirement regardless of the method or methods chosen. Thus, while the Court agrees with the respondents interpretation that there are three methods by which taxes may be enforced, petitioners are correct in insisting that two notices must be sent to the taxpayer concerned. Nevertheless, respondents still prevail because the Court is satisfied that the two-notice requirement has been complied with by the Treasurers Office. Contrary to the stand taken by Petitioners Aquino, despite the provisions of Section 65, the local government concerned need not post and publish the notice of delinquency, it being sufficient that Page 194 of 327

Tax 2 Cases for FE personal service was done. In Talusan v. Tayag, 13 one of the issues raised was the lack of publication of the notice of delinquency. As to this issue the Court said, speaking through now Chief Justice Panganiban: Petitioners assert that the tax sale should be annulled because of noncompliance with the requirement of publication prescribed in Section 65 of PD 464. In this regard, we note that unlike land registration proceedings which are in rem, cases involving an auction sale of land for the collection of delinquent taxes are in personam. Thus, notice by publication, though sufficient in proceedings in rem, does not as a rule satisfy the requirement of proceedings in personam. As such, mere publication of the notice of delinquency would not suffice, considering that the procedure in tax sales is in personam. It was, therefore, still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter. In the present case, the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila. In that notice, the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property. Under the circumstances, we hold that the notice sent by registered mail adequately protected the rights of the taxpayer, who was the registered owner of the condominium unit. Petitioners Aquino admit that notice of delinquency was mailed, hence, they cannot complain that their rights were not adequately protected. Publication and posting not being indispensable, there was proper compliance with Section 65. Petitioner Heirs, on the other hand, made no such admission but, on the contrary, argued that no notice of delinquency was prepared by the City Treasurer much less sent to Solomon Torrado. The Court holds, for one, that this is a question of fact that will generally not be resolved on a petition for review. 14 Second, records bear out that a Notice of Intent to Sell dated October 6, 1982 was sent by the Treasurers Office to Solomon Torrado. While this was not captioned as a "Notice of Delinquency," its contents sufficiently inform the recipient of the deficiency in real property taxes, and this notice is apart from the subsequent Notice of Sale sent immediately prior to the auction sale. Hence, on the common issue concerning compliance with P.D. No. 464, the Court rules in favor of respondents. The Court proceeds to the common issue of actual versus constructive notice of sale. Petitioners Aquino argue that actual notice is required and, therefore, the mailing of the Notice of Sale to their last known address, which they had abandoned, did not constitute valid notice under the law. Petitioner Heirs likewise argue that constructive notice to the delinquent owner of the real property by mailing is not sufficient, especially when the local government concerned is aware that the mailed notices have not reached the owner. The applicable provision in regard to this issue is found in the last paragraph of Section 73, quoted above. Under said provision, notices of the sale at public auction may be sent to the delinquent taxpayer, either (i) at the address as shown in the tax rolls or property tax record cards of the municipality or city where the property is located or (ii) at his residence, if known to such treasurer or barrio captain. Plainly, Section 73 gives the treasurer the option of where to send the notice of sale. In giving the treasurer the option, nowhere in the wordings is there an indication of a Page 195 of 327

Tax 2 Cases for FE requirement that notice must actually be received by the intended recipient. Compliance by the treasurer is limited to strictly following the provisions of the statute: he may send it at the address of the delinquent taxpayer as shown in the tax rolls or tax records or to the residence if known by him or the barrio captain. In both petitions, the City Treasurer opted to comply with the first option. Petitioners Aquino and Petitioner Heirs do not deny that notices were sent to their or their predecessors address, as shown in the tax records. The named persons in the notices sent by City Treasurer were the correct delinquent taxpayers and were the registered owners of the property subject to tax, albeit the mailing addresses were not to their actual residences. Therefore, the prescribed procedure in auction sales of property for tax delinquency was followed punctiliously. Had the City Treasurer sent the notices to an address other than the one indicated in the tax records, and such address is not the residence known to the treasurer or barangay captain, or if sent to a person who is not the registered owner of the property, then the Court would be able to declare non-compliance with the law. But the fact that petitioners were not able to read their notices is of no consequence to the annulment of the auction sale. Additionally, Petitioner Heirs maintain that the Treasurers Office was already aware that Solomon Torrados address stated in the tax records as "Butuan City" was insufficient so that the notices could not possibly be sufficient for the notices to reach the recipient. There was however a more complete address indicated in the tax records for the improvements to Lot 8, which was No. 20 North Road, Cubao, Quezon City. Petitioner Heirs argue that the City Treasurer could have used this address instead of repeatedly sending notice to an insufficient address which for certain would be returned unclaimed. The fault herein lies with Solomon Torrado and not with the City Treasurer. Solomon Torrados use in his tax declarations for Lot 8, as well as in TCT No. 21996, the minimal address of "Butuan City," is further compounded by the fact that he can no longer be found in Butuan City as he had moved to Quezon City since 1959. 15 He, therefore, had more than 25 years, or 25 opportunities, to amend his address and provide the City Treasurer of a more complete and reliable one. By neglecting to do so, he was aware of the chances he was taking should notices be sent to him by the Treasurers Office. Instead, he maintained the terse address of "Butuan City." In contrast, the Treasurers Office cannot be faulted for not sending the notices to Solomon Torrados address at No. 20 North Road, Cubao, Quezon City, which was indicated in his tax declarations to his other properties. As discussed, the last paragraph of Section 73 instructs the treasurer on where to send the notice of sale: either at the address as shown in the tax rolls or property tax record cards of the municipality or city where the property is located or at his residence, if known to such treasurer or barrio captain. Petitioner Heirs have not shown that the City Treasurer or barrio captain actually knew that Solomon Torrados residence was No. 20 North Road, Cubao, Quezon City. Therefore, the City Treasurer could not be blamed for having mailed the notices to the address shown in the tax records, which was in conformity with Section 73. In disposing of these two issues, there is no further need to discuss the issues of estoppel and good faith. WHEREFORE, both petitions are DENIED and the decisions of the Court of Appeals in CA-G.R. CV Nos. 37487 and 49241 are AFFIRMED. No costs.

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Tax 2 Cases for FE SO ORDERED. ADOLFO S. AZCUNA Associate Justice WE CONCUR: REYNATO S. PUNO Chairperson Associate Justice ANGELINA SANDOVAL-GUTIERREZ, RENATO C. CORONA Associate Justice Associate Justice CANCIO C. GARCIA Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice

Footnotes
1

LRC Case No. 3160 (85). Married to Pete Linao. Accompanied by her husband, Pete Linao. Civil Case No. Q-51130.

Solomon Torrado is now deceased and is represented in this petition by his heirs, petitioners in G.R. No. 138624. Page 197 of 327

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6

Taken from the decision of the Court of Appeals in CA-G.R. CV No. 37487.

In addition to the mailing, the notices of sale were posted, published in a newspaper of general circulation and announced by criers in the marketplace. Likewise, the Barangay Captain of the barangay where the property was located was informed of the auction sale.
8

Civil Case No. Q-89-1563. Now Sections 197 to 283 of the Local Government Code of 1991. Petitioners Memorandum, Rollo, p. 205. Respondents Memorandum in G.R. No. 137534, Rollo, p. 240. Aisporna v. Court of Appeals, No. L-39419, April 12, 1982, 113 SCRA 459. G.R. No. 133698, April 4, 2001, 356 SCRA 263, 276-277. Id. at 275. G.R. No. 138624, Rollo, p. 18.

10

11

12

13

14

15

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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 169251 December 20, 2006 DEMIE L. URIARTE, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.

DECISION

CALLEJO, SR., J.: This is a Petition for Review on Certiorari of the Decision1 of the Sandiganbayan in A.R. No. 058 and its Resolution2 denying the motion for partial reconsideration thereof. The assailed decision affirmed with modification the Decision3 of the Regional Trial Court (RTC) of Cantilan, Surigao del Sur, Branch 41, convicting petitioner Demie L. Uriarte for violation of Section 3(e), Republic Act (R.A.) No. 3019. Petitioner was the Municipal Assessor of the Municipality of Carrascal, Surigao del Sur. In 1948, Joventino Correos declared for taxation purposes a .9434-hectare parcel of land under Tax Declaration (TD) No. 3352.4 The pertinent entries read: Location: Batong, Carrascal, Surigao Area: .9434 hectares Boundaries: North: Carrascal River; South: Maximo Leva and Botong Rill; East: Botong Creek; West: Carrascal River In 1974, TD No. 3352 was cancelled by TD No. 5249.5 In 1980, the previous tax declaration was "revised" by TD No. 116,6 where the entry pertaining to the location of the property was changed from "Batong, Carrascal, Surigao del Sur" to "(S) Botong, (B) Doyos, Carrascal, Surigao del Sur." In 1985, TD No. 116 was cancelled by TD No. 121,7 where the boundaries of the property were also changed, as follows: Page 199 of 327

Tax 2 Cases for FE Boundaries: North: Carrascal River South: Botong Rill East: Botong Creek West: Antioco Uriarte TD No. 121 thus contained significant "revisions." The subsequent tax declarations, however, no longer contained alterations: TD No. 1328 which canceled T.D. No. 121; ARP No. 93-08-003449 in 1994; and ARP No. 96-08-0034910 in 1997. However, in ARP No. 96-08-0032811 filed in 2000, the entries in the original tax declarationTD No. 3352were restored. Meantime, in 1954, Antioco Uriarte, petitioner's father, declared a two-hectare lot for taxation purposes under TD No. 4642.12 The pertinent entries are the following: Area: 2 hectares Location: Doot, Poblacion, Carrascal, Surigao Boundaries: North: Carrascal River; South: Maximo Leva; East: Botong Rill; West: Maximo Leva and Carrascal River In 1974, TD No. 4642 was canceled by TD No. 1534,13 and the entries regarding the boundaries of the property were also altered.14 In 1980, TD No. 1534 was cancelled by TD No. 243,15 where "Embarcadero" was inserted on the entry pertaining to the location of the property. In 1985 TD No. 243 was canceled by TD No. 247.16 This time, the area of the property was changed from two (2) to three (3) hectares, and the boundary in the east became "Joventino Correos." The subsequent tax declarations, TD No. 27017 which canceled TD No. 247 and ARP No. 96-09-0029018 effective 1997, did not contain any further alterations. Thus, the "boundaries" of the lot became North: Carrascal River; South: Pantaleon Cervantes; East: Joventino Correos; West: Maximo Leva The above alterations were allegedly committed by petitioner when she was the Municipal Assessor and Deputy Provincial Assessor of Carrascal, Surigao del Sur. On May 21, 1999, Evelyn Arpilleda, through counsel, sent a letter19 informing petitioner of the alterations that had been made on the Page 200 of 327

Tax 2 Cases for FE tax declarations of her predecessor, Joventino Correos. She requested that the "erroneous and prejudicial entries" be rectified. Petitioner complied with the request. Thus, in ARP No. 96-08-00328, the original entries were restored. On July 5, 1999, Arpilleda, through counsel, sent a letter20 to the Office of the Ombudsman (Mindanao) stating the alleged unlawful acts of petitioner in altering the tax declarations of Joventino Correos and Antioco Uriarte. It was alleged that the alterations prejudiced her since they became the basis of petitioner's "forceful and unlawful possession" of the subject property. The Office of the Ombudsman requested Arpilleda to formalize the charges.21 She later complied by filing a Sworn Complaint22 dated August 19, 1999. Petitioner filed his Counter-Affidavit,23 to which Arpilleda filed her Reply-Affidavit24 on October 28, 1999. The Office of the Ombudsman-Mindanao later filed an Information25 dated November 24, 1999 before the RTC26 of Tandag, Surigao del Sur against petitioner for violation of Section 3(e), R.A. 3019. On December 15, 1999, the Administrative Officer of the Office of the Provincial Prosecutor of Tandag, Surigao del Sur forwarded27 the entire case record to the RTC of Cantilan, Surigao del Sur, Branch 41. On March 13, 2000, private complainant, through counsel, filed a Motion to Suspend Pendente Lite,28 alleging that the immediate suspension of petitioner is proper in view of the provisions of R.A. 3019 and existing jurisprudence.29 Petitioner was arraigned on March 14, 2000, and pleaded not guilty. On even date, the trial court ordered30 his preventive suspension. The case was then set for pre-trial and the parties submitted their respective pre-trial briefs. On June 15, 2000, petitioner filed a Motion to Lift Order of Preventive Suspension,31 pointing out that he had already served three months' suspension. The trial court granted the motion on June 16, 2000.32 On October 2, 2000, petitioner filed a Motion to Quash the Information.33 He claimed that the trial court did not acquire jurisdiction over the case because in the first place, the special prosecution officer of the Office of the Ombudsman-Mindanao had no authority to file the information. To support his claim, petitioner cited Uy v. Sandiganbayan,34 where it was held that the authority to file the corresponding information before the RTC rests in the prosecutor, not the Ombudsman, and that the latter exercises prosecutorial powers only in cases cognizable by the Sandiganbayan. The trial court provisionally dismissed35 the case and ordered the cancellation of petitioner's bail bond. On July 12, 2001, the private prosecutor moved to reinstate the case,36 claiming that the Supreme Court likewise declared in a Resolution in Uy v. Sandiganbayan37 that the Ombudsman is clothed with authority to conduct preliminary investigation, and to prosecute all criminal cases involving public employeesnot only those involving public officers within the jurisdiction of the Sandiganbayan but also those within the jurisdiction of the regular courts. On November 6, 2001, the trial court ordered the case reinstated. Since the bail bond of petitioner had been cancelled, the trial court further ordered the issuance of a warrant of arrest. Petitioner posted bail.

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Tax 2 Cases for FE Private complainant filed a Reservation to File Civil Action38 which the trial court granted in an Order39 dated March 15, 2002. She likewise filed a Manifestation and/or Motion for Inhibition,40 which was however denied in an Order41 dated July 3, 2002. Trial on the merits ensued, and the prosecution presented the following witnesses: private complainant Arpilleda, who testified that petitioner, as Municipal Assessor, took advantage of his position and caused changes in the location and boundaries of various tax declarations of Joventino Correos and Antioco Uriarte, and that these changes were designed to promote petitioner's own interest, thus causing damage and prejudice to her and her co-heirs;42 Tremy Correos who corroborated private complainant's testimony, specifically on the damage they sustained when petitioner evicted them from the land they had been occupying;43 Richard Paniamogan who, as barangay captain of Embarcadero, issued a certification that Botong is located in that barangay and testified thereon;44 Charmelinda A. Yaez, then the provincial assessor who testified on the limitations of the powers of the municipal assessor;45 SPO2 Saturnino Cubero, whose testimony was, however, dispensed with in view of the parties' admission of the copy of the police blotter on the alleged eviction of private complainant and her co-heirs from the lot;46 and Carlito A. Ladroma who likewise testified that Botong is part of barangay Embarcadero.47 On the other hand, the defense presented four (4) witnesses, namely: Leovino Constantino, an employee of the Department of Environment and Natural Resources who testified that the land covered by the subject tax declarations had not been surveyed and no title had been issued by the City Environment and Natural Resources Office;48 Florida Coma who was once the barangay captain of Barangay Embarcadero and testified that Sitio or Purok Doot, Pelong belongs to Barangay Embarcadero, while Botong belongs to Barangay Doyos;49 and Gaudiosa Tolentino who testified on the creation of barangays Embarcadero and Doyos as well as the existing sitios.50 Petitioner, for his part, admitted that he had made changes on the tax declarations. He however justified the changes, stating that they were the result of the general revision made in 1978. He also claimed that as municipal assessor, he has absolute authority to determine the barangay to which a particular property belongs. He further asserted that the prosecution failed to cite any law that prohibits a municipal assessor from making revisions on (a) the location of the property according to barangay; (b) the names of the adjoining owner; or (c) the boundaries of the property. Petitioner likewise insisted that the case is civil and not criminal in nature.51 Petitioner filed a Motion for Leave to file Demurrer to Evidence52 dated June 25, 2003. However, the trial court denied the motion in its Order53 dated August 1, 2003. After the parties rested their respective cases, the RTC, on April 29, 2004, rendered a decision54 convicting petitioner of violating Section 3(e) of R.A. 3019. The fallo reads: WHEREFORE, premises considered, this Court finds DEMIE URIARTE Y LIMGUANGCO, Municipal Assessor of Carrascal, Surigao del Sur, GUILTY BEYOND REASONABLE DOUBT as principal for violation of Section 3, paragraph (e) of Republic Act 3019, as amended, otherwise known as the Anti-Graft and Corrupt Practices Act and applying the Indeterminate Sentence Law, this Court imposes upon the accused the penalty of imprisonment ranging from SIX (6) YEARS and ONE (1) MONTH to TEN (10) YEARS and ONE (1) DAY; perpetual disqualification from holding public office and forfeiture of all retirement benefits or gratuity benefits under any law and in the event that such convicted officer, who may have already been separated from the service, has already received such benefits shall be liable to restitute the same to the government. Page 202 of 327

Tax 2 Cases for FE The bail bond put up by the accused for his temporary liberty is ordered cancelled. Accused shall serve his sentence at the Davao Prison and Penal Farm, Panabo City, Davao del Norte pursuant to Circular No. 63-97 of the Supreme Court dated October 6, 1997. To pay the cost. SO ORDERED.55 On April 29, 2004, petitioner filed a Notice of Appeal56 to the Court of Appeals (CA), which was later withdrawn.57 On May 6, 2004, petitioner filed a Notice of Appeal58 before the Sandiganbayan on the following grounds: I. THE TRIAL COURT ERRED IN CONVICTING DEMIE L. URIARTE FOR VIOLATION OF SEC. 3(E) OF R.A. 3019 UNDER THE INFORMATION THAT DOES NOT CHARGED (SIC) SUCH AN OFFENSE. II. EVEN ASSUMING FOR THE SAKE OF ARGUMENT (THAT) THE INFORMATION CHARGES THE OFFENSE OF VIOLATION OF SEC. 3 (E) OF R.A. 3019, STILL, THE TRIAL COURT COMMITTED GRAVE AND REVERSIBLE ERROR IN CONVICTING THE ACCUSED BASED ON FACTS NOT ALLEGED IN THE INFORMATION AND NOT SUPPORTED BY EVIDENCE. III. ASSUMING FURTHER THAT THE INFORMATION CHARGED VIOLATION OF SEC. 3 (E) OF R.A. 3019, AGAIN, THE TRIAL COURT SERIOUSLY ERRED AND ACTED WITH GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR IN EXCESS OF JURISDICTION IN CONVICTING THE ACCUSED NOTWITHSTANDING THE FAILURE OF THE PROSECUTION TO SPECIFY, QUANTIFY AND PROVE THE ELEMENT OF "UNDUE INJURY" PURSUANT TO THE RULING OF THE SUPREME COURT IN LLORENTE V. SANDIGANAYAN (SIC) [G.R. NO. 122166. MARCH 11, 1998]. IV. THE TRIAL COURT ERRED IN NOT ACQUITTING THE ACCUSED FOR FAILURE OF THE PROSECUTION TO PRESENT CLEAR AND CONVINCING EVIDENCE TO OVERCOME THE LEGAL PRESUMPTION OF REGULARITY IN THE PERFORMANCE OF HIS OFFICIAL DUTIES AND FUNCTIONS AS MUNICIPAL ASSESSOR.59 Petitioner averred that the prosecution failed to allege in the information any prohibited act which he had committed in the performance of his official duties or in relation to his public position. He further averred that no mention was made of the injury caused to any party, which is essential in a charge under Section 3(e), R.A. 3019; this violated his constitutional right to be informed of the accusation against him.60 Petitioner also claimed that the RTC erred in concluding that he had intended to dispossess private complainant of their property, since this was not alleged in the information.61 He pointed out that private complainant could not prove, much less impute, any Page 203 of 327

Tax 2 Cases for FE undue injury because the original entries in the tax declarations had already been restored. He also invoked the presumption of regularity in the performance of his official function as an additional ground. On April 15, 2005, the Sandiganbayan affirmed with modification the decision of the RTC.62 The fallo reads: WHEREFORE, in the light of all the foregoing, this Court hereby finds no cogent reason to disturb or reverse, and therefore AFFIRMS, the findings and conclusion of the trial court, with modification of the imposable penalty, such that the accused is hereby sentenced to suffer the penalty of imprisonment ranging from SIX (6) YEARS and ONE (1) MONTH to TEN (10) YEARS and ONE (1) DAY and perpetual disqualification from holding public office. The clause "and forfeiture of all retirement benefits or gratuity benefits under any law and in the event that such convicted officer, who may have already been separated from the service, has already received such benefits shall be liable to restitute the same to the government" is hereby ordered deleted. SO ORDERED.63 The anti-graft court held that all the elements of violation of the offense had been alleged in the information; the allegation that the appellant willfully changed the location and boundaries of the subject properties was the prohibited act, while the element of undue injury was alleged in the phrase "to the damage and prejudice of the said heirs." The facts that had not been alleged in the information were evidentiary matters. As to the prosecution's alleged failure to specify the element of undue injury, the anti-graft court held that the injury caused by petitioner was not in terms of money but, on the part of private complainant, the deprivation of three-fourths of her property. Lastly, the court held that under the General Instructions Governing the Conduct and Procedures in the General Revision of Real Property Assessment,64 the municipal assessor had no discretion to change the entries in tax declarations. Moreover, the failure of petitioner to notify Joventino Correos of the changes in the entries defies the provision therein that owners should participate in the revision. Lastly, the presumption of regularity has been overcome by petitioner's unilateral act of restoring the original boundaries and location of the property owned by Joventino Correos. Petitioner comes before this Court on the following issues: I. CAN AN ACCUSED BE CONVICTED UNDER AN INFORMATION THAT CHARGES AN OFFENSE WHICH THE COURT ADMITTED THE PROSECUTION FAILED TO PROVE AS A VIOLATION OF ANY LAW? II. CAN AN ACCUSED BE CONVICTED OF VIOLATION OF SEC. 3 (E) OF R.A. 3019 BASED ON CONCLUSION OF FACTS MADE BY THE TRIAL COURT THAT HE COMMITTED LANDGRABBING AND/OR DISPOSSESSING THE COMPLAINANT OF HER PROPERTY, WHICH OFFENSES WERE NOT CHARGED IN THE INFORMATION?65 The resolution of the issues raised by petitioner hinges on the interpretation of the elements of the crime of violation of Section 3(e), R.A. 3019, in relation to the facts alleged in the information and those proven during trial. The provision reads:

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Tax 2 Cases for FE Section 3. Corrupt practices of public officers. In addition to acts or omissions of public officers already penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful. xxxx (e) Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence. This provision shall apply to officers and employees of offices or government corporations charged with the grant of licenses or permits or other concessions. The essential elements of this crime have been enumerated in several cases66 decided by this Court, as follows: 1. The accused must be a public officer discharging administrative, judicial or official functions; 2. He must have acted with manifest partiality, evident bad faith or inexcusable negligence; and 3. That his action caused any undue injury to any party, including the government, or giving any private party unwarranted benefits, advantage or preference in the discharge of his functions. A perusal of the Information filed against petitioner shows that all these elements were sufficiently alleged, as correctly ruled upon by both the RTC and Sandiganbayan. The accusatory portion of the Information reads: That in 1993, and sometime prior or subsequent thereto, at the Municipality of Carrascal, Surigao del Sur, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused DEMIE L. URIARTE, a public officer being the Municipal Assessor of Carrascal, Surigao del Sur, while in the performance of his official functions, committing the offense in relation to office, taking advantage of his position, acting with evident bad faith and manifest partiality, did then and there willfully, unlawfully, and feloniously cause the change of the location and boundaries of the property of one Joventino Correos as indicated in Tax Declaration (TD) Nos. 121 and 132 despite knowing fully well that in the previously issued TD Nos. 3352 and 5249, of the same property state different location and boundaries and also, cause the change of the location and boundaries of the property of his own father, Antioco Uriarte, particularly, to make it appear that the property is adjacent to the property of Joventino Correos, in order to favor his own interest being an heir of Antioco Uriarte and occupant of the land subject of the application of the heirs of Joventino Correos, to the damage and prejudice of the said heirs. CONTRARY TO LAW.67 Section 3(e) of R.A. 3019 may be committed either by dolo, as when the accused acted with evident bad faith or manifest partiality, or by culpa as when the accused committed gross inexcusable negligence. There is "manifest partiality" when there is a clear, notorious or plain inclination or Page 205 of 327

Tax 2 Cases for FE predilection to favor one side or person rather than another.68 "Evident bad faith" connotes not only bad judgment but also palpably and patently fraudulent and dishonest purpose to do moral obliquity or conscious wrongdoing for some perverse motive or ill will.69 It contemplates a state of mind affirmatively operating with furtive design or with some motive or self-interest or ill will or for ulterior purposes.70 "Gross inexcusable negligence" refers to negligence characterized by the want of even the slightest care, acting or omitting to act in a situation where there is a duty to act, not inadvertently but willfully and intentionally, with conscious indifference to consequences insofar as other persons may be affected.71 From the evidence adduced by the parties, petitioner indeed acted with evident bad faith in making the alteration on the entries in the tax declarations of both Joventino Correos and Antioco Uriarte. The fact of alteration is shown not only in the tax declarations presented in evidence; petitioner also admitted that he made the alterations himself. Petitioner even attempted to justify his act by stating that such changes were made pursuant to the General Instructions issued in 1978 for the general revision of tax declarations, and that he was authorized to make the alterations because municipal assessors were mandated to identify the properties according to the barangay where the property is located. Petitioner likewise justified his act of changing the boundaries of the property covered by the tax declarations of Joventino and Antioco because of the alleged instruction that the boundaries should be designated using the name of the landowner. Paragraph 28 of the General Instructions Governing the Conduct and Procedures in the General Revision of Real Property Assessments72 provides: 28) The boundaries which will appear in the field sheets shall be the name of persons, streets, rivers or natural boundaries adjoining the property subject of revision. The technical descriptions of the land to be revised should not be written down on the field sheets, not only to follow the prescribed form but also to avoid additional or unnecessary typing costs. Tax declarations are issued for taxation purposes and they are not titles to lands. In case boundary conflict arises, the parties can refer to the titles.73 Thus, contrary to petitioner's contention that the boundaries should be designated only according to the names of persons, the provision clearly allows the streets, rivers, and natural boundaries of the property to be placed on the tax declarations. Petitioner was aware of the consequences of altering the entries in the tax declarations, particularly in the untitled properties. Petitioner's bad faith is further strengthened by the fact that he did not inform Joventino Correos or the private complainant of the alterations, including his act of restoring the original entries in the tax declarations. Assuming for the sake of argument that he was not motivated by ill will but merely committed a mistake in the interpretation of the wording of the Instructions, petitioner's act is nevertheless unjustified. We cannot fathom why a municipal assessor would think that the boundaries of a particular property should only be designated by persons' names. Even one of ordinary intelligence would know that a property may be bounded by a street, a river, or a mountain. In any event, therefore, petitioner may still be considered guilty of inexcusable negligence. Petitioner contends that due to the prosecution's failure to cite any law that prohibits the municipal assessor from altering tax declarations, the presumption is that he regularly performed his official duties. However, the very Instructions petitioner relies upon to justify his acts outlines the limitations on the authority of municipal assessors to revise tax declarations. Paragrah 27 provides: 27) Utmost care should be taken that the full christian and surname appearing in the existing 1978 tax declaration must exactly be the same christian and surname which Page 206 of 327

Tax 2 Cases for FE has to be carried forward to the field sheets. For obvious reasons, no transfer or change of ownership of real property be made by assessors or appraisers in the process of general revision. The primary purpose of general revision is not to transfer or change ownership of property from one person to another during the period of revision but to update or upgrade property values for real property taxation purposes. However, real property declared for the first time shall be appraised and assessed for taxation purposes. Lands declared for the first time shall be accepted provided the declaration is supported by corresponding certification of the Bureau of Forest Development and the Bureau of Lands that the land so declared is in the alienable or disposable area (emphasis supplied). The third element provides for the modalities in which the crime may be committed, namely: (a) by causing undue injury to any party, including the Government; or (b) by giving any private party any unwarranted benefit, advantage or preference.74 The use of the disjunctive term "or" connotes that either act qualifies as a violation of Sec. 3, par. (e), or as aptly held in Santiago v. Garchitorena,75 as two (2) different modes of committing the offense. This does not, however, indicate that each mode constitutes a distinct offense, rather, that an accused may be charged under either mode or under both. We affirm the Sandiganbayan's finding that there was substantial compliance with the requirement. The wording of the information shows that petitioner, in willfully changing the boundaries of the tax declarations of Joventino Correos and Antioco Uriarte, both caused undue injury to private complainant and gave himself and his father unwarranted benefit. In jurisprudence,76 "undue injury" is consistently interpreted as "actual damage." Undue has been defined as more than necessary, not proper, or illegal; and injury as any wrong or damage done to another, either in his person, rights, reputation or property, that is, the invasion of any legally protected interest of another. On the other hand, in Gallego v. Sandiganbayan,77 the Court ruled that unwarranted means lacking adequate or official support; unjustified; unauthorized; or without justification or adequate reasons. Advantage means a more favorable or improved position or condition; benefit or gain of any kind; benefit from course of action. Preference signifies priority or higher evaluation or desirability; choice or estimation above another.78 From the foregoing definitions, petitioner's act of altering the boundaries of the property in question as stated in the tax declaration clearly falls under the very act punishable by Section 3(e), R.A. 3019. It bears stressing that it is beyond the power of this Court to settle the issue of who, between petitioner and private complainant, has the better right to own and possess the subject property. This Court has no jurisdiction over the issue, and the evidence presented is not sufficient to make a definite determination of ownership. Suffice it to state that the alteration of the entries in the subject tax declarations, especially on the boundaries of the property, caused undue injury to private complainant as an heir of Joventino Correos. The alteration substantially changed the identity of the property. Considering that the property in question was not titled and no survey had yet been conducted to settle the actual areas and boundaries of the properties, the tax declarations constitute important evidence of the declarant's possession and ownership, though not conclusive. Indeed, the alterations made by petitioner are too substantial to ignore. It was made to appear that petitioner's property is between the Carrascal River and that of the private complainant. In the original tax declaration, no such property existed. The new entries in effect "lessened" the area of private complainant's property, which would have been evident had the lot been surveyed. Moreover, the deletion of the entry "Maximo Leva" in the south boundary of Joventino Correos' property was also prejudicial, since this alteration had the effect of deleting the property entirely. Page 207 of 327

Tax 2 Cases for FE Petitioner in fact admitted that while he declared that the subject property was in the name of Joventino Correos, he was in possession thereof; he later stated that the property in his possession was declared for taxation in the name of his father.79 From this testimony, it can be inferred that the identities of the properties in his possession, the lot in his father's name and that declared under Joventino Correos' name, are not certain. While tax declarations are indicia of a valid claim of ownership, they do not constitute conclusive evidence thereof. They are prima facie proofs of ownership or possession of the property for which such taxes have been paid. Coupled with proof of actual possession of the property, however, they may become the basis of a claim for ownership.80 Moreover, a person who claims ownership of real property is duty bound to clearly identify the land being claimed in accordance with the document on which he anchors his right of ownership. Proof of ownership together with identity of the land is the basic rule.81 It must be stressed that the alterations made by petitioner compromised the identity of the private complainant's property. The fact that petitioner restored the original entries in the tax declarations is of no moment; restoration of the entries in the tax declaration is not one of those enumerated under Article 89 of the Revised Penal Code82 as one of the ways by which to extinguish criminal liability. Article 89 of the Revised Penal Code applies in a suppletory character as provided for under Article 1083 of the same Code.84 Lastly, petitioner avers that he cannot be convicted on the basis of the court's conclusion of landgrabbing and dispossession as no such facts have been alleged in the information. We do not agree. It is evident from the decisions of both the RTC and the Sandiganbayan that petitioner was charged and convicted of violating Section 3(e), R.A. 3019; he was not civilly held liable for dispossession of property or eviction. The anti-graft court correctly held that the finding of the RTC"that there was hidden intention on the part of the petitioner to grab and dispossess private complainant from their property"was merely descriptive of how petitioner acted with evident bad faith. There was thus no need for this matter to be alleged in the information. It bears stressing that an information needs only to allege the acts or omissions complained of as constituting the offense.85 It must state only the relevant facts, since the reason therefor could be proved during the trial.86 Thus, an allegation of evident bad faith on the part of petitioner is sufficient. The trial court correctly found that petitioner's hidden intention to grab the land of private complainant is a manifestation of evident bad faith, which need not be further alleged in the information. The penalty for violation of Section 3(e) of R.A. 3019 is provided for in Section 9 of the law: SECTION 9. Penalties for violations (a) Any public officer or private person committing any of the unlawful acts or omission enumerated in Sections 3, 4, 5 and 6 of this Act shall be punished with imprisonment for not less than six years and one month nor more than fifteen years, perpetual disqualification from public office, and confiscation or forfeiture in favor of the Government of any prohibited interest and unexplained wealth manifestly out of proportion to his salary and other lawful income. Under the Indeterminate Sentence Law, if the offense is punished by special law, as in the present case, an indeterminate penalty shall be imposed on the accused, the maximum term of which shall not exceed the maximum fixed by the law, and the minimum not less than the minimum prescribed therein. Page 208 of 327

Tax 2 Cases for FE In view of the circumstances obtaining in the instant case, the Sandiganbayan correctly imposed the indeterminate prison term of six (6) years and one (1) month, as minimum, to ten (10) years and one (1) day, as maximum, with perpetual disqualification from public office. IN LIGHT OF ALL THE FOREGOING, the petition is hereby DENIED for lack of merit. The Decision of the Sandiganbayan dated March 21, 2005 is AFFIRMED. SO ORDERED. Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and Chico-Nazario, JJ., concur. Panganiban, C.J., retired as of December 7, 2006.

Footnotes
1

Penned by Associate JusticeTeresita V. Diaz-Baldos, with Associate Justices Roland B. Jurado and Ma. Cristina Cortez-Estrada (Chairman), concurring; rollo, pp. 39-53.
2

Rollo, pp. 72-77. Penned by Presiding Judge Romeo C. Buenaflor; rollo, pp. 54-71. Exh. "G"; records, p. 385. Exh. "Q"; id. at 387. Exh. "A"; id. at 388. Exh. "B"; id. at 389. Exh. "C"; id. at 391. Exh. "O"; id. at 392. Exh. "P"; id. at 394. Exh. "F"; id. at 395. Exh. "H"; id. at 396. Exh. "I"; id. at 397. The "new entries" are as follows: In the south, to "Pantaleon Cervantes"; in the east, to "Pelong Brook"; and in the west, where the entry "Carrascal River" was deleted. The entry pertaining to the location of the property was likewise changed to "Doot Pelong."

10

11

12

13

14

15

Exh. "J"; id. at 398. Page 209 of 327

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Exh. "K"; id. at 399. Exh. "D"; id. at 402. Exh. "E"; id. at 403. Exh. "11"; id. at 416. Id. at 24-26. Id. at 33. Id. at 35-37. Id. at 40-43. Id. at 68-70. Id. at 1-2. The case was docketed as Crim. Case No. C-232. Id. at 15. Id. at 85-88. Id. at 86. Id. at 89. Id. at 138-140. Id. at 143. Id. at 156-159. 371 Phil 1, 16 (1999). Records, pp. 185-186. Id. at 189-190. G.R. Nos. 105965-70, March 20, 2001, 354 SCRA 651. Records, pp. 274-275. Id. at 331. Id. at 287-291.

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

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41

Id. at 348-349. TSN, December 3, 2002, p. 3. TSN, December 4, 2003, p. 19. TSN, February 13, 2003, p. 2. TSN, February 13, 2003, p. 7. Id. at 26. Id. TSN, October 8, 2003, p. 2. Id. at 16. TSN, December 4, 2003, p. 2. Rollo, p. 65. Records, pp. 456-466. Id. at 480. Supra note 3. Rollo, pp. 70-71. Records, pp. 656-658. Id. at 661-666. Id. at 667-669. Sandiganbayan rollo, pp. 61-62. Id. at 83-84. Sandiganbayan rollo, p. 89. Supra note 1. Rollo, p. 52. Records, pp. 504-510. Rollo, p. 20.

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

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66

Santos v. People, G.R. No. 161877, March 23, 2006, 485 SCRA 185, 194; Cabrera v. Sandiganbayan, G.R. Nos. 162314-17, October 25, 2004, 441 SCRA 377, 386; and Jacinto v. Sandiganbayan, G.R. No. 84571, October 2, 1989, 178 SCRA 254, 259.
67

Records, p. 1.

68

Alvizo v. Sandiganbayan, 454 Phil. 34, 72 (2003), citing webster, third new international dictionary 1646 and bouvier's law dictionary, 3rd ed., p. 2083.
69

Sistoza v. Desierto, 437 Phil. 117, 132 (2002), citing Llorente, Jr. v. Sandiganbayan, 350 Phil. 820, 843 (1998).
70

Air France vs. Carrascoso, 124 Phil 722, 737 (1966), cited in Alvizo v. Sandiganbayan, supra, at 344.
71

Sistoza v. Desierto, supra note 69, at 326, citing De la Victoria v. Mongaya, 404 Phil. 609, 619 (2001).
72

Supra note 64. Records, p. 507. Cabrera v. Sandiganbayan, supra note 66, at 386. G.R. No. 109266, December 2, 1993, 228 SCRA 214, 222.

73

74

75

76

Cabrera v. Sandiganbayan, supra, at 390; Llorente, Jr. v. Sandiganbayan, supra note 69, at 399.
77

201 Phil 379, 384. Cabrera v. Sandiganbayan, supra, at 389-390.

78

79

COURT: You said you declared this property in the name of Joventino Correos in tax declaration 338, when was that? A: May 24, 1999. Q: You declared this after a request from the complainant that you will rectify the erroneous boundary of the tax declaration? A: Yes, sir. Q: And why did you say nor (sic) that you are in the possession of the property? A: We are in the possession of the property. Q: Do I understand from you while you declare this property in the name of Joventino Correos, you are in the possession of the property? Page 212 of 327

Tax 2 Cases for FE A: Yes, your Honor. COURT: Proceed Q: Mr. witness, you said you are in the possession of the property that was subject of the complaint alleged complaint (sic) of Evelyn Correos Arpilleda before the Barangay captain, do you have with you the tax declaration of that property? A: Yes sir. Q: And whose name? A: My father, Antioco Uriarte. x x x (TSN, December 5, 2003, pp. 47-48).
80

De la Cruz v. Court of Appeals, G.R. No. 127593, September 30, 2003, 412 SCRA 282, 292.
81

Id. at at 290; Gesmundo v. Court of Appeals, 378 Phil 1099 (1999).

82

ART. 89. How criminal liability is totally extinguished. Criminal liability is totally extinguished: 1. By the death of the convict, as to the personal penalties; and as to pecuniary penalties, liability therefore is extinguished only when the death of the offender occurs before final judgment. 2. By service of the sentence. 3. By amnesty, which completely extinguishes the penalty and all its effects. 4. By absolute pardon. 5. By prescription of the crime. 6. By prescription of the penalty. 7. By the marriage of the offended woman, as provided in article 344 of this Code.
83

ART. 10. Offenses not subject to the provisions of this Code. Offenses which are or in the future may be punishable under special laws are not subject to the provisions of this Code. This Code shall be supplementary to such laws, unless the latter should specially provide the contrary.
84

Cruz v. Sandiganbayan, G.R. No. 134493, August 16, 2005, 467 SCRA 52. Id. at 64. Page 213 of 327

85

Tax 2 Cases for FE

86

Cabrera v. Sandiganbayan, supra note 66, at 384.

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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 155650 July 20, 2006 MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF APPEALS, CITY OF PARAAQUE, CITY MAYOR OF PARAAQUE, SANGGUNIANG PANGLUNGSOD NG PARAAQUE, CITY ASSESSOR OF PARAAQUE, and CITY TREASURER OF PARAAQUE, respondents. DECISION CARPIO, J.: The Antecedents Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter. As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land,3 including the runways and buildings ("Airport Lands and Buildings") then under 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. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already due. On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows: TAX DECLARATION TAXABLE YEAR TAX DUE PENALTY TOTAL Page 215 of 327

Tax 2 Cases for FE

E-016-01370 E-016-01374 E-016-01375 E-016-01376 E-016-01377 E-016-01378 E-016-01379 E-016-01380 *E-016-013-85 *E-016-01387 *E-016-01396 GRAND TOTAL

1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1998-2001 1998-2001 1998-2001

19,558,160.00 111,689,424.90 20,276,058.00 58,144,028.00 18,134,614.65 111,107,950.40 4,322,340.00 7,776,436.00 6,444,810.00 34,876,800.00 75,240.00 P392,435,861.95

11,201,083.20 68,149,479.59 12,371,832.00 35,477,712.00 11,065,188.59 67,794,681.59 2,637,360.00 4,744,944.00 2,900,164.50 5,694,560.00 33,858.00 P232,070,863.47

30,789,243.20 179,838,904.49 32,647,890.00 93,621,740.00 29,199,803.24 178,902,631.99 6,959,700.00 12,521,380.00 9,344,974.50 50,571,360.00 109,098.00 P 624,506,725.42

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 Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque 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 Paraaque 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 Paraaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaque 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 Paraaque City. Page 216 of 327

Tax 2 Cases for FE 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 Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City Assessor of Paraaque ("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 Paraaque, 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 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 "government-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 Page 217 of 327

Tax 2 Cases for FE issued by the City of Paraaque, 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

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Tax 2 Cases for FE 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 percentum (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 mandates 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 governmentowned 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 Page 219 of 327

Tax 2 Cases for FE 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 underscoring 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.:

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Tax 2 Cases for FE 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 taxliability 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 Page 221 of 327

Tax 2 Cases for FE 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

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Tax 2 Cases for FE 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.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: xxx 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 Page 223 of 327

Tax 2 Cases for FE 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 Paraaque can foreclose and compel the auction sale of the 600hectare 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 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,"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 underscoring 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: 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)

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Tax 2 Cases for FE 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 Authority. 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) Page 225 of 327

Tax 2 Cases for FE 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: 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 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 Page 226 of 327

Tax 2 Cases for FE 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 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 Page 227 of 327

Tax 2 Cases for FE 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 underscoring 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 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:

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Tax 2 Cases for FE 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 Development 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. Page 229 of 327

Tax 2 Cases for FE 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 Section 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) 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 presenteda 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.

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Tax 2 Cases for FE 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 exception 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 "governmentowned 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 corporation." 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:

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Tax 2 Cases for FE 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 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

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Tax 2 Cases for FE 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 underscoring 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.

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Tax 2 Cases for FE 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.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 "government-owned 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 Page 234 of 327

Tax 2 Cases for FE 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; 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 governmentowned 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 Page 235 of 327

Tax 2 Cases for FE 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 "government-owned 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 nonstock 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: 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 Page 236 of 327

Tax 2 Cases for FE 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 Paraaque. 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 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 Paraaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Paraaque 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. Panganiban, C.J., Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, Carpio Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario, Garcia, Velasco, Jr., J.J., concur.

x-------------------------------------------------------------------------------x DISSENTING OPINION TINGA, J. : The legally correct resolution of this petition would have had the added benefit of an utterly fair and equitable result a recognition of the constitutional and statutory power of the City of Paraaque to impose real property taxes on the Manila International Airport Authority (MIAA), but at the same time, upholding a statutory limitation that prevents the City of Paraaque from seizing and conducting an execution sale over the real properties of MIAA. In the end, all that the City of Paraaque would hold over the MIAA is a limited lien, unenforceable as it is through the sale or disposition of MIAA properties. Not only is this the legal effect of all the relevant constitutional and statutory provisions applied to this case, it also leaves the room for negotiation for a mutually acceptable resolution between the City of Paraaque and MIAA. Instead, with blind but measured rage, the majority today veers wildly off-course, shattering statutes and judicial precedents left and right in order to protect the precious Ming vase that is the Manila International Airport Authority (MIAA). While the MIAA is left unscathed, it is surrounded by the Page 237 of 327

Tax 2 Cases for FE wreckage that once was the constitutional policy, duly enacted into law, that was local autonomy. Make no mistake, the majority has virtually declared war on the seventy nine (79) provinces, one hundred seventeen (117) cities, and one thousand five hundred (1,500) municipalities of the Philippines.1 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 enumerated below: 1) Mactan-Cebu International Airport Authority v. Hon. Marcos,2 the leading case penned in 1997 by recently retired Chief Justice Davide, which held that the express withdrawal by the Local Government Code of previously granted exemptions from realty taxes applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the Mactan-Cebu International Airport Authority (MCIAA). The majority invokes the ruling in Basco v. Pagcor,3 a precedent discredited in Mactan, and a vanguard of a doctrine so noxious to the concept of local government rule that the Local Government Code was drafted precisely to counter such philosophy. The efficacy of several rulings that expressly rely on Mactan, such as PHILRECA v. DILG Secretary,4 City Government of San Pablo v. Hon. Reyes5 is now put in question. 2) The rulings in National Power Corporation v. City of Cabanatuan,6 wherein the Court, through Justice Puno, declared that the National Power Corporation, a GOCC, is liable for franchise taxes under the Local Government Code, and succeeding cases that have relied on it such as Batangas Power Corp. v. Batangas City7 The majority now states that deems instrumentalities as defined under the Administrative Code of 1987 as purportedly beyond the reach of any form of taxation by LGUs, stating "[l]ocal governments are devoid of power to tax the national government, its agencies and instrumentalities."8 Unfortunately, using the definition employed by the majority, as provided by Section 2(d) of the Administrative Code, GOCCs are also considered as instrumentalities, thus leading to the astounding conclusion that GOCCs may not be taxed by LGUs under the Local Government Code. 3) Lung Center of the Philippines v. Quezon City,9 wherein a unanimous en banc Court held that the Lung Center of the Philippines may be liable for real property taxes. Using the majority's reasoning, the Lung Center would be properly classified as an instrumentality which the majority now holds as exempt from all forms of local taxation.10 4) City of Davao v. RTC,11 where the Court held that the Government Service Insurance System (GSIS) was liable for real property taxes for the years 1992 to 1994, its previous exemption having been withdrawn by the enactment of the Local Government Code.12 This decision, which expressly relied on Mactan, would be directly though silently overruled by the majority. 5) The common essence of the Court's rulings in the two Philippine Ports Authority v. City of Iloilo,13 cases penned by Justices Callejo and Azcuna respectively, which relied in part on Mactan in holding the Philippine Ports Authority (PPA) liable for realty taxes, notwithstanding the fact that it is a GOCC. Page 238 of 327

Tax 2 Cases for FE Based on the reasoning of the majority, the PPA cannot be considered a GOCC. The reliance of these cases on Mactan, and its rationale for holding governmental entities like the PPA liable for local government taxation is mooted by the majority. 6) The 1963 precedent of Social Security System Employees Association v. Soriano,14 which declared the Social Security Commission (SSC) as a GOCC performing proprietary functions. Based on the rationale employed by the majority, the Social Security System is not a GOCC. Or perhaps more accurately, "no longer" a GOCC. 7) The decision penned by Justice (now Chief Justice) Panganiban, Light Rail Transit Authority v. Central Board of Assessment.15 The characterization therein of the Light Rail Transit Authority (LRTA) as a "service-oriented commercial endeavor" whose patrimonial property is subject to local taxation is now rendered inconsequential, owing to the majority's thinking that an entity such as the LRTA is itself exempt from local government taxation16, irrespective of the functions it performs. Moreover, based on the majority's criteria, LRTA is not a GOCC. 8) The cases of Teodoro v. National Airports Corporation17 and Civil Aeronautics Administration v. Court of Appeals.18 wherein the Court held that the predecessor agency of the MIAA, which was similarly engaged in the operation, administration and management of the Manila International Agency, was engaged in the exercise of proprietary, as opposed to sovereign functions. The majority would hold otherwise that the property maintained by MIAA is actually patrimonial, thus implying that MIAA is actually engaged in sovereign functions. 9) My own majority in Phividec Industrial Authority v. Capitol Steel,19 wherein the Court held that the Phividec Industrial Authority, a GOCC, was required to secure the services of the Office of the Government Corporate Counsel for legal representation.20 Based on the reasoning of the majority, Phividec would not be a GOCC, and the mandate of the Office of the Government Corporate Counsel extends only to GOCCs. 10) Two decisions promulgated by the Court just last month (June 2006), National Power Corporation v. Province of Isabela21 and GSIS v. City Assessor of Iloilo City.22 In the former, the Court pronounced that "[a]lthough as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, this rule admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities." Yet the majority now rules that the exceptions in the LGC no longer hold, since "local governments are devoid of power to tax the national government, its agencies and instrumentalities."23 The ruling in the latter case, which held the GSIS as liable for real property taxes, is now put in jeopardy by the majority's ruling. 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 191624). 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. I. Case Should Have Been Decided Page 239 of 327

Tax 2 Cases for FE Following Mactan Precedent The core issue in this case, whether the MIAA is liable to the City of Paraaque for real property taxes under the Local Government Code, has already been decided by this Court in the Mactan case, and should have been resolved by simply applying precedent. Mactan Explained A brief recall of the Mactan case is in order. The Mactan-Cebu International Airport Authority (MCIAA) claimed that it was exempt from payment of real property taxes to the City of Cebu, invoking the specific exemption granted in Section 14 of its charter, Republic Act No. 6958, and its status as an instrumentality of the government performing governmental functions.25 Particularly, MCIAA invoked Section 133 of the Local Government Code, precisely the same provision utilized by the majority as the basis for MIAA's exemption. Section 133 reads: 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: xxx (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units. (emphasis and underscoring supplied). However, the Court in Mactan noted that Section 133 qualified the exemption of the National Government, its agencies and instrumentalities from local taxation with the phrase "unless otherwise provided herein." It then considered the other relevant provisions of the Local Government Code, particularly the following: SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemption or incentives granted to, or enjoyed by all persons, whether natural or juridical, including government-owned and controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.26 SECTION 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not hereafter specifically exempted.27 SECTION 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: (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious charitable or educational purposes;

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Tax 2 Cases for FE (c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned and controlled corporations engaged in the distribution of water and/or generation and transmission of electric power; (d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and (e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.28 Clearly, Section 133 was not intended to be so absolute a prohibition on the power of LGUs to tax the National Government, its agencies and instrumentalities, as evidenced by these cited provisions which "otherwise provided." But what was the extent of the limitation under Section 133? This is how the Court, correctly to my mind, defined the parameters in Mactan: The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local government units and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions or provisos in these sections, as shown by the following clauses: (1) "unless otherwise provided herein" in the opening paragraph of Section 133; (2) "Unless otherwise provided in this Code" in Section 193; (3) "not hereafter specifically exempted" in Section 232; and (4) "Except as provided herein" in the last paragraph of Section 234 initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in Section 133 seems to be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the "herein" to mean, of course, the section, it should have used the clause "unless otherwise provided in this Code." The former results in absurdity since the section itself enumerates what are beyond the taxing powers of local government units and, where exceptions were intended, the exceptions are explicitly indicated in the next. For instance, in item (a) which excepts income taxes "when levied on banks and other financial institutions"; item (d) which excepts "wharfage on wharves constructed and maintained by the local government unit concerned"; and item (1) which excepts taxes, fees and charges for the registration and issuance of licenses or permits for the driving of "tricycles." It may also be observed that within the body itself of the section, there are exceptions which can be found only in other parts of the LGC, but the section interchangeably uses therein the clause, "except as otherwise provided herein" as in items (c) and (i), or the clause "except as provided in this Code" in item (j). These clauses would be obviously unnecessary or mere surplusages if the opening clause of the section were "Unless otherwise provided in this Code" instead of "Unless otherwise provided herein." In any event, even if the latter is used, since under Section 232 local government units have the power to levy real property tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify Section 133. Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in Section 133, the taxing powers of local government units cannot extend to the levy of, inter alia, "taxes, fees and charges of any kind on the National Government, its agencies and Page 241 of 327

Tax 2 Cases for FE instrumentalities, and local government units"; however, pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person," as provided in item (a) of the first paragraph of Section 234. As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234 which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the retention only to those enumerated therein; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as to real property owned by the Republic of the Philippines or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to a taxable person for consideration or otherwise. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified by Sections 232 and 234.29 The Court in Mactan acknowledged that under Section 133, instrumentalities were generally exempt from all forms of local government taxation, unless otherwise provided in the Code. On the other hand, Section 232 "otherwise provided" insofar as it allowed LGUs to levy an ad valorem real property tax, irrespective of who owned the property. At the same time, the imposition of real property taxes under Section 232 is in turn qualified by the phrase "not hereinafter specifically exempted." The exemptions from real property taxes are enumerated in Section 234, which specifically states that only real properties owned "by the Republic of the Philippines or any of its political subdivisions" are exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions under Section 234.30 Mactan Overturned the Precedents Now Relied Upon by the Majority But the petitioners in Mactan also raised the Court's ruling in Basco v. PAGCOR,31 decided before the enactment of the Local Government Code. The Court in Basco declared the PAGCOR as exempt from local taxes, justifying the exemption in this wise: Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of

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Tax 2 Cases for FE stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers xxx PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. "The states have no power by taxation or otherwise, to retard impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government." (McCulloch v. Marland, 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 activates 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.32 Basco is as strident a reiteration of the old guard view that frowned on the principle of local autonomy, especially as it interfered with the prerogatives and privileges of the national government. Also consider the following citation from Maceda v. Macaraig,33 decided the same year as Basco. Discussing the rule of construction of tax exemptions on government instrumentalities, the sentiments are of a similar vein. Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a government political subdivision or instrumentality. The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers. 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.

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Tax 2 Cases for FE In the case of property owned by the state or a city or other public corporations, the express exemption should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property "exemption is the rule and taxation the exception."34 Strikingly, the majority cites these two very cases and the stodgy rationale provided therein. This evinces the perspective from which the majority is coming from. It is admittedly a viewpoint once shared by this Court, and en vogue prior to the enactment of the Local Government Code of 1991. However, the Local Government Code of 1991 ushered in a new ethos on how the art of governance should be practiced in the Philippines, conceding greater powers once held in the private reserve of the national government to LGUs. The majority might have private qualms about the wisdom of the policy of local autonomy, but the members of the Court are not expected to substitute their personal biases for the legislative will, especially when the 1987 Constitution itself promotes the principle of local autonomy. Article II. Declaration of Principles and State Policies xxx Sec. 25. The State shall ensure the autonomy of local governments. Article X. Local Government xxx Sec. 2. The territorial and political subdivisions shall enjoy local autonomy. Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units. xxx Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. xxx The Court in Mactan recognized that a new day had dawned with the enactment of the 1987 Constitution and the Local Government Code of 1991. Thus, it expressly rejected the contention of the MCIAA that Basco was applicable to them. In doing so, the language of the Court was dramatic, if only to emphasize how monumental the shift in philosophy was with the enactment of the Local Government Code:

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Tax 2 Cases for FE Accordingly, the position taken by the [MCIAA] is untenable. Reliance on Basco v. Philippine Amusement and Gaming Corporation is unavailing since it was decided before the effectivity of the [Local Government Code]. Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.35 (emphasis supplied) The Court Has Repeatedly Reaffirmed Mactan Over the Precedents Now Relied Upon By the Majority Since then and until today, the Court has been emphatic in declaring the Basco doctrine as dead. The notion that instrumentalities may be subjected to local taxation by LGUs was again affirmed in National Power Corporation v. City of Cabanatuan,36 which was penned by Justice Puno. NPC or Napocor, invoking its continued exemption from payment of franchise taxes to the City of Cabanatuan, alleged that it was an instrumentality of the National Government which could not be taxed by a city government. To that end, Basco was cited by NPC. The Court had this to say about Basco. xxx[T]he doctrine in Basco vs. Philippine Amusement and Gaming Corporation relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos, nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real property tax.37 In the 2003 case of Philippine Ports Authority v. City of Iloilo,38 the Court, in the able ponencia of Justice Azcuna, affirmed the levy of realty taxes on the PPA. Although the taxes were assessed under the old Real Property Tax Code and not the Local Government Code, the Court again cited Mactan to refute PPA's invocation of Basco as the basis of its exemption. [Basco] did not absolutely prohibit local governments from taxing government instrumentalities. In fact we stated therein: The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since P.D. 1869 remains an "operative" law until "amended, repealed or revoked". . . its "exemption clause" remains an exemption to the exercise of the power of local governments to impose taxes and fees. Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos, where the Basco case was similarly invoked for tax exemption, we stated: "[N]othing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional Page 245 of 327

Tax 2 Cases for FE mandate and national policy, no one can doubt its wisdom." The fact that tax exemptions of government-owned or controlled corporations have been expressly withdrawn by the present Local Government Code clearly attests against petitioner's claim of absolute exemption of government instrumentalities from local taxation.39 Just last month, the Court in National Power Corporation v. Province of Isabela40 again rejected Basco in emphatic terms. Held the Court, through Justice Callejo, Sr.: Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the Court noted primarily that the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. It further explained that in enacting the LGC, Congress empowered the LGUs to impose certain taxes even on instrumentalities of the National Government.41 The taxability of the PPA recently came to fore in Philippine Ports Authority v. City of Iloilo 42 case, a decision also penned by Justice Callejo, Sr., wherein the Court affirmed the sale of PPA's properties at public auction for failure to pay realty taxes. The Court again reiterated that "it was the intention of Congress to withdraw the tax exemptions granted to or presently enjoyed by all persons, including government-owned or controlled corporations, upon the effectivity" of the Code.43 The Court in the second Public Ports Authority case likewise cited Mactan as providing the "raison d'etre for the withdrawal of the exemption," namely, "the State policy to ensure autonomy to local governments and the objective of the [Local Government Code] that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities. . . . "44 Last year, the Court, in City of Davao v. RTC,45 affirmed that the legislated exemption from real property taxes of the Government Service Insurance System (GSIS) was removed under the Local Government Code. Again, Mactan was relied upon as the governing precedent. The removal of the tax exemption stood even though the then GSIS law46 prohibited the removal of GSIS' tax exemptions unless the exemption was specifically repealed, "and a provision is enacted to substitute the declared policy of exemption from any and all taxes as an essential factor for the solvency of the fund."47 The Court, citing established doctrines in statutory construction and Duarte v. Dade48 ruled that such proscription on future legislation was itself prohibited, as "the legislature cannot bind a future legislature to a particular mode of repeal."49 And most recently, just less than one month ago, the Court, through Justice Corona in Government Service Insurance System v. City Assessor of Iloilo50 again affirmed that the Local Government Code removed the previous exemption from real property taxes of the GSIS. Again Mactan was cited as having "expressly withdrawn the [tax] exemption of the [GOCC].51 Clearly then, Mactan is not a stray or unique precedent, but the basis of a jurisprudential rule employed by the Court since its adoption, the doctrine therein consistent with the Local Government Code. Corollarily, Basco, the polar opposite of Mactan has been emphatically rejected and declared inconsistent with the Local Government Code. II. Majority, in Effectively Overturning Mactan, Refuses to Say Why Mactan Is Wrong

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Tax 2 Cases for FE The majority cites Basco in support. It does not cite Mactan, other than an incidental reference that it is relied upon by the respondents.52 However, the ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The majority provides for a wildly different interpretation of Section 133, 193 and 234 of the Local Government Code than that employed by the Court in Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as can be obviously deducted from the fact that both petitioners are airport authorities operating under similarly worded charters. And the fact that the majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda evinces an intent to go against the Court's jurisprudential trend adopting the philosophy of expanded local government rule under the Local Government Code. Before I dwell upon the numerous flaws of the majority, a brief comment is necessitated on the majority's studied murkiness vis--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. There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an airport. They are the owners of airport properties they respectively maintain and hold title over these properties in their name.53 These entities are both owned by the State, and denied by their respective charters the absolute right to dispose of their properties without prior approval elsewhere.54 Both of them are not empowered to obtain loans or encumber their properties without prior approval the prior approval of the President.55 III. Instrumentalities, Agencies And GOCCs Generally Liable for Real Property Tax

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Tax 2 Cases for FE I shall now proceed to demonstrate the errors in reasoning of the majority. A bulwark of my position lies with Mactan, which will further demonstrate why the majority has found it inconvenient to even grapple with the precedent that is Mactan in the first place. Mactan held that the prohibition on taxing the national government, its agencies and instrumentalities under Section 133 is qualified by Section 232 and Section 234, and accordingly, the only relevant exemption now applicable to these bodies is as provided under Section 234(o), or on "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." It should be noted that the express withdrawal of previously granted exemptions by the Local Government Code do not even make any distinction as to whether the exempt person is a governmental entity or not. As Sections 193 and 234 both state, the withdrawal applies to "all persons, including [GOCCs]", thus encompassing the two classes of persons recognized under our laws, natural persons56 and juridical persons.57 The fact that the Local Government Code mandates the withdrawal of previously granted exemptions evinces certain key points. If an entity was previously granted an express exemption from real property taxes in the first place, the obvious conclusion would be that such entity would ordinarily be liable for such taxes without the exemption. If such entities were already deemed exempt due to some overarching principle of law, then it would be a redundancy or surplusage to grant an exemption to an already exempt entity. This fact militates against the claim that MIAA is preternaturally exempt from realty taxes, since it required the enactment of an express exemption from such taxes in its charter. Amazingly, the majority all but ignores the disquisition in Mactan and asserts that government instrumentalities are not taxable persons unless they lease their properties to a taxable person. The general rule laid down in Section 232 is given short shrift. In arriving at this conclusion, several leaps in reasoning are committed. Majority's Flawed Definition of GOCCs. The majority takes pains to assert that the MIAA is not a GOCC, but rather an instrumentality. However, and quite grievously, the supposed foundation of this assertion is an adulteration. The majority gives the impression that a government instrumentality is a distinct concept from a government corporation.58 Most tellingly, the majority selectively cites a portion of Section 2(10) of the Administrative Code of 1987, as follows: 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. xxx59 (emphasis omitted) However, Section 2(10) of the Administrative Code, when read in full, makes an important clarification which the majority does not show. The portions omitted by the majority are highlighted below:

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Tax 2 Cases for FE (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. This term includes regulatory agencies, chartered institutions and government owned or controlled corporations.60 Since Section 2(10) makes reference to "agency of the National Government," Section 2(4) is also worth citing in full: (4) Agency of the Government refers to any of the various units of the Government, including a department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein. (emphasis supplied)61 Clearly then, 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? Indeed as far back as the 1927 case of Government of the Philippine Islands v. Springer,62 the Supreme Court already noted that a corporation of which the government is the majority stockholder "remains an agency or instrumentality of government."63 Ordinarily, 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. Majority Ignores the Power Of Congress to Legislate and Define Chartered Corporations First, the majority declares that, citing Section 2(13) of the Administrative Code, a GOCC must be "organized as a stock or non-stock corporation," as defined under the Corporation Code. To insist on this as an absolute rule fails on bare theory. Congress has the undeniable power to create a corporation by legislative charter, and has been doing so throughout legislative history. There is no constitutional prohibition on Congress as to what structure these chartered corporations should take on. Clearly, Congress has the prerogative to create a corporation in whatever form it chooses, and it is not bound by any traditional format. Even if there is a definition of what a corporation is under the Corporation Code or the Administrative Code, these laws are by no means sacrosanct. It should be remembered that these two statutes fall within the same level of hierarchy as a congressional charter, since they all are legislative enactments. Certainly, Congress can choose to disregard either the Corporation Code or the Administrative Code in defining the corporate structure of a GOCC, utilizing the same extent of legislative powers similarly vesting it the putative ability to amend or abolish the Corporation Code or the Administrative Code. Page 249 of 327

Tax 2 Cases for FE These principles are actually recognized by both the Administrative Code and the Corporation Code. The definition of GOCCs, agencies and instrumentalities under the Administrative Code are laid down in the section entitled "General Terms Defined," which qualifies: 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: (emphasis supplied) xxx Similar in vein is Section 6 of the Corporation Code which provides: SEC. 4. Corporations created by special laws or charters. Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable. (emphasis supplied) Thus, the clear doctrine emerges the law that governs the definition of a corporation or entity created by Congress is its legislative charter. If the legislative enactment defines an entity as a corporation, then it is a corporation, no matter if the Corporation Code or the Administrative Code seemingly provides otherwise. In case of conflict between the legislative charter of a government corporation, on one hand, and the Corporate Code and the Administrative Code, on the other, the former always prevails. Majority, in Ignoring the Legislative Charters, Effectively Classifies Duly Established GOCCs, With Disastrous and Far Reaching Legal Consequences Second, the majority claims that MIAA does not qualify either as a stock or non-stock corporation, as defined under the Corporation Code. It explains that the MIAA is not a stock corporation because it does not have any capital stock divided into shares. Neither can it be considered as a non-stock corporation because it has no members, and under Section 87, a non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees or officers. This formulation of course ignores Section 4 of the Corporation Code, which again provides that corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter, and not the Corporation Code. That the MIAA cannot be considered a stock corporation if only because it does not have a stock structure is hardly a plausible proposition. Indeed, there is no point in requiring a capital stock 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. Admittedly, there are GOCCs established in such a manner, such as the National Power Corporation (NPC), which is provided with authorized capital stock wholly subscribed and paid for by the Government of the Philippines, divided into shares but at the same time, is prohibited from Page 250 of 327

Tax 2 Cases for FE transferring, negotiating, pledging, mortgaging or otherwise giving these shares as security for payment of any obligation.64 However, based on the Corporation Code definition relied upon by the majority, even the NPC cannot be considered as a stock corporation. Under Section 3 of the Corporation Code, stock corporations are defined as being "authorized to distribute to the holders of its shares dividends or allotments of the surplus profits on the basis of the shares held."65 On the other hand, Section 13 of the NPC's charter states that "the Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for expansion."66 Can the holder of the shares of NPC, the National Government, receive its surplus profits on the basis of its shares held? It cannot, according to the NPC charter, and hence, following Section 3 of the Corporation Code, the NPC is not a stock corporation, if the majority is to be believed. The majority likewise claims that corporations without members cannot be deemed non-stock corporations. This would seemingly exclude entities such as the NPC, which like MIAA, has no ostensible members. Moreover, non-stock corporations cannot distribute any part of its income as dividends to its members, trustees or officers. The majority faults MIAA for remitting 20% of its gross operating income to the national government. How about the Philippine Health Insurance Corporation, created with the "status of a tax-exempt government corporation attached to the Department of Health" under Rep. Act No. 7875.67 It too cannot be considered as a stock corporation because it has no capital stock structure. But using the criteria of the majority, it is doubtful if it would pass muster as a non-stock corporation, since the PHIC or Philhealth, as it is commonly known, is expressly empowered "to collect, deposit, invest, administer and disburse" the National Health Insurance Fund.68 Or how about the Social Security System, which under its revised charter, Republic Act No. 8282, is denominated as a "corporate body."69 The SSS has no capital stock structure, but has capital comprised of contributions by its members, which are eventually remitted back to its members. Does this disqualify the SSS from classification as a GOCC, notwithstanding this Court's previous pronouncement in Social Security System Employees Association v. Soriano?70 In fact, Republic Act No. 7656, enacted in 1993, requires that all GOCCs, whether stock or nonstock,71 declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends to the National Government.72 But according to the majority, non-stock corporations are prohibited from declaring any part of its income as dividends. But if Republic Act No. 7656 requires even non-stock corporations to declare dividends from income, should it not follow that the prohibition against declaration of dividends by non-stock corporations under the Corporation Code does not apply to government-owned or controlled corporations? For if not, and the majority's illogic is pursued, Republic Act No. 7656, passed in 1993, would be fatally flawed, as it would contravene the Administrative Code of 1987 and the Corporation Code. In fact, the ruinous effects of the majority's hypothesis on the nature of GOCCs can be illustrated by Republic Act No. 7656. Following the majority's definition of a GOCC and in accordance with Republic Act No. 7656, here are but a few entities which are not obliged to remit fifty (50%) of its annual net earnings to the National Government as they are excluded from the scope of Republic Act No. 7656: 1) Philippine Ports Authority73 has no capital stock74, no members, and obliged to apply the balance of its income or revenue at the end of each year in a general reserve.75 2) Bases Conversion Development Authority76 - has no capital stock,77 no members. 3) Philippine Economic Zone Authority78 - no capital stock,79 no members.

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Tax 2 Cases for FE 4) Light Rail Transit Authority80 - no capital stock,81 no members. 5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no members, required to remit fifty percent (50%) of its net profits to the National Treasury.84 6) National Power Corporation85 - has capital stock but is prohibited from "distributing to the holders of its shares dividends or allotments of the surplus profits on the basis of the shares held;"86 no members. 7) Manila International Airport Authority no capital stock87, no members88, mandated to remit twenty percent (20%) of its annual gross operating income to the National Treasury.89 Thus, for the majority, the MIAA, among many others, cannot be considered as within the coverage of Republic Act No. 7656. Apparently, President Fidel V. Ramos disagreed. How else then could Executive Order No. 483, signed in 1998 by President Ramos, be explained? The issuance provides: WHEREAS, Section 1 of Republic Act No. 7656 provides that: "Section 1. Declaration of Policy. - It is hereby declared the policy of the State that in order for the National Government to realize additional revenues, government-owned and/or controlled corporations, without impairing their viability and the purposes for which they have been established, shall share a substantial amount of their net earnings to the National Government." WHEREAS, to support the viability and mandate of government-owned and/or controlled corporations [GOCCs], the liquidity, retained earnings position and medium-term plans and programs of these GOCCs were considered in the determination of the reasonable dividend rates of such corporations on their 1997 net earnings. WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance recommended the adjustment on the percentage of annual net earnings that shall be declared by the Manila International Airport Authority [MIAA] and Phividec Industrial Authority [PIA] in the interest of national economy and general welfare. NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by virtue of the powers vested in me by law, do hereby order: SECTION 1. The percentage of net earnings to be declared and remitted by the MIAA and PIA as dividends to the National Government as provided for under Section 3 of Republic Act No. 7656 is adjusted from at least fifty percent [50%] to the rates specified hereunder: 1. Manila International Airport Authority - 35% [cash] 2. Phividec Industrial Authority - 25% [cash] SECTION 2. The adjusted dividend rates provided for under Section 1 are only applicable on 1997 net earnings of the concerned government-owned and/or controlled corporations. Obviously, it was the opinion of President Ramos and the Secretary of Finance that MIAA is a GOCC, for how else could it have come under the coverage of Republic Act No. 7656, a law applicable only to GOCCs? But, the majority apparently disagrees, and resultantly holds that MIAA is not obliged to

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Tax 2 Cases for FE remit even the reduced rate of thirty five percent (35%) of its net earnings to the national government, since it cannot be covered by Republic Act No. 7656. All this mischief because the majority would declare the Administrative Code of 1987 and the Corporation Code as the sole sources of law defining what a government corporation is. As I stated earlier, I find it illogical that chartered corporations are compelled to comply with the templates of the Corporation Code, especially when the Corporation Code itself states that these corporations are to be governed by their own charters. This is especially true considering that the very provision cited by the majority, Section 87 of the Corporation Code, expressly says that the definition provided therein is laid down "for the purposes of this [Corporation] Code." Read in conjunction with Section 4 of the Corporation Code which mandates that corporations created by charter be governed by the law creating them, it is clear that contrary to the majority, MIAA is not disqualified from classification as a non-stock corporation by reason of Section 87, the provision not being applicable to corporations created by special laws or charters. In fact, I see no real impediment why the MIAA and similarly situated corporations such as the PHIC, the SSS, the Philippine Deposit Insurance Commission, or maybe even the NPC could at the very least, be deemed as no stock corporations (as differentiated from non-stock corporations). The point, stripped to bare simplicity, is that entity created by legislative enactment is a corporation if the legislature says so. After all, it is the legislature that dictates what a corporation is in the first place. This is better illustrated by another set of entities created before martial law. These include the Mindanao Development Authority,90 the Northern Samar Development Authority,91 the Ilocos Sur Development Authority,92 the Southeastern Samar Development Authority93 and the Mountain Province Development Authority.94 An examination of the first section of the statutes creating these entities reveal that they were established "to foster accelerated and balanced growth" of their respective regions, and towards such end, the charters commonly provide that "it is recognized that a government corporation should be created for the purpose," and accordingly, these charters "hereby created a body corporate."95 However, these corporations do not have capital stock nor members, and are obliged to return the unexpended balances of their appropriations and earnings to a revolving fund in the National Treasury. The majority effectively declassifies these entities as GOCCs, never mind the fact that their very charters declare them to be GOCCs. I mention these entities not to bring an element of obscurantism into the fray. I cite them as examples to emphasize my fundamental pointthat it is the legislative charters of these entities, and not the Administrative Code, which define the class of personality of these entities created by Congress. To adopt the view of the majority would be, in effect, to sanction an implied repeal of numerous congressional charters for the purpose of declassifying GOCCs. Certainly, this could not have been the intent of the crafters of the Administrative Code when they drafted the "Definition of Terms" incorporated therein. MIAA Is Without Doubt, A GOCC Following the charters of government corporations, there are two kinds of GOCCs, namely: GOCCs which are stock corporations and GOCCs which are no stock corporations (as distinguished from non-stock corporation). Stock GOCCs are simply those which have capital stock while no stock GOCCs are those which have no capital stock. Obviously these definitions are different from the definitions of the terms in the Corporation Code. Verily, GOCCs which are not incorporated with the Securities and Exchange Commission are not governed by the Corporation Code but by their respective charters. Page 253 of 327

Tax 2 Cases for FE For the MIAA's part, its charter is replete with provisions that indubitably classify it as a GOCC. Observe the following provisions from MIAA's charter: SECTION 3. Creation of the Manila International Airport Authority.There is hereby established a body corporate to be known as the Manila International Airport Authority which shall be attached to the Ministry of Transportation and Communications. The principal office of the Authority shall be located at the New Manila International Airport. The Authority may establish such offices, branches, agencies or subsidiaries as it may deem proper and necessary; Provided, That any subsidiary that may be organized shall have the prior approval of the President. 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. xxx SECTION 5. Functions, Powers, and Duties. The Authority shall have the following functions, powers and duties: xxx (d) To sue and be sued in its corporate name; (e) To adopt and use a corporate seal; (f) To succeed by its corporate name; (g) To adopt its by-laws, and to amend or repeal the same from time to time; (h) To execute or enter into contracts of any kind or nature; (i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein; (j) To exercise the power of eminent domain in the pursuit of its purposes and objectives; xxx (o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order. xxx SECTION 16. Borrowing Power. The Authority may, after consultation with the Minister of Finance and with the approval of the President of the Philippines, as recommended by the Minister of Transportation and Communications, raise funds, either from local or international sources, by way Page 254 of 327

Tax 2 Cases for FE of loans, credits or securities, and other borrowing instruments, with the power to create pledges, mortgages and other voluntary liens or encumbrances on any of its assets or properties. All loans contracted by the Authority under this Section, together with all interests and other sums payable in respect thereof, shall constitute a charge upon all the revenues and assets of the Authority and shall rank equally with one another, but shall have priority over any other claim or charge on the revenue and assets of the Authority: Provided, That this provision shall not be construed as a prohibition or restriction on the power of the Authority to create pledges, mortgages, and other voluntary liens or encumbrances on any assets or property of the Authority. Except as expressly authorized by the President of the Philippines the total outstanding indebtedness of the Authority in the principal amount, in local and foreign currency, shall not at any time exceed the net worth of the Authority at any given time. xxx The President or his duly authorized representative after consultation with the Minister of Finance may guarantee, in the name and on behalf of the Republic of the Philippines, the payment of the loans or other indebtedness of the Authority up to the amount herein authorized. These cited provisions establish the fitness of MIAA to be the subject of legal relations.96 MIAA under its charter may acquire and possess property, incur obligations, and bring civil or criminal actions. It has the power to contract in its own name, and to acquire title to real or personal property. It likewise may exercise a panoply of corporate powers and possesses all the trappings of corporate personality, such as a corporate name, a corporate seal and by-laws. All these are contained in MIAA's charter which, as conceded by the Corporation Code and even the Administrative Code, is the primary law that governs the definition and organization of the MIAA. In fact, MIAA itself believes that it is a GOCC represents itself as such. It said so itself in the very first paragraph of the present petition before this Court.97 So does, apparently, the Department of Budget and Management, which classifies MIAA as a "government owned & controlled corporation" on its internet website.98 There is also the matter of Executive Order No. 483, which evinces the belief of the then-president of the Philippines that MIAA is a GOCC. And the Court before had similarly characterized MIAA as a government-owned and controlled corporation in the earlier MIAA case, Manila International Airport Authority v. Commission on Audit.99 Why then the hesitance to declare MIAA a GOCC? As the majority repeatedly asserts, it is because MIAA is actually an instrumentality. But the very definition relied upon by the majority of an instrumentality under the Administrative Code clearly states that a GOCC is likewise an instrumentality or an agency. The question of whether MIAA is a GOCC might not even be determinative of this Petition, but the effect of the majority's disquisition on that matter may even be more destructive than the ruling that MIAA is exempt from realty taxes. Is the majority ready to live up to the momentous consequences of its flawed reasoning? Novel Proviso in 1987 Constitution Prescribing Standards in the Creation of GOCCs Necessarily Applies only to GOCCs Created Page 255 of 327

Tax 2 Cases for FE After 1987. One last point on this matter on whether MIAA is a GOCC. The majority triumphantly points to Section 16, Article XII of the 1987 Constitution, which mandates that the creation of GOCCs through special charters be "in the interest of the common good and subject to the test of economic viability." For the majority, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. But this test of "economic viability" is new to the constitutional framework. No such test was imposed in previous Constitutions, including the 1973 Constitution which was the fundamental law in force when the MIAA was created. How then could the MIAA, or any GOCC created before 1987 be expected to meet this new precondition to the creation of a GOCC? Does the dissent seriously suggest that GOCCs created before 1987 may be declassified on account of their failure to meet this "economic viability test"? Instrumentalities and Agencies Also Generally Liable For Real Property Taxes Next, the majority, having bludgeoned its way into asserting that MIAA is not a GOCC, then argues that MIAA is an instrumentality. It cites incompletely, as earlier stated, the provision of Section 2(10) of the Administrative Code. A more convincing view offered during deliberations, but which was not adopted by the ponencia, argued that MIAA is not an instrumentality but an agency, considering the fact that under the Administrative Code, the MIAA is attached within the department framework of the Department of Transportation and Communications.100 Interestingly, Executive Order No. 341, enacted by President Arroyo in 2004, similarly calls MIAA an agency. Since instrumentalities are expressly defined as "an agency not integrated within the department framework," that view concluded that MIAA cannot be deemed an instrumentality. Still, that distinction is ultimately irrelevant. Of course, as stated earlier, the Administrative Code considers GOCCs as agencies,101 so the fact that MIAA is an agency does not exclude it from classification as a GOCC. On the other hand, the majority justifies MIAA's purported exemption on Section 133 of the Local Government Code, which similarly situates "agencies and instrumentalities" as generally exempt from the taxation powers of LGUs. And on this point, the majority again evades Mactan and somehow concludes that Section 133 is the general rule, notwithstanding Sections 232 and 234(a) of the Local Government Code. And the majority's ultimate conclusion? "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."102 The Court's interpretation of the Local Government Code in Mactan renders the law integrally harmonious and gives due accord to the respective prerogatives of the national government and LGUs. Sections 133 and 234(a) ensure that the Republic of the Philippines or its political subdivisions shall not be subjected to any form of local government taxation, except realty taxes if the beneficial use of the property owned has been granted for consideration to a taxable entity or person. On the other hand, Section 133 likewise assures that government instrumentalities such as GOCCs may not be arbitrarily taxed by LGUs, since they could be subjected to local taxation if there is a specific proviso thereon in the Code. One such proviso is Section 137, which as the Court found in National Power Corporation,103 permits the imposition of a franchise tax on businesses enjoying a franchise,

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Tax 2 Cases for FE even if it be a GOCC such as NPC. And, as the Court acknowledged in Mactan, Section 232 provides another exception on the taxability of instrumentalities. 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),104 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. Constitution, Laws and Jurisprudence Have Long Explained the Rationale Behind the Local Taxation Of GOCCs. This blithe disregard of precedents, almost all of them unanimously decided, is nowhere more evident than in the succeeding discussion of the majority, which asserts that the power of local governments to tax national government instrumentalities be construed strictly against local governments. The Maceda case, decided before the Local Government Code, is cited, as is Basco. This section of the majority employs deliberate pretense that the Code never existed, or that the fundamentals of local autonomy are of limited effect in our country. Why is it that the Local Government Code is barely mentioned in this section of the majority? Because Section 5 of the Code, purposely omitted by the majority provides for a different rule of interpretation than that asserted: Section 5. Rules of Interpretation. In the interpretation of the provisions of this Code, the following rules shall apply: (a) Any provision on a power of a local government unit shall be liberally interpreted in its favor, and in case of doubt, any question thereon shall be resolved in favor of devolution of powers and of the lower local government unit. Any fair and reasonable doubt as to the existence of the power shall be interpreted in favor of the local government unit concerned; (b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local government unit enacting it, and liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by any local government unit pursuant to the provisions of this Code shall be construed strictly against the person claiming it; xxx Yet the majority insists that "there is 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."105 I wonder whether the Constitution satisfies the majority's desire for "a sound and compelling policy." To repeat:

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Tax 2 Cases for FE Article II. Declaration of Principles and State Policies xxx Sec. 25. The State shall ensure the autonomy of local governments. Article X. Local Government xxx Sec. 2. The territorial and political subdivisions shall enjoy local autonomy. xxx Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. Or how about the Local Government Code, presumably an expression of sound and compelling policy considering that it was enacted by the legislature, that veritable source of all statutes: SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. Justice Puno, in National Power Corporation v. City of Cabanatuan,106 provides a more "sound and compelling policy considerations" that would warrant sustaining the taxability of government-owned entities by local government units under the Local Government Code. Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises." With the added burden of devolution, it is even more imperative for government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges due from them.107 I dare not improve on Justice Puno's exhaustive disquisition on the statutory and jurisprudential shift brought about the acceptance of the principles of local autonomy: In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution, viz: Page 258 of 327

Tax 2 Cases for FE "Section 5. Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments." This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders." 35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers, viz: "Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units." To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local Government Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959, the Local Autonomy Act of 1959, the Decentralization Act of 1967 and the Local Government Code of 1983. Despite these initiatives, however, the shackles of dependence on the national government remained. Local government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel of national line agencies. Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian.108 And the Court's ruling through Justice Azcuna in Philippine Ports Authority v. City of Iloilo109, provides especially clear and emphatic rationale: In closing, we reiterate that in taxing government-owned or controlled corporations, the State ultimately suffers no loss. In National Power Corp. v. Presiding Judge, RTC, Br. XXV, 38 we elucidated: Actually, the State has no reason to decry the taxation of NPC's properties, as and by way of real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local government level.

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Tax 2 Cases for FE xxxxxxxxx To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can the government be said to have lost anything. Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government was that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, hence resulting in the need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them.110 How does the majority counter these seemingly valid rationales which establish the soundness of a policy consideration subjecting national instrumentalities to local taxation? Again, by simply ignoring that these doctrines exist. It is unfortunate if the majority deems these cases or the principles of devolution and local autonomy as simply too inconvenient, and relies instead on discredited precedents. Of course, if the majority faces the issues squarely, and expressly discusses why Basco was right and Mactan was wrong, then this entire endeavor of the Court would be more intellectually satisfying. But, this is not a game the majority wants to play. Mischaracterization of My Views on the Tax Exemption Enjoyed by the National Government Instead, the majority engages in an extended attack pertaining to Section 193, mischaracterizing my views on that provision as if I had been interpreting the provision as making "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."111 Nothing is farther from the truth. I have never advanced any theory of the sort imputed in the majority. My main thesis on the matter merely echoes the explicit provision of Section 193 that unless otherwise provided in the Local Government Code (LGC) all tax exemptions enjoyed by all persons, whether natural or juridical, including GOCCs, were withdrawn upon the effectivity of the Code. Since the provision speaks of withdrawal of tax exemptions of persons, it follows that the exemptions theretofore enjoyed by MIAA which is definitely a person are deemed withdrawn upon the advent of the Code. On the other hand, the provision does not address the question of who are beyond the reach of the taxing power of LGUs. In fine, the grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax. Thus, Section 193 does not apply to entities which were never given any tax exemption. This would include the national government and its political subdivisions which, as a general rule, are not subjected to tax in the first place.112 Corollarily, the national government and its political subdivisions do not need tax exemptions. And Section 193 which ordains the withdrawal of tax exemptions is obviously irrelevant to them. Section 193 is in point for the disposition of this case as it forecloses dependence for the grant of tax exemption to MIAA on Section 21 of its charter. Even the majority should concede that the charter section is now ineffectual, as Section 193 withdraws the tax exemptions previously enjoyed by all juridical persons. Page 260 of 327

Tax 2 Cases for FE With Section 193 mandating the withdrawal of tax exemptions granted to all persons upon the effectivity of the LGC, for MIAA to continue enjoying exemption from realty tax, it will have to rely on a basis other than Section 21 of its charter. Lung Center of the Philippines v. Quezon City113 provides another illustrative example of the jurisprudential havoc wrought about by the majority. Pursuant to its charter, the Lung Center was organized as a trust administered by an eponymous GOCC organized with the SEC.114 There is no doubt it is a GOCC, even by the majority's reckoning. Applying the Administrative Code, it is also considered as an agency, the term encompassing even GOCCs. Yet since the Administrative Code definition of "instrumentalities" encompasses agencies, especially those not attached to a line department such as the Lung Center, it also follows that the Lung Center is an instrumentality, which for the majority is exempt from all local government taxes, especially real estate taxes. Yet just in 2004, the Court unanimously held that the Lung Center was not exempt from real property taxes. Can the majority and Lung Center be reconciled? I do not see how, and no attempt is made to demonstrate otherwise. Another key point. The last paragraph of Section 234 specifically asserts that any previous exemptions from realty taxes granted to or enjoyed by all persons, including all GOCCs, are thereby withdrawn. The majority's interpretation of Sections 133 and 234(a) however necessarily implies that all instrumentalities, including GOCCs, can never be subjected to real property taxation under the Code. If that is so, what then is the sense of the last paragraph specifically withdrawing previous tax exemptions to all persons, including GOCCs when juridical persons such as MIAA are anyway, to his view, already exempt from such taxes under Section 133? The majority's interpretation would effectively render the express and emphatic withdrawal of previous exemptions to GOCCs inutile. Ut magis valeat quam pereat. Hence, where a statute is susceptible of more than one interpretation, the court should adopt such reasonable and beneficial construction which will render the provision thereof operative and effective, as well as harmonious with each other.115 But, the majority seems content rendering as absurd the Local Government Code, since it does not have much use anyway for the Code's general philosophy of fiscal autonomy, as evidently seen by the continued reliance on Basco or Maceda. Local government rule has never been a grant of emancipation from the national government. This is the favorite bugaboo of the opponents of local autonomythe fallacy that autonomy equates to independence. Thus, the conclusion of the majority is that under Section 133(o), MIAA as a government instrumentality is beyond the reach of local taxation because it is not subject to taxes, fees or charges of any kind. Moreover, the taxation of national instrumentalities and agencies by LGUs should be strictly construed against the LGUs, citing Maceda and Basco. No mention is made of the subsequent rejection of these cases in jurisprudence following the Local Government Code, including Mactan. The majority is similarly silent on the general rule under Section 232 on real property taxation or Section 5 on the rules of construction of the Local Government Code. V. MIAA, and not the National Government Is the Owner of the Subject Taxable Properties Section 232 of the Local Government Code explicitly provides that there are exceptions to the general rule on rule property taxation, as "hereafter specifically exempted." Section 234, certainly "hereafter," provides indubitable basis for exempting entities from real property taxation. It Page 261 of 327

Tax 2 Cases for FE provides the most viable legal support for any claim that an governmental entity such as the MIAA is exempt from real property taxes. To repeat: SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of the real property tax: xxx (f) 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: The majority asserts that the properties owned by MIAA are owned by the Republic of the Philippines, thus placing them under the exemption under Section 234. To arrive at this conclusion, the majority employs four main arguments. MIAA Property Is Patrimonial And Not Part of Public Dominion The majority claims that the Airport Lands and Buildings are property of public dominion as defined by the Civil Code, and therefore owned by the State or the Republic of the Philippines. But as pointed out by Justice Azcuna in the first PPA case, if indeed a property is considered part of the public dominion, such property is "owned by the general public and cannot be declared to be owned by a public corporation, such as [the PPA]." Relevant on this point are the following provisions of the MIAA charter: Section 3. Creation of the Manila International Airport Authority. xxx 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. xxx Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. 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. Clearly, 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 Constitution prohibits the State from transferring ownership over property of public dominion to an entity that it similarly owns. It is just like a family transferring Page 262 of 327

Tax 2 Cases for FE 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. The second Public Ports Authority case, penned by Justice Callejo, likewise lays down useful doctrines in this regard. The Court refuted the claim that the properties of the PPA were owned by the Republic of the Philippines, noting that PPA's charter expressly transferred ownership over these properties to the PPA, a situation which similarly obtains with MIAA. The Court even went as far as saying that the fact that the PPA "had not been issued any torrens title over the port and port facilities and appurtenances is of no legal consequence. A torrens title does not, by itself, vest ownership; it is merely an evidence of title over properties. xxx It has never been recognized as a mode of acquiring ownership over real properties."116 The Court further added: xxx The bare fact that the port and its facilities and appurtenances are accessible to the general public does not exempt it from the payment of real property taxes. It must be stressed that the said port facilities and appurtenances are the petitioner's corporate patrimonial properties, not for public use, and that the operation of the port and its facilities and the administration of its buildings are in the nature of ordinary business. The petitioner is clothed, under P.D. No. 857, with corporate status and corporate powers in the furtherance of its proprietary interests xxx The petitioner is even empowered to invest its funds in such government securities approved by the Board of Directors, and derives its income from rates, charges or fees for the use by vessels of the port premises, appliances or equipment. xxx Clearly then, the petitioner is a profit-earning corporation; hence, its patrimonial properties are subject to tax.117 There is no doubt that the properties of the MIAA, as with the PPA, are in a sense, for public use. A similar argument was propounded by the Light Rail Transit Authority in Light Rail Transit Authority v. Central Board of Assessment,118 which was cited in Philippine Ports Authority and deserves renewed emphasis. The Light Rail Transit Authority (LRTA), a body corporate, "provides valuable transportation facilities to the paying public."119 It claimed that its carriage-ways and terminal stations are immovably attached to government-owned national roads, and to impose real property taxes thereupon would be to impose taxes on public roads. This view did not persuade the Court, whose decision was penned by Justice (now Chief Justice) Panganiban. It was noted: Though the creation of the LRTA was impelled by public service to provide mass transportation to alleviate the traffic and transportation situation in Metro Manila its operation undeniably partakes of ordinary business. Petitioner is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates much like any private corporation engaged in the mass transport industry. Given that it is engaged in a service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a government-owned or controlled corporation. xxx Petitioner argues that it merely operates and maintains the LRT system, and that the actual users of the carriageways and terminal stations are the commuting public. It adds that the public use character of the LRT is not negated by the fact that revenue is obtained from the latter's operations.

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Tax 2 Cases for FE We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay the required fare. It is thus apparent that petitioner does not exist solely for public service, and that the LRT carriageways and terminal stations are not exclusively for public use. Although petitioner is a public utility, it is nonetheless profit-earning. It actually uses those carriageways and terminal stations in its public utility business and earns money therefrom.120 xxx Even granting that the national government indeed owns the carriageways and terminal stations, the exemption would not apply because their beneficial use has been granted to petitioner, a taxable entity.121 There is no substantial distinction between the properties held by the PPA, the LRTA, and the MIAA. These three entities are in the business of operating facilities that promote public transportation. The majority further asserts that MIAA's properties, being part of the public dominion, are outside the commerce of man. But if this is so, then why does Section 3 of MIAA's charter authorize the President of the Philippines to approve the sale of any of these properties? In fact, why does MIAA's charter in the first place authorize the transfer of these airport properties, assuming that indeed these are beyond the commerce of man? No Trust Has Been Created Over MIAA Properties For The Benefit of the Republic The majority posits that while MIAA might be holding title over the Airport Lands and Buildings, it is holding it in trust for the Republic. A provision of the Administrative Code is cited, but said provision does not expressly provide that the property is held in trust. Trusts are either express or implied, and only those situations enumerated under the Civil Code would constitute an implied trust. MIAA does not fall within this enumeration, and neither is there a provision in MIAA's charter expressly stating that these properties are being held in trust. In fact, under its charter, MIAA is obligated to retain up to eighty percent (80%) of its gross operating income, not an inconsequential sum assuming that the beneficial owner of MIAA's properties is actually the Republic, and not the MIAA. Also, the claim that beneficial ownership over the MIAA remains with the government and not MIAA is ultimately irrelevant. Section 234(a) of the Local Government Code provides among those exempted from paying real property taxes are "*r+eal property owned by the *Republic+ except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." In the context of Section 234(a), the identity of the beneficial owner over the properties is not determinative as to whether the exemption avails. It is the identity of the beneficial user of the property owned by the Republic or its political subdivisions that is crucial, for if said beneficial user is a taxable person, then the exemption does not lie. I fear the majority confuses the notion of what might be construed as "beneficial ownership" of the Republic over the properties of MIAA as nothing more than what arises as a consequence of the fact that the capital of MIAA is contributed by the National Government.122 If so, then there is no difference between the State's ownership rights over MIAA properties than those of a majority stockholder over the properties of a corporation. Even if such shareholder effectively owns the corporation and controls the disposition of its assets, the personality of the stockholder remains Page 264 of 327

Tax 2 Cases for FE separately distinct from that of the corporation. A brief recall of the entrenched rule in corporate law is in order: The first consequence of the doctrine of legal entity regarding the separate identity of the corporation and its stockholders insofar as their obligations and liabilities are concerned, is spelled out in this general rule deeply entrenched in American jurisprudence: Unless the liability is expressly imposed by constitutional or statutory provisions, or by the charter, or by special agreement of the stockholders, stockholders are not personally liable for debts of the corporation either at law or equity. The reason is that the corporation is a legal entity or artificial person, distinct from the members who compose it, in their individual capacity; and when it contracts a debt, it is the debt of the legal entity or artificial person the corporation and not the debt of the individual members. (13A Fletcher Cyc. Corp. Sec. 6213) The entirely separate identity of the rights and remedies of a corporation itself and its individual stockholders have been given definite recognition for a long time. Applying said principle, the Supreme Court declared that a corporation may not be made to answer for acts or liabilities of its stockholders or those of legal entities to which it may be connected, or vice versa. (Palay Inc. v. Clave et. al. 124 SCRA 638) It was likewise declared in a similar case that a bonafide corporation should alone be liable for corporate acts duly authorized by its officers and directors. (Caram Jr. v. Court of Appeals et.al. 151 SCRA, p. 372)123 It bears repeating that MIAA under its charter, is expressly conferred the right to exercise all the powers of a corporation under the Corporation Law, including the right to corporate succession, and the right to sue and be sued in its corporate name.124 The national government made a particular choice to divest ownership and operation of the Manila International Airport and transfer the same to such an empowered entity due to perceived advantages. Yet such transfer cannot be deemed consequence free merely because it was the State which contributed the operating capital of this body corporate. The majority claims that the transfer the assets of MIAA was meant merely to effect a reorganization. The imputed rationale for such transfer does not serve to militate against the legal consequences of such assignment. Certainly, if it was intended that the transfer should be free of consequence, then why was it effected to a body corporate, with a distinct legal personality from that of the State or Republic? The stated aims of the MIAA could have very well been accomplished by creating an agency without independent juridical personality. VI. MIAA Performs Proprietary Functions Nonetheless, Section 234(f) exempts properties owned by the Republic of the Philippines or its political subdivisions from realty taxation. The obvious question is what comprises "the Republic of the Philippines." I think the key to understanding the scope of "the Republic" is the phrase "political subdivisions." Under the Constitution, political subdivisions are defined as "the provinces, cities, municipalities and barangays."125 In correlation, the Administrative Code of 1987 defines "local government" as referring to "the political subdivisions established by or in accordance with the Constitution." Clearly then, these political subdivisions are engaged in the exercise of sovereign functions and are accordingly exempt. The same could be said generally of the national government, which would be Page 265 of 327

Tax 2 Cases for FE similarly exempt. After all, even with the principle of local autonomy, it is inherently noxious and self-defeatist for local taxation to interfere with the sovereign exercise of functions. However, the exercise of proprietary functions is a different matter altogether. Sovereign and Proprietary Functions Distinguished Sovereign or constituent functions are those which constitute the very bonds of society and are compulsory in nature, while ministrant or proprietary functions are those undertaken by way of advancing the general interests of society and are merely optional.126 An exhaustive discussion on the matter was provided by the Court in Bacani v. NACOCO:127 xxx This institution, when referring to the national government, has reference to what our Constitution has established composed of three great departments, the legislative, executive, and the judicial, through which the powers and functions of government are exercised. These functions are twofold: constituent and ministrant. The former are those which constitute the very bonds of society and are compulsory in nature; the latter are those that are undertaken only by way of advancing the general interests of society, and are merely optional. President Wilson enumerates the constituent functions as follows: "'(1) The keeping of order and providing for the protection of persons and property from violence and robbery. '(2) The fixing of the legal relations between man and wife and between parents and children. '(3) The regulation of the holding, transmission, and interchange of property, and the determination of its liabilities for debt or for crime. '(4) The determination of contract rights between individuals. '(5) The definition and punishment of crime. '(6) The administration of justice in civil cases. '(7) The determination of the political duties, privileges, and relations of citizens. '(8) Dealings of the state with foreign powers: the preservation of the state from external danger or encroachment and the advancement of its international interests.'" (Malcolm, The Government of the Philippine Islands, p. 19.) The most important of the ministrant functions are: public works, public education, public charity, health and safety regulations, and regulations of trade and industry. The principles determining whether or not a government shall exercise certain of these optional functions are: (1) that a government should do for the public welfare those things which private capital would not naturally undertake and (2) that a government should do these things which by its very nature it is better equipped to administer for the public welfare than is any private individual or group of individuals. (Malcolm, The Government of the Philippine Islands, pp. 19-20.) From the above we may infer that, strictly speaking, there are functions which our government is required to exercise to promote its objectives as expressed in our Constitution and which are Page 266 of 327

Tax 2 Cases for FE exercised by it as an attribute of sovereignty, and those which it may exercise to promote merely the welfare, progress and prosperity of the people. To this latter class belongs the organization of those corporations owned or controlled by the government to promote certain aspects of the economic life of our people such as the National Coconut Corporation. These are what we call governmentowned or controlled corporations which may take on the form of a private enterprise or one organized with powers and formal characteristics of a private corporations under the Corporation Law.128 The Court in Bacani rejected the proposition that the National Coconut Corporation exercised sovereign functions: Does the fact that these corporations perform certain functions of government make them a part of the Government of the Philippines? The answer is simple: they do not acquire that status for the simple reason that they do not come under the classification of municipal or public corporation. Take for instance the National Coconut Corporation. While it was organized with the purpose of "adjusting the coconut industry to a position independent of trade preferences in the United States" and of providing "Facilities for the better curing of copra products and the proper utilization of coconut by-products," a function which our government has chosen to exercise to promote the coconut industry, however, it was given a corporate power separate and distinct from our government, for it was made subject to the provisions of our Corporation Law in so far as its corporate existence and the powers that it may exercise are concerned (sections 2 and 4, Commonwealth Act No. 518). 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 our government. As this Court has aptly said, "The mere fact that the Government happens to be a majority stockholder does not make it a public corporation" (National Coal Co. vs. Collector of Internal Revenue, 46 Phil., 586-587). "By becoming a stockholder in the National Coal Company, the Government divested itself of its sovereign character so far as respects the transactions of the corporation. . . . Unlike the Government, the corporation may be sued without its consent, and is subject to taxation. Yet the National Coal Company remains an agency or instrumentality of government." (Government of the Philippine Islands vs. Springer, 50 Phil., 288.) The following restatement of the entrenched rule by former SEC Chairperson Rosario Lopez bears noting: The fact that government corporations are instrumentalities of the State does not divest them with immunity from suit. (Malong v. PNR, 138 SCRA p. 63) It is settled that when the government engages in a particular business through the instrumentality of a corporation, it divests itself pro hoc vice of its sovereign character so as to subject itself to the rules governing private corporations, (PNB v. Pabolan 82 SCRA 595) and is to be treated like any other corporation. (PNR v. Union de Maquinistas Fogonero y Motormen, 84 SCRA 223) In the same vein, when the government becomes a stockholder in a corporation, it does not exercise sovereignty as such. It acts merely as a corporator and exercises no other power in the management of the affairs of the corporation than are expressly given by the incorporating act. Nor does the fact that the government may own all or a majority of the capital stock take from the corporation its character as such, or make the government the real party in interest. (Amtorg Trading Corp. v. US 71 F2d 524, 528)129 MIAA Performs Proprietary

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Tax 2 Cases for FE Functions No Matter How Vital to the Public Interest 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. 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. Even if it could be conceded that MIAA does not compete in the market place, the example of the Philippine National Railways should be taken into account. The PNR does not compete in the marketplace, and performs an essential public service as the operator of the railway system in the Philippines. Is the PNR engaged in sovereign functions? The Court, in Malong v. Philippine National Railways,130 held that it was not.131 Even more relevant to this particular case is Teodoro v. National Airports Corporation,132 concerning the proper appreciation of the functions performed by the Civil Aeronautics Administration (CAA), which had succeeded the defunction National Airports Corporation. The CAA claimed that as an unincorporated agency of the Republic of the Philippines, it was incapable of suing and being sued. The Court noted: Among the general powers of the Civil Aeronautics Administration are, under Section 3, to execute contracts of any kind, to purchase property, and to grant concession rights, and under Section 4, to charge landing fees, royalties on sales to aircraft of aviation gasoline, accessories and supplies, and rentals for the use of any property under its management. These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to sue and be sued. The power to sue and be sued is implied from the power to transact private business. And if it has the power to sue and be sued on its behalf, the Civil Aeronautics Administration with greater reason should have the power to prosecute and defend suits for and against the National Airports Corporation, having acquired all the properties, funds and choses in action and assumed all the liabilities of the latter. To deny the National Airports Corporation's creditors access to the courts of justice against the Civil Aeronautics Administration is to say that the government could impair the obligation of its corporations by the simple expedient of converting them into unincorporated agencies. 133 xxx Eventually, the charter of the CAA was revised, and it among its expanded functions was "[t]o administer, operate, manage, control, maintain and develop the Manila International Airport."134 Page 268 of 327

Tax 2 Cases for FE Notwithstanding this expansion, in the 1988 case of CAA v. Court of Appeals135 the Court reaffirmed the ruling that the CAA was engaged in "private or non-governmental functions."136 Thus, the Court had already ruled that the predecessor agency of MIAA, the CAA was engaged in private or nongovernmental functions. These are more precedents ignored by the majority. The following observation from the Teodoro case very well applies to MIAA. The Civil Aeronautics Administration comes under the category of a private entity. Although not a body corporate it was created, like the National Airports Corporation, not to maintain a necessary function of government, but to run what is essentially a business, even if revenues be not its prime objective but rather the promotion of travel and the convenience of the traveling public. It is engaged in an enterprise which, far from being the exclusive prerogative of state, may, more than the construction of public roads, be undertaken by private concerns.137 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. But notably, the Constitution itself authorizes private persons to exercise these functions as it allows them to operate public utilities in this country138 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? There really is no prohibition against the government taxing itself,139 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. VII. MIAA Property Not Subject to Execution Sale Without Consent Of the President. Despite the fact that the City of Paraaque 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."140 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 Page 269 of 327

Tax 2 Cases for FE LGU has to find another way to collect the taxes due from MIAA, thus paving the way for a mutually acceptable negotiated solution.141 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. Section 3 of the MIAA charter may also be appreciated as within the proper exercise of executive control by the President over the MIAA, a GOCC which despite its separate legal personality, is still subsumed within the executive branch of government. The power of executive control by the President should be upheld so long as such exercise does not contravene the Constitution or the law, the President having the corollary duty to faithfully execute the Constitution and the laws of the land.142 In this case, the exercise of executive control is precisely recognized and authorized by the legislature, and it should be upheld even if it comes at the expense of limiting the power of local government units to collect real property taxes. 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.143 Unfortunately, the majority will cause precisely the opposite result of unremitting hostility, not only to the City of Paraaque, but to the thousands of LGUs in the country. VIII. Summary of Points My points may be summarized as follows: 1) Mactan and a long line of succeeding cases have already settled the rule that under the Local Government Code, enacted pursuant to the constitutional mandate of local autonomy, all natural and juridical persons, even those GOCCs, instrumentalities and agencies, are no longer exempt from local taxes even if previously granted an exemption. The only exemptions from local taxes are those specifically provided under the Local Government Code itself, or those enacted through subsequent legislation. 2) Under the Local Government Code, particularly Section 232, instrumentalities, agencies and GOCCs are generally liable for real property taxes. The only exemptions therefrom under the same

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Tax 2 Cases for FE Code are provided in Section 234, which include real property owned by the Republic of the Philippines or any of its political subdivisions. 3) The subject properties are owned by MIAA, a GOCC, holding title in its own name. MIAA, a separate legal entity from the Republic of the Philippines, is the legal owner of the properties, and is thus liable for real property taxes, as it does not fall within the exemptions under Section 234 of the Local Government Code. 4) The MIAA charter expressly bars the sale or disposition of MIAA properties. As a result, the City of Paraaque is prohibited from seizing or selling these properties by public auction in order to satisfy MIAA's tax liability. In the end, MIAA is encumbered only by a limited lien possessed by the City of Paraaque. On the other hand, the majority's flaws are summarized as follows: 1) The majority deliberately ignores all precedents which run counter to its hypothesis, including Mactan. Instead, it relies and directly cites those doctrines and precedents which were overturned by Mactan. By imposing a different result than that warranted by the precedents without explaining why Mactan or the other precedents are wrong, the majority attempts to overturn all these ruling sub silencio and without legal justification, in a manner that is not sanctioned by the practices and traditions of this Court. 2) The majority deliberately ignores the policy and philosophy of local fiscal autonomy, as mandated by the Constitution, enacted under the Local Government Code, and affirmed by precedents. Instead, the majority asserts that there is no sound rationale for local governments to tax national government instrumentalities, despite the blunt existence of such rationales in the Constitution, the Local Government Code, and precedents. 3) The majority, in a needless effort to justify itself, adopts an extremely strained exaltation of the Administrative Code above and beyond the Corporation Code and the various legislative charters, in order to impose a wholly absurd definition of GOCCs that effectively declassifies innumerable existing GOCCs, to catastrophic legal consequences. 4) The majority asserts that by virtue of Section 133(o) of the Local Government Code, all national government agencies and instrumentalities are exempt from any form of local taxation, in contravention of several precedents to the contrary and the proviso under Section 133, "unless otherwise provided herein [the Local Government Code]." 5) The majority erroneously argues that MIAA holds its properties in trust for the Republic of the Philippines, and that such properties are patrimonial in character. No express or implied trust has been created to benefit the national government. The legal distinction between sovereign and proprietary functions, as affirmed by jurisprudence, likewise preclude the classification of MIAA properties as patrimonial. IX. Epilogue If my previous discussion still fails to convince on how wrong the majority is, then the following points are well-worth considering. The majority cites the Bangko Sentral ng Pilipinas (Bangko Sentral) as a government instrumentality that exercises corporate powers but not organized as a Page 271 of 327

Tax 2 Cases for FE stock or non-stock corporation. Correspondingly for the majority, the Bangko ng Sentral is exempt from all forms of local taxation by LGUs by virtue of the Local Government Code. Section 125 of Rep. Act No. 7653, The New Central Bank Act, states: SECTION 125. Tax Exemptions. The Bangko Sentral shall be exempt for a period of five (5) years from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and assessments. The New Central Bank Act was promulgated after the Local Government Code if the BSP is already preternaturally exempt from local taxation owing to its personality as an "government instrumentality," why then the need to make a new grant of exemption, which if the majority is to be believed, is actually a redundancy. But even more tellingly, does not this provision evince a clear intent that after the lapse of five (5) years, that the Bangko Sentral will be liable for provincial, municipal and city taxes? This is the clear congressional intent, and it is Congress, not this Court which dictates which entities are subject to taxation and which are exempt. Perhaps this notion will offend the majority, because the Bangko Sentral is not even a government owned corporation, but a government instrumentality, or perhaps "loosely", a "government corporate entity." How could such an entity like the Bangko Sentral , which is not even a government owned corporation, be subjected to local taxation like any mere mortal? But then, see Section 1 of the New Central Bank Act: SECTION 1. Declaration of Policy. The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary authority established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy. Apparently, the clear legislative intent was to create a government corporation known as the Bangko Sentral ng Pilipinas. But this legislative intent, the sort that is evident from the text of the provision and not the one that needs to be unearthed from the bowels of the archival offices of the House and the Senate, is for naught to the majority, as it contravenes the Administrative Code of 1987, which after all, is "the governing law defining the status and relationship of government agencies and instrumentalities" and thus superior to the legislative charter in determining the personality of a chartered entity. Its like saying that the architect who designed a school building is better equipped to teach than the professor because at least the architect is familiar with the geometry of the classroom. Consider further the example of the Philippine Institute of Traditional and Alternative Health Care (PITAHC), created by Republic Act No. 8243 in 1997. It has similar characteristics as MIAA in that it is established as a body corporate,144 and empowered with the attributes of a corporation,145 including the power to purchase or acquire real properties.146 However the PITAHC has no capital stock and no members, thus following the majority, it is not a GOCC. The state policy that guides PITAHC is the development of traditional and alternative health care,147 and its objectives include the promotion and advocacy of alternative, preventive and curative health care modalities that have been proven safe, effective and cost effective.148 "Alternative health care modalities" include "other forms of non-allophatic, occasionally non-indigenous or imported healing

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Tax 2 Cases for FE methods" which include, among others "reflexology, acupuncture, massage, acupressure" and chiropractics.149 Given these premises, there is no impediment for the PITAHC to purchase land and construct thereupon a massage parlor that would provide a cheaper alternative to the opulent spas that have proliferated around the metropolis. Such activity is in line with the purpose of the PITAHC and with state policy. Is such 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 Section 234 of the Local Government Code. Hence, this massage parlor would not just be a shelter for frazzled nerves, but for taxes as well. Ridiculous? One might say, certainly a decision of the Supreme Court 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. I dissent. DANTE O. TINGA Associate Justice

Footnotes
1

Dated 16 September 1983. Dated 26 July 1987. Section 3, MIAA Charter. Section 22, MIAA Charter. Section 3, MIAA Charter. Rollo, pp. 22-23. Under Rule 45 of the 1997 Rules of Civil Procedure. 330 Phil. 392 (1996). MIAA Charter as amended by Executive Order No. 298. See note 2. Batas Pambansa Blg. 68. Section 11 of the MIAA Charter provides: Contribution to the General Fund for the Maintenance and Operation of other Airports. Within thirty (30) days after the close of each quarter, twenty percentum (20%) of the gross operating income, excluding payments Page 273 of 327

10

11

Tax 2 Cases for FE for utilities of tenants and concessionaires and terminal fee collections, shall be remitted to the General Fund in the National Treasury to be used for the maintenance and operation of other international and domestic airports in the country. Adjustments in the amount paid by the Authority to the National Treasury under this Section shall be made at the end of each year based on the audited financial statements of the Authority.
12

Section 5(j), MIAA Charter. Section 6, MIAA Charter. Section 5(k), MIAA Charter. Section 5(o), MIAA Charter. Third Whereas Clause, MIAA Charter. Id. Constitution, Art. X, Sec. 5.

13

14

15

16

17

18

19

274 Phil. 1060, 1100 (1991) quoting C. Dallas Sands, 3 Statutes and Statutory Construction 207.
20

274 Phil. 323, 339-340 (1991). Constitution, Art. VI, Sec. 28(1). First Whereas Clause, MIAA Charter. 30 Phil. 602, 606-607 (1915). 102 Phil. 866, 869-870 (1958).

21

22

23

24

25

PNB v. Puruganan, 130 Phil. 498 (1968). See also Martinez v. CA, 155 Phil. 591 (1974).
26

MIAA Charter, Sec.16. Chavez v. Public Estates Authority, 433 Phil. 506 (2002). Section 3, MIAA Charter. G.R. No. 144104, 29 June 2004, 433 SCRA 119, 138. Republic Act No. 7653, 14 June 1993, Sec. 5. Executive Order No. 1061, 5 November 1985, Sec. 3(p). Republic Act No. 4850, 18 July 1966, Sec. 5. Page 274 of 327

27

28

29

30

31

32

Tax 2 Cases for FE

33

Presidential Decree No. 977, 11 August 1976, Section 4(j). Republic Act No. 7227, 13 March 1992, Sec. 3. Presidential Decree No. 857, 23 December 1975, Sec. 6(b)(xvi). Republic Act No. 4663, 18 June 1966, Sec. 7(m). Republic Act No. 4567, 19 June 1965, Sec. 7(m). Republic Act No. 7621, 26 June 1992, Sec. 7(m). Republic Act No. 4156, 20 June 1964. Section 4(b).

34

35

36

37

38

39

40

Republic Act No. 3844, 8 August 1963, as amended by Republic Act No. 7907, 23 February 1995.
41

Executive Order No. 81, 3 December 1986. Republic Act No. 8175, 29 December 1995.

42

43

Presidential Decree No. 252, 21 July 1973, as amended by Presidential Decree No. 1071, 25 January 1977 and Executive Order No. 1067, 25 November 1985.
44

Executive Order No. 80, 3 December 1986. III Records, Constitutional Commission 63 (22 August 1986). 2003 ed., 1181.

45

46

47

Manila International Airport Authority v. Airspan Corporation, G.R. No. 157581, 1 December 2004, 445 SCRA 471. TINGA, J.
1

Per Department of Interior and Local Government. See also "Summary" from the National Statistical Coordination Board, http://www.nscb.gov.ph/activestats /psgc/NSCB_PSGC_SUMMARY_DEC04.pdf.
2

330 Phil. 392 (1996). G.R. No. 91649, 14 May 1991, 197 SCRA 52. 451 Phil. 683, 698 (2003). 364 Phil. 843, 855 (1999). 449 Phil. 233 (2003). G.R. No. 152675 & 152771, 28 April 2004. Page 275 of 327

Tax 2 Cases for FE

8

Decision, p. 24. G.R. No. 144104, 29 June 2004, 433 SCRA 119. Supra note 8.

10

11

G.R. No. 127383, 18 August 2005, 467 SCRA 280. Per the author of this Dissenting Opinion.
12

Nonetheless, the Court noted therein GSIS's exemption from real property taxes was reenacted in 1997, and the GSIS at present is exempt from such taxes under the GSIS Act of 1997. Id., at 299.
13

G.R. No. 109791, 14 July 2003, 406 SCRA 88, and G.R. No. 143214, 11 November 2004, 442 SCRA 175, respectively.
14

118 Phil. 1354 (1963). 396 Phil. 860 (2000). Supra note 8. 91 Phil 203 (1952). G.R. No. L-51806, 8 November 1988, 167 SCRA 28. G.R. No. 155692, 23 October 2003, 414 SCRA 327.

15

16

17

18

19

20

Id. at 333, citing Section 10, Book IV, Title III, Chapter 3, Administrative Code of 1987.
21

G.R. No. 165827, 16 June 2006. G.R. No. 147192, 27 June 2006. Supra note 8. See Mendoza v. De Leon, 33 Phil. 508 (1916). Mactan, supra note 2, at 397-398. Section 193, Rep. Act No. 7160. Section 232, Rep. Act No. 7160. Section 234, Rep. Act No. 7160. Emphasis supplied. Id. at 411-413. See City of Davao v. RTC, supra note 11, at 293. Page 276 of 327

22

23

24

25

26

27

28

29

30

Tax 2 Cases for FE

31

Supra note 3. Id. at 63-65. G.R. No. 88921, 31 May 1991, 197 SCRA 771. Id. at 799. Mactan, supra note 2, at 419-420. Supra note 6. Id. at 250-251. G.R. No. 109791, 14 July 2003, 406 SCRA 88. Id. at 99-100. Supra note 21. Id. G.R. No. 143214, 11 November 2004, 442 SCRA 175. Id., at 184. Id. at 185-186, citing MCIAA v. Marcos, supra note 2. Supra note 11. P.D. No. 1981. See City of Davao v. RTC, supra note 40, at 289. Id. at 287-288. 32 Phil. 36, 49; cited in City of Davao v. RTC, supra note 40 at 296-297. Id. Supra note 22. Id. Decision, p. 6. MIAA's Charter (E.O No. 903, as amended) provides: Section 3. Creation of the Manila International Airport Authority. xxx The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby transferred, Page 277 of 327

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

Tax 2 Cases for FE conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if any. xxx Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. 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. On the other hand, MCIAA's charter (Rep. Act No. 6958) provides: Section 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and other properties, movable or immovable, belonging to or presently administered by the airports, and all assets, powers, rights, interest and privileges relating to airport works or air operations, including all equipment which are necessary for the operation of air navigation, aerodrome control towers, crash, fire, and rescue facilities are hereby transferred to the Authority: Provided, however, That the operational control of all equipment necessary for the operation of radio aids to air navigation, airways communication, the approach control office and the area control center shall be retained by the Air Transportation Office. xxx
54

See Section 3, E.O. 903 (as amended), infra note 140; and Section Section 4(c), Rep. Act No. 6958, which qualifies the power of the MCIAA to sell its properties, providing that "any asset located in the Mactan International Airport important to national security shall not be subject to alienation or mortgage by the Authority nor to transfer to any entity other than the National Government."
55

See Section 16, E.O. 903 (as amended) and Section 13, Rep. Act No. 6958. See Articles 40 to 43, Civil Code. See Articles 44 to 47, Civil Code.

56

57

58

This is apparent from such assertions as "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 nonstock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers." See Decision, p. 9-10.
59

Decision, p. 9. See Section 2(10), E.O. 292. See Section 2(4), E.O No. 292.

60

61

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Tax 2 Cases for FE

62

50 Phil. 259 (1927). Id., at 288. See Sec. 5, Rep. Act No. 6395. Section 3, Corporation Code. See Section 13, Rep. Act No. 6395. See Section 1, Rep. Act No. 7875. See Section 16(i), Rep. Act No. 7875. See Section 3, Rep. Act 8282. Supra note 14.

63

64

65

66

67

68

69

70

71

See Section 2(b), Rep. Act No. 7656, which defines GOCCs as "corporations organized as a stock or non-stock corporation xxx"
72

See Rep. Act No. 7656, the pertinent provisions of which read: c. 3. Dividends.All government-owned or -controlled corporations shall declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends to the National Government. This section shall also apply to those government-owned or -controlled corporations whose profit distribution is provided by their respective charters or by special law, but shall exclude those enumerated in Section 4 hereof: Provided, That such dividends accruing to the National Government shall be received by the National Treasury and recorded as income of the General Fund. Sec. 4. Exemptions.The provisions of the preceding section notwithstanding, government-owned or -controlled corporations created or organized by law to administer real or personal properties or funds held in trust for the use and the benefit of its members, shall not be covered by this Act such as, but not limited to: the Government Service Insurance System, the Home Development Mutual Fund, the Employees Compensation Commission, the Overseas Workers Welfare Administration, and the Philippine Medical Care Commission.

73

See Pres. Decree No. 857 (as amended). See Section 10, Pres. Decree No. 857. See Section 11, Pres. Decree No. 857. See Rep. Act No. 7227. See Section 6, Rep. Act No. 7227. Page 279 of 327

74

75

76

77

Tax 2 Cases for FE

78

See Rep. Act No. 7916. See Section 47, Rep. Act No. 7916 in relation to Section 5, Pres. Decree No. 66. See Executive Order No. 603, as amended. See Article 6, Section 15 of Executive Order No. 603, as amended.

79

80

81

82

See Rep. Act No. 7653. If there is any doubt whether the BSP was intended to be covered by Rep. Act No. 7656, see Section 2(b), Rep. Act No. 7656, which states that "This term [GOCCs shall also include financial institutions, owned or controlled by the National Government, but shall exclude acquired asset corporations, as defined in the next paragraphs, state universities, and colleges."
83

See Section 2, Rep. Act No. 7653. See Sections 43 & 44, Rep. Act No. 7653. See Rep. Act No. 6395. Supra note 35. See Decision, p. 10. Id. at 10-11. Id. See Rep. Act No. 3034. See Rep. Act No. 4132. See Rep. Act No. 6070. See Rep. Act No. 5920. See Rep. Act No. 4071. See e.g., Sections 1 & 2, Rep. Act No. 6070. Section 1. Declaration of Policy. It is hereby declared to be the policy of the Congress to foster the accelerated and balanced growth of the Province of Ilocos Sur, within the context of national plans and policies for social and economic development, through the leadership, guidance, and support of the government. To achieve this end, it is recognized that a government corporation should be created for the purpose of drawing up the necessary plans of provincial development; xxx Sec. 2. Ilocos Sur Development Authority created. There is hereby created a body corporate to be known as the Ilocos Sur Development Authority xxx. The Authority shall execute the powers and functions herein vested and Page 280 of 327

84

85

86

87

88

89

90

91

92

93

94

95

Tax 2 Cases for FE conferred upon it in such manner as will in its judgment, aid to the fullest possible extent in carrying out the aims and purposes set forth below."
96

See Art. 37, Civil Code, which provides in part, "Juridical capacity, which is the fitness to be the subject of legal relations"
97

See rollo, p. 18. "Petitioner [MIAA] is a government-owned and controlled corporation with original charter as it was created by virtue of Executive Order No. 903 issued by then President Ferdinand E. Marcos on July 21, 1983, as amended by Executive Order No. 298 issued by President Corazon C. Aquino on July 26, 1987, and with office address at the MIAA Administration Bldg Complex, MIAA Road, Pasay City." (emphasis supplied).
98

See "Department of Budget and Management Web Linkages," http://www.dbm. gov.ph/web_linkages.htm (Last visited 25 February 2005).
99

G.R. No. 104217, 5 December 1994, 238 SCRA 714; per Quiazon, J.. "Petitioner MIAA is a government-owned and controlled corporation for the purpose, among others, of encouraging and promoting international and domestic air traffic in the Philippines as a means of making the Philippines a center of international trade and tourism and accelerating the development of the means of transportation and communications in the country". Id. at 716.
100

See Section 23, Chapter 6, Title XV, Book IV, Administrative Code of 1987. Supra note 60. Supra note 8. Supra note 6.

101

102

103

104

Assuming that there is conflict between Section 133(o), Section 193, Section 232 and Section 234 of the Local Government Code, the rule in statutory construction is, "If there be no such ground for choice between inharmonious provisions or sections, the latter provision or section, being the last expression of the legislative will, must, in construction, vacate the former to the extent of the repugnancy. It has been held that in case of irreconcilable conflict between two provisions of the same statute, the last in order of position is frequently held to prevail, unless it clearly appears that the intent of the legislature is otherwise." R. Agpalo, Statutory Construction (3rd ed., 1995), p. 201; citing Lichauco & Co. v. Apostol, 44 Phil. 138 (1922); Cuyegkeng v. Cruz, 108 Phil. 1147 (1960); Montenegro v. Castaeda, 91 Phil. 882 (1952).
105

Decision, p. 12. Supra note 6. Id. at 261-262. Id., at 248-250.

106

107

108

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Tax 2 Cases for FE

109

Supra note 38.

110

Id, at 102; citing National Power Corp. v. Presiding Judge, RTC, Br. XXV, 190 SCRA 477 (1990).
111

Decision, p. 25.

112

"Unless otherwise expressed in the tax law, the government and its political subdivisions are exempt therefrom." J. Vitug and E. Acosta, Tax Law and Jurisprudence (2nd ed., 2000), at 36.
113

Supra note 9. See P.D. No. 1423.

114

115

R. Agpalo, Statutory Construction (3rd ed., 1995), at 199; citing Javellana v. Tayo, G.R. No. 18919, 29 December 1982, 6 SCRA 1042 (1962); Radiola-Toshiba Phil., Inc. v. IAC, 199 SCRA 373 (1991).
116

PPA v. City of Iloilo, supra note 42. Id., at 186-187. Supra note 15. Id. at 869. Id. at 871. Id. at 872. See Section 10, E.O. No. 903. R. Lopez, I The Corporation Code of the Philippines Annotated, pp. 15-16 (1994). See Section 5, E.O. No. 903.

117

118

119

120

121

122

123

124

125

See Section 1, Article X of the Constitution, which reads: "The territorial and political subdivisions of the Republic of the Philippines are the provinces, cities, municipalities and barangays xxx"
126

Romualdez-Yap v. CSC, G.R. No. 104226, 12 August 1993, 225 SCRA 285, 294. 100 Phil. 468. (1956) Id., at 471-473. Lopez, supra note 123 at 67. G.R. No. L-49930, 7 August 1985, 138 SCRA 63. Page 282 of 327

127

128

129

130

Tax 2 Cases for FE

131

"Did the State act in a sovereign capacity or in a corporate capacity when it organized the PNR for the purpose of engaging in transportation? Did it act differently when it organized the PNR as successor of the Manila Railroad Company? xxx We hold that in the instant case the State divested itself of its sovereign capacity when it organized the PNR which is no different from its predecessor, the Manila Railroad Company." Id, at 66.
132

Supra note 17. Id., at 206.

133

134

Section 32(24), Rep. Act No. 776. See CAA v. Court of Appeals, supra note 18, at 36.
135

Supra note 18. Id., at 36. Teodoro v. National Airports Commission, supra note 17, at 207. See Article XII, Section 11, Const.

136

137

138

139

Vitug & Acosta, supra note 112, at 35; citing Bisaya Land Transportation Co., Inc. v. Collector of Internal Revenue, L-11812, 29 May 1959, 105 Phil. 1338.
140

See Section 3, E.O. 903, as amended.

141

Indeed, last 4 February 2005, the MIAA filed a Manifestation before this Court stating that its new General Manager had been conferring with the newly elected local government of Paraaque with the end of settling the case at mutually acceptable terms. See rollo, pp. 315-316. While this Manifestation was withdrawn a few weeks later, see rollo, pp. 320-322, it still stands as proof that the parties are nevertheless willing to explore an extrajudicial settlement of this case.
142

See Section 17, Article VII, Constitution. "The President shall have control of all the executive departments. He shall ensure that the laws be faithfully executed."
143

See note 141. See Section 5, Rep. Act No. 8423. See Section 6(s), Rep. Act No. 8423. See Section 6(r), Rep. Act No. 8423. See Section 2, Rep. Act No. 8423. See Section 3(b), Rep. Act No. 8423. See Section 4(d), Rep. Act No. 8423.

144

145

146

147

148

149

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Tax 2 Cases for FE

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 176667 November 22, 2007 ERICSSON TELECOMMUNICATIONS, INC., petitioner, vs. CITY OF PASIG, represented by its City Mayor, Hon. Vicente P. Eusebio, et al.*, respondents. DECISION AUSTRIA-MARTINEZ, J.: Ericsson Telecommunications, Inc. (petitioner), a corporation with principal office in Pasig City, is engaged in the design, engineering, and marketing of telecommunication facilities/system. In an Assessment Notice dated October 25, 2000 issued by the City Treasurer of Pasig City, petitioner was assessed a business tax deficiency for the years 1998 and 1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on its gross revenues as reported in its audited financial statements for the years 1997 and 1998. Petitioner filed a Protest dated December 21, 2000, claiming that the computation of the local business tax should be based on gross receipts and not on gross revenue. The City of Pasig (respondent) issued another Notice of Assessment to petitioner on November 19, 2001, this time based on business tax deficiencies for the years 2000 and 2001, amounting to P4,665,775.51 and P4,710,242.93, respectively, based on its gross revenues for the years 1999 and 2000. Again, petitioner filed a Protest on January 21, 2002, reiterating its position that the local business tax should be based on gross receipts and not gross revenue. Respondent denied petitioner's protest and gave the latter 30 days within which to appeal the denial. This prompted petitioner to file a petition for review1 with the Regional Trial Court (RTC) of Pasig, Branch 168, praying for the annulment and cancellation of petitioner's deficiency local business taxes totaling P17,262,205.66. Respondent and its City Treasurer filed a motion to dismiss on the grounds that the court had no jurisdiction over the subject matter and that petitioner had no legal capacity to sue. The RTC denied the motion in an Order dated December 3, 2002 due to respondents' failure to include a notice of hearing. Thereafter, the RTC declared respondents in default and allowed petitioner to present evidence ex- parte. In a Decision2 dated March 8, 2004, the RTC canceled and set aside the assessments made by respondent and its City Treasurer. The dispositive portion of the RTC Decision reads:

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Tax 2 Cases for FE WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and ordering defendants to CANCEL and SET ASIDE Assessment Notice dated October 25, 2000 and Notice of Assessment dated November 19, 2001. SO ORDERED.3 On appeal, the Court of Appeals (CA) rendered its Decision4 dated November 20, 2006, the dispositive portion of which reads: WHEREFORE, the decision appealed from is hereby ordered SET ASIDE and a new one entered DISMISSING the plaintiff/appellee's complaint WITHOUT PREJUDICE. SO ORDERED.5 The CA sustained respondent's claim that the petition filed with the RTC should have been dismissed due to petitioner's failure to show that Atty. Maria Theresa B. Ramos (Atty. Ramos), petitioner's Manager for Tax and Legal Affairs and the person who signed the Verification and Certification of Non-Forum Shopping, was duly authorized by the Board of Directors. Its motion for reconsideration having been denied in a Resolution6 dated February 9, 2007, petitioner now comes before the Court via a Petition for Review on Certiorari under Rule 45 of the Rules of Court, on the following grounds: (1) THE COURT OF APPEALS ERRED IN DISMISSING THE CASE FOR LACK OF SHOWING THAT THE SIGNATORY OF THE VERIFICATION/ CERTIFICATION IS NOT SPECIFICALLY AUTHORIZED FOR AND IN BEHALF OF PETITIONER. (2) THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO RESPONDENT'S APPEAL, CONSIDERING THAT IT HAS NO JURISDICTION OVER THE SAME, THE MATTERS TO BE RESOLVED BEING PURE QUESTIONS OF LAW, JURISDICTION OVER WHICH IS VESTED ONLY WITH THIS HONORABLE COURT. (3) ASSUMING THE COURT OF APPEALS HAS JURISDICTION OVER RESPONDENT'S APPEAL, SAID COURT ERRED IN NOT DECIDING ON THE MERITS OF THE CASE FOR THE SPEEDY DISPOSITION THEREOF, CONSIDERING THAT THE DEFICIENCY LOCAL BUSINESS TAX ASSESSMENTS ISSUED BY RESPONDENT ARE CLEARLY INVALID AND CONTRARY TO THE PROVISIONS OF THE PASIG REVENUE CODE AND THE LOCAL GOVERNMENT CODE.7 After receipt by the Court of respondent's complaint and petitioner's reply, the petition is given due course and considered ready for decision without the need of memoranda from the parties. The Court grants the petition. First, the complaint filed by petitioner with the RTC was erroneously dismissed by the CA for failure of petitioner to show that its Manager for Tax and Legal Affairs, Atty. Ramos, was authorized by the Board of Directors to sign the Verification and Certification of Non-Forum Shopping in behalf of the petitioner corporation.

Page 285 of 327

Tax 2 Cases for FE Time and again, the Court, under special circumstances and for compelling reasons, sanctioned substantial compliance with the rule on the submission of verification and certification against nonforum shopping.8 In General Milling Corporation v. National Labor Relations Commission,9 the Court deemed as substantial compliance the belated attempt of the petitioner to attach to the motion for reconsideration the board resolution/secretary's certificate, stating that there was no attempt on the part of the petitioner to ignore the prescribed procedural requirements. In Shipside Incorporated v. Court of Appeals,10 the authority of the petitioner's resident manager to sign the certification against forum shopping was submitted to the CA only after the latter dismissed the petition. The Court considered the merits of the case and the fact that the petitioner subsequently submitted a secretary's certificate, as special circumstances or compelling reasons that justify tempering the requirements in regard to the certificate of non-forum shopping.11 There were also cases where there was complete non-compliance with the rule on certification against forum shopping and yet the Court proceeded to decide the case on the merits in order to serve the ends of substantial justice.12 In the present case, petitioner submitted a Secretary's Certificate signed on May 6, 2002, whereby Atty. Ramos was authorized to file a protest at the local government level and to "sign, execute and deliver any and all papers, documents and pleadings relative to the said protest and to do and perform all such acts and things as may be necessary to effect the foregoing."13 Applying the foregoing jurisprudence, the subsequent submission of the Secretary's Certificate and the substantial merits of the petition, which will be shown forthwith, justify a relaxation of the rule. Second, the CA should have dismissed the appeal of respondent as it has no jurisdiction over the case since the appeal involves a pure question of law. The CA seriously erred in ruling that the appeal involves a mixed question of law and fact necessitating an examination and evaluation of the audited financial statements and other documents in order to determine petitioner's tax base. There is a question of law when the doubt or difference is on what the law is on a certain state of facts. On the other hand, there is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.14 For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.15 There is no dispute as to the veracity of the facts involved in the present case. While there is an issue as to the correct amount of local business tax to be paid by petitioner, its determination will not involve a look into petitioner's audited financial statements or documents, as these are not disputed; rather, petitioner's correct tax liability will be ascertained through an interpretation of the pertinent tax laws, i.e., whether the local business tax, as imposed by the Pasig City Revenue Code (Ordinance No. 25-92) and the Local Government Code of 1991, should be based on gross receipts, and not on gross revenue which respondent relied on in computing petitioner's local business tax deficiency. This, clearly, is a question of law, and beyond the jurisdiction of the CA. Page 286 of 327

Tax 2 Cases for FE Section 2(c), Rule 41 of the Rules of Court provides that in all cases where questions of law are raised or involved, the appeal shall be to this Court by petition for review on certiorari under Rule 45. Thus, as correctly pointed out by petitioner, the appeal before the CA should have been dismissed, pursuant to Section 5(f), Rule 56 of the Rules of Court, which provides: Sec. 5. Grounds for dismissal of appeal.- The appeal may be dismissed motu proprio or on motion of the respondent on the following grounds: xxxx (f) Error in the choice or mode of appeal. xxxx Third, the dismissal of the appeal, in effect, would have sustained the RTC Decision ordering respondent to cancel the Assessment Notices issued by respondent, and therefore, would have rendered moot and academic the issue of whether the local business tax on contractors should be based on gross receipts or gross revenues. However, the higher interest of substantial justice dictates that this Court should resolve the same, to evade further repetition of erroneous interpretation of the law,16 for the guidance of the bench and bar. As earlier stated, the substantive issue in this case is whether the local business tax on contractors should be based on gross receipts or gross revenue. Respondent assessed deficiency local business taxes on petitioner based on the latter's gross revenue as reported in its financial statements, arguing that gross receipts is synonymous with gross earnings/revenue, which, in turn, includes uncollected earnings. Petitioner, however, contends that only the portion of the revenues which were actually and constructively received should be considered in determining its tax base. Respondent is authorized to levy business taxes under Section 143 in relation to Section 151 of the Local Government Code. Insofar as petitioner is concerned, the applicable provision is subsection (e), Section 143 of the same Code covering contractors and other independent contractors, to wit: SEC. 143. Tax on Business. - The municipality may impose taxes on the following businesses: xxxx (e) On contractors and other independent contractors, in accordance with the following schedule: With gross receipts for the preceding calendar year in the amount of: Amount of Tax Per Annum

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Tax 2 Cases for FE xxxx (Emphasis supplied) The above provision specifically refers to gross receipts which is defined under Section 131 of the Local Government Code, as follows: xxxx (n) "Gross Sales or Receipts" include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value-added tax (VAT); xxxx The law is clear. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive. In Commissioner of Internal Revenue v. Bank of Commerce,17 the Court interpreted gross receipts as including those which were actually or constructively received, viz.: Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive receipt. When the depository bank withholds the final tax to pay the tax liability of the lending bank, there is prior to the withholding a constructive receipt by the lending bank of the amount withheld. From the amount constructively received by the lending bank, the depository bank deducts the final withholding tax and remits it to the government for the account of the lending bank. Thus, the interest income actually received by the lending bank, both physically and constructively, is the net interest plus the amount withheld as final tax. The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax withheld constitutes income earned by the taxpayer, then that amount manifestly forms part of the taxpayer's gross receipts. Because the amount withheld belongs to the taxpayer, he can transfer its ownership to the government in payment of his tax liability. The amount withheld indubitably comes from income of the taxpayer, and thus forms part of his gross receipts. (Emphasis supplied) Further elaboration was made by the Court in Commissioner of Internal Revenue v. Bank of the Philippine Islands,18 in this wise: Receipt of income may be actual or constructive. We have held that the withholding process results in the taxpayer's constructive receipt of the income withheld, to wit:

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Tax 2 Cases for FE By analogy, we apply to the receipt of income the rules on actual and constructive possession provided in Articles 531 and 532 of our Civil Code. Under Article 531: "Possession is acquired by the material occupation of a thing or the exercise of a right, or by the fact that it is subject to the action of our will, or by the proper acts and legal formalities established for acquiring such right." Article 532 states: "Possession may be acquired by the same person who is to enjoy it, by his legal representative, by his agent, or by any person without any power whatever; but in the last case, the possession shall not be considered as acquired until the person in whose name the act of possession was executed has ratified the same, without prejudice to the juridical consequences of negotiorum gestio in a proper case." The last means of acquiring possession under Article 531 refers to juridical actsthe acquisition of possession by sufficient titleto which the law gives the force of acts of possession. Respondent argues that only items of income actually received should be included in its gross receipts. It claims that since the amount had already been withheld at source, it did not have actual receipt thereof. We clarify. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the proper acts and legal formalities established therefor. The withholding process is one such act. There may not be actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any power whatsoever shall be considered as acquired when ratified by the person in whose name the act of possession is executed. In our withholding tax system, possession is acquired by the payor as the withholding agent of the government, because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are subjected to FWT are indeedfor legal purposestantamount to delivery, receipt or remittance.19 Revenue Regulations No. 16-2005 dated September 1, 200520 defined and gave examples of "constructive receipt", to wit: SEC. 4. 108-4. Definition of Gross Receipts. -- x x x "Constructive receipt" occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. The following are examples of constructive receipts: (1) deposit in banks which are made available to the seller of services without restrictions; Page 289 of 327

Tax 2 Cases for FE (2) issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered; and (3) transfer of the amounts retained by the payor to the account of the contractor. There is, therefore, constructive receipt, when the consideration for the articles sold, exchanged or leased, or the services rendered has already been placed under the control of the person who sold the goods or rendered the services without any restriction by the payor. In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. This is in consonance with the International Financial Reporting Standards,21 which defines revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends),22 which is measured at the fair value of the consideration received or receivable.23 As aptly stated by the RTC: "[R]evenue from services rendered is recognized when services have been performed and are billable." It is "recorded at the amount received or expected to be received." (Section E [17] of the Statements of Financial Accounting Standards No. 1).24 In petitioner's case, its audited financial statements reflect income or revenue which accrued to it during the taxable period although not yet actually or constructively received or paid. This is because petitioner uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayer's right to receive the income, and the amount can be determined with reasonable accuracy; the right to receive income, and not the actual receipt, determines when to include the amount in gross income.25 The imposition of local business tax based on petitioner's gross revenue will inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the same jurisdiction for the same thing26 inasmuch as petitioner's revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid. Thus, respondent committed a palpable error when it assessed petitioner's local business tax based on its gross revenue as reported in its audited financial statements, as Section 143 of the Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts. WHEREFORE, the petition is GRANTED. The Decision dated November 20, 2006 and Resolution dated February 9, 2007 issued by the Court of Appeals are SET ASIDE, and the Decision dated March 8, 2004 rendered by the Regional Trial Court of Pasig, Branch 168 is REINSTATED. SO ORDERED. Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., concur.

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Tax 2 Cases for FE Footnotes

*

Only Pasig City is named as respondent in the body of herein Petition for Review, pp. 1-2; rollo, pp. 17-18.
1

Entitled "Ericsson Telecommunications, Inc., Plaintiff, v. Pasig City thru its Mayor, Hon. Soledad Eusebio and the City Treasurer, Hon. Crispino Salvador, Defendants."
2

Rollo, pp. 60-67. Rollo, p. 67.

Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Rosalinda Asuncion-Vicente and Ramon M. Bato, Jr., concurring; id. at 6-13.
5

Id. at 12-13. Id. at 14. Rollo, pp. 24-25.

Estribillo v. Department of Agrarian Reform, G.R. No. 159674, June 30, 2006, 494 SCRA 218, 232; General Milling Corporation v. National Labor Relations Commission, 442 Phil. 425, 427 (2002); Shipside Incorporated v. Court of Appeals, 404 Phil. 981, 995 (2001).
9

Supra note 8. Supra note 8, at 995. Id. at 996.

10

11

12

De Guia v. De Guia, 408 Phil. 399, 408 (2001); Damasco v. National Labor Relations Commission, 400 Phil. 568, 581 (2000).
13

Rollo, p. 68. Pajuyo v. Court of Appeals, G.R. No. 146364, June 3, 2004, 430 SCRA 492, 506.

14

15

Velayo-Fong v. Velayo, G.R. No. 155488, December 6, 2006, 510 SCRA 320, 329330.
16

See Velayo-Fong v. Velayo, supra note 15; Province of Batangas v. Romulo, G.R. No. 152774, May 27, 2004, 429 SCRA 736, 757.
17

G.R. No. 149636, June 8, 2005, 459 SCRA 638, 653. G.R. No. 147375, June 26, 2006, 492 SCRA 551. Id. at 569-570. Page 291 of 327

18

19

Tax 2 Cases for FE

20

Consolidated Value-Added Tax Regulations of 2005.

21

In March 2005, the Accounting Standards Council approved the issuance of International Accounting Standards 18, Revenue, issued by the International Accounting Standards Board as a Philippine Financial Reporting Standard, consisting of the Philippine Financial Reporting Standards corresponding to the International Financial Reporting Standards, the Philippine Accounting Standards corresponding to International Accounting Standards, and Interpretations.
22

International Accounting Standards 18.7. International Accounting Standards 18.9. Rollo, p. 66. Filipinas Synthetic Fiber Corporation v. Court of Appeals, 374 Phil. 835, 842 (1999).

23

24

25

26

Commissioner of Internal Revenue v. Solidbank Corporation, 462 Phil. 96, 133 (2003).

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Tax 2 Cases for FE

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 135928 July 6, 2007 TEODORO BERDIN, VICENTE ALEGARBES, and ABELARDO DE VERA, in Their Personal Capacities and as Representatives of the TUBIGON MARKET VENDORS ASSOCIATION, Petitioners, vs. HON. EUFRACIO A. MASCARIAS, Municipal Mayor; CRESENCIANA L. BALATAYO, Municipal Treasurer; SAMUEL PURISIMA, INP Station Commander; THE MUNICIPAL COUNCIL and/or MUNICIPALITY OF TUBIGON, PROVINCE OF BOHOL, Respondents. DECISION TINGA, J.: This is a petition1 filed under Rule 45 seeking to review and set aside the 26 May 1998 Decision2 of the Court of Appeals in CA-G.R. SP No. 39045 and to annul and set aside the 24 April 1995 Decision3 of the Regional Trial Court (RTC), Branch 4, Bohol, in Civil Case No. 4577. Petitioners Teodoro Berdin, Vicente Alegarbes, and Abelardo de Vera (petitioners), are the President, Vice President, and Adviser, respectively, of the Tubigon Market Vendors Association (Association), an association of vendors doing business in Tubigon, Bohol. Respondents Eufracio A. Mascarias, Narcisa L. Balatayo, and Lt. Abner Catalla, on the other hand, were, at the time Civil Case No. 4577 was filed, the Municipal Mayor, Treasurer, and the INP Station Commander, respectively, of Tubigon, Bohol. On 14 December 1988, the Sangguniang Bayan of Tubigon enacted Tax Ordinance No. 88-11-364 increasing the taxes and fees of the municipality, to take effect on 1 January 1989. Petitioner Berdin, as President of the Association, wrote to respondent Municipal Treasurer requesting a copy of Tax Ordinance No. 88-11-36.5 The request was followed by the filing of a protest before respondents Municipal Mayor and Municipal Treasurer.6 The Association also requested the suspension of the implementation of the ordinance pending final determination of its legality by appropriate authorities. Thereafter, on 27 February 1989, petitioners elevated their request for a review and suspension of the ordinance to the Provincial Treasurer of Bohol.7 Acting on petitioners request, Eufronio M. Pizarras, Provincial Treasurer, referred the letter of petitioner Berdin to the Municipal Treasurer on 15 March 1989, and requested the latter official to forward a copy of Tax Ordinance No. 88-11-36 to the Department of Finance (DOF), through the Provincial Treasurer, for review and approval pursuant to Sec. 8 of Executive Order (E.O.) No. 249 dated 25 July 1987.8 Meanwhile, on 29 March 1989, respondent Mayor submitted a corrected copy of Tax Ordinance No. 88-11-36 to Atty. Melchor P. Monreal, Assistant Regional Director, DOF Regional Office No. 7, Cebu City.9 Page 293 of 327

Tax 2 Cases for FE Final Demand Letters were sent to petitioners de Vera and Berdin on 2 June 1989 for payment of outstanding rental fees and municipal business taxes due under the new tax ordinance, with a warning that their stores/establishments will be closed and padlocked.10 Petitioners wrote the Municipal Treasurer on 13 June 1989 and requested said official to await the resolution of their protest before taking action on the Final Demand Letters.11 Petitioners also sent a letter to the DOF on 21 August 1989 asking for the suspension of the ordinance pending resolution of their protest in view of the threat of closure of their stores/establishments.12 Thereafter, on 4 September 1989, petitioners filed a Complaint13 with the RTC of Bohol against respondents Mayor, Treasurer, and INP Station Commander of Tubigon, Bohol, as well as the Municipal Council and/or Municipality of Tubigon, to enjoin respondents from enforcing Tax Ordinance No. 88-11-36, to declare the ordinance a nullity and, in the event said ordinance is found to be invalid, to order respondents to reimburse excess taxes paid by petitioners. The case was docketed as Civil Case No. 4577.14 Tax Ordinance No. 88-11-36 was amended by Tax Ordinance No. 89-10-4915 dated 17 October 1989, by specifying that the civil remedies available include the "padlocking of the establishment and/or seizure of property and revocation of the permit or license and/or eviction from public property and/or by legal action."16 The Provincial Treasurer approved Tax Ordinance No. 89-10-49 on 8 January 1990 and held that it was within the power of the municipality to enact the ordinance pursuant to Secs. 60 to 63, Art. 3 of Presidential Decree (P.D.) No. 231, as amended, or the Local Tax Code.17 Even before the Provincial Treasurer approved of Tax Ordinance No. 89-10-49, petitioners had earlier referred Tax Ordinance No. 89-10-49 to the Provincial Prosecutor for review. The Provincial Prosecutor issued Opinion No. 90-118 dated 3 January 1990 and found Tax Ordinance No. 89-10-49 valid except insofar as it provided for the padlocking of establishments as among the civil remedies available against a delinquent taxpayer. Said official wrote the Sangguniang Bayan and suggested an amendment to Tax Ordinance No. 89-10-49 by deleting "padlocking of the establishment" as among the civil remedies.19 Meanwhile, on 27 December 1989, the Provincial Treasurer suspended some provisions of Tax Ordinance No. 88-11-36 for failure to conform to the rates prescribed by the Local Tax Code.20 Thus, the Sangguniang Bayan enacted Municipal Revenue Ordinance No. 90-01-5421 on 5 January 1990 to amend the suspended provisions of Tax Ordinance No. 88-11-36. The Provincial Treasurer found Municipal Revenue Ordinance No. 90-01-54 to be in conformity with the rates authorized under the Local Tax Code and accordingly lifted the suspension of the provisions of Tax Ordinance No. 88-11-36 that were previously suspended and declared that the same, as amended by Municipal Revenue Ordinance No. 90-01-54, may already be given force and effect.22 Thereafter, on 24 January 1990, the Provincial Treasurer wrote petitioners informing the latter of his findings that Tax Ordinance Nos. 88-11-36 and 89-10-49 were both in order and in accord with Art. 3 of P.D. No. 231 and further explaining that under Sec. 49 of P.D. No. 231, a public hearing is required only when "the local board or council may exercise the power to impose a tax or fee on a tax base or subject similar to those authorized in [the Local Tax Code] but which may not have been specifically enumerated herein," a fact not present in the case of the questioned ordinances.23 Petitioners wrote the Provincial Treasurer on 31 January 1990 informing the latter that the Provincial Fiscal already made a contrary ruling on Tax Ordinance No. 89-10-49 and that since the municipality did not appeal the said ruling, the same became final. Petitioners further requested the Provincial

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Tax 2 Cases for FE Treasurer to transmit all records to the DOF for purposes of appealing the ruling of the Provincial Treasurer and for a review of the questioned ordinances by a higher authority.24 Petitioners elevated the finding of the Provincial Treasurer to the Secretary of Finance on 31 January 1990. They also requested the suspension of the implementation of Tax Ordinance No. 88-11-36 pending its review by said office.25 On 30 March 1990, Gregorio A. Barretto, Director III, Bureau of Local Government Finance of the DOF, referred the appeal to the Provincial Treasurer for comment and/or recommendation.26 The Provincial Treasurer informed the DOF that his office reviewed and approved the ordinance after the rates have been found to be just and reasonable and that, for those rates initially found by him to have exceeded the maximum authorized by law, an amendatory ordinance was enacted to meet the objection.27 Thereafter, the Deputy Director and Officer-in-Charge of the Bureau of Local Government Finance, by authority of the Secretary of Finance, informed the Provincial Treasurer that their department cannot review Ordinance No. 88-11-36 as requested by petitioners.28 The Provincial Treasurer transmitted a copy of this letter to petitioners.29 Four years later, on 24 April 1995, the RTC rendered a Decision30 in Civil Case No. 4577, the dispositive portion of which states: WHEREFORE, judgment is hereby rendered as follows: 1 declaring Municipal Revenue Ordinance No. 88-11-36, series of 1988, enacted by the Sangguniang Bayan of Tubigon, Bohol as valid and therefore the same can be enforced; 2 declaring Municipal Ordinance No. 89-10-49 dated October 11, 1989 valid, except insofar as it provides for the "padlocking of the establishment" as the civil remedies available against a delinquent taxpayer; 3 denying the prayer for mandamus and reimbursement; 4 dissolving the injunctive order dated May 11, 1990 directing the defendants to desist from enforcing Municipal Ordinance No. 88-11-36; 5 granting Final Injunction restraining defendants from padlocking the business establishments of the plaintiffs, thus making permanent the injunctive order of May 11, 1990 to that effect; and 6 dismissing defendants counterclaim for insufficiency of evidence. Costs against the plaintiffs. SO ORDERED.31 Petitioners filed a Notice of Appeal with the RTC,32 which gave due course to the appeal and ordered the transmittal of the case records to the Court of Appeals (CA).33 On 26 May 1998, the Fifth Division of the CA rendered a Decision34 affirming in toto the decision of the RTC. Their motion for reconsideration having been denied,35 petitioners now come to this Court via this Petition for Review under Rule 45 of the Rules of Court. Page 295 of 327

Tax 2 Cases for FE The issues raised by petitioners in their Memorandum36 may be summarized as follows: (1) whether the ordinances are valid and enforceable; (2) whether publication was necessary; and (3) whether there was exhaustion of administrative remedies. The petition is meritorious but only in regard to the need for publication. Petitioners adopt a three-level argument with regard to the validity and enforceability of Tax Ordinance No. 88-11-36. First, they assert the ordinance does not exist by virtue of respondent officials delay in furnishing them with a copy of the questioned ordinance. Second, if Tax Ordinance No. 88-11-36 did exist, it was not validly enacted for failure to hold public hearings and to have the same published pursuant to Sec. 43 of the Local Tax Code. Finally, petitioners claim, even if Tax Ordinance No. 88-11-36 was validly enacted, the same contains objectionable provisions which would render it invalid and unenforceable. Petitioners misgivings on the existence of Tax Ordinance No. 88-11-36 are baseless. The reason for the delay was adequately explained and was even attributed to petitioners failure to pay for the cost of reproduction of the ordinance. The right of the people to information on matters of public concern is recognized under Sec. 7, Art. III of the 1987 Constitution37 and is subject to such limitations as may be provided by law. Thus, while access to official records may not be prohibited, it certainly may be regulated. The regulation may come either from statutory law and from the inherent power of an officer to control his office and the records under his custody and to exercise some discretion as to the manner in which persons desiring to inspect, examine, or copy the record may exercise their rights.38 The Municipal Treasurer in the case at bar exercised this discretion by requiring petitioners to pay for the cost of reproduction of Tax Ordinance No. 88-11-36. Such a requirement is reasonable under the circumstances considering that the ordinance is quite voluminous consisting of more than a hundred pages. Petitioners then assail Tax Ordinance No. 88-11-36 and Tax Ordinance No. 90-10-49 for failure to hold public hearings pursuant to Sec. 50 of the Local Tax Code. Respondents, on the other hand, claim that a public hearing was no longer necessary considering that the ordinances in question were merely revisions of an existing tax ordinance and not new enactments. The pertinent provisions of law on this matter are Secs. 4939 and 5040 of the Local Tax Code. A perusal of these provisions would yield a conclusion that the local board or council has the power to impose a tax or fee (1) on a tax base or subject specifically enumerated in the Local Tax Code, (2) on a tax base similar to those authorized in the Local Tax Code but which may not have been specifically enumerated therein, and (3) on a tax base or tax subject which is not similar or comparable to any tax base or subject specifically mentioned or otherwise provided for in the Local Tax Code. Public hearing apparently is not necessary when the tax or fee is imposed on a tax base or subject specifically enumerated in the Local Tax Code. The basis for the above distinction is that when a tax base or subject is specifically enumerated in the Local Tax Code, the existence of the power to tax is beyond question as the same is expressly granted. Even in the determination of the rates of the tax, a public hearing, even if ideal, is not necessary because the law itself provides for a ceiling on such rates. The same does not obtain in a situation where what is about to be taxed is not specifically enumerated in the Local Tax Code because in such a situation, the issues of whether to tax or not and at what rate a tax is to be imposed are crucial. Consequently, a public hearing is necessary and vital. Page 296 of 327

Tax 2 Cases for FE A scrutiny of the taxes or fees imposed by Tax Ordinance No. 88-11-36 shows that some of them belong to the second and third categories of taxes or fees that may be imposed by a municipality that require public hearing. Petitioners are thus correct in saying that a public hearing is necessary for its enactment. With respect to Tax Ordinance No. 89-10-49, however, we hold that no public hearing is necessary as it does not impose any tax or fee. Said ordinance is actually a restatement, with illustrations, of the provisions of the Local Tax Code on civil remedies for the collection of the local taxes and fees imposed by Tax Ordinance No. 88-11-36. Although a public hearing is necessary for the enactment of Tax Ordinance No. 88-11-36, still we uphold its validity in view of petitioners failure to present evidence to show that no public hearing was conducted.41 Petitioners, as the party asserting a negative allegation, had the burden of proving lack of public hearing.42 Although the Sangguniang Bayan had the control of records or the better means of proof regarding the facts alleged and respondent public officials assumed an uncooperative stance to petitioners request for copies of the Minutes of their deliberation, petitioners are not relieved from this burden.43 Petitioners could easily have resorted to the various modes of discovery under Rules 23 to 28 of the Rules of Court.44 Furthermore, petitioners could have compelled the production of these documents through a subpoena duces tecum or they could have required testimony on this issue by officials in custody of the documents through a subpoena ad testificandum. However, petitioners made no such effort. Petitioners next claim that the impositions contained in Tax Ordinance No. 88-11-36 exceeded the maximum allowed by the Local Tax Code. In particular, petitioners assert that (1) the taxes imposed by the ordinance are not based on the taxpayers ability to pay; (2) the taxes imposed are unjust, excessive, oppressive, discriminatory and confiscatory; (3) the ordinances are contrary to law, public policy and are in restraint of trade; (4) the ordinances violate the rule of a progressive system of taxation; and (5) the ordinances are contrary to the declared national policy. These questions have already been raised in their protest and resolved by the 27 December 1989 findings of the Provincial Treasurer. In fact, said official suspended some of the provisions of Tax Ordinance No. 88-11-36 for failure to comply with the rates prescribed by the Local Tax Code. Furthermore, the subsequent enactment of Municipal Revenue Ordinance No. 90-01-54 and its approval by the Provincial Treasurer corrected this non-compliance with the Local Tax Code. The local legislative bodys modification of Tax Ordinance No. 88-11-36 through Municipal Revenue Ordinance No. 90-01-54 is sanctioned by Sec. 4445 of the Local Tax Code. Moreover, as the presumption of regularity of official conduct was not overcome by petitioners, the findings of the Provincial Treasurer must be upheld. There is likewise no merit in petitioners contention that the Provincial Treasurers finding on the fishery rental fees is flawed. The Local Tax Code provides in Sec. 21 thereof that municipalities, in the exercise of their authority to grant exclusive fishery rights and license individual fishing gears in municipal waters, may levy or fix rentals or fees therefore in accordance with said section and in conjunction with other operative laws and regulations on municipal fisheries. One such operative law is P.D. No. 70446 which provides for the jurisdiction of the Bureau of Fisheries and Aquatic Resources in Sec. 4.47 Thus, it was correct for the Provincial Treasurer to rule that the fishery rental fees in Tax Ordinance No. 88-11-36 may be given due course provided that prior approval from the Bureau of Fisheries and Aquatic Resources has been obtained, pursuant to the provisions of P.D. No. 704, as amended.

Page 297 of 327

Tax 2 Cases for FE Petitioners further fault the Municipal Treasurer for the latters failure to furnish the Provincial Treasurer with a copy of Tax Ordinance No. 88-11-36 after its approval. By not furnishing the latter official with a copy of the tax ordinance, the Municipal Treasurer frustrated a review thereof. In this regard, we hold that the submission of Tax Ordinance No. 88-11-36 to the Assistant Regional Director, DOF Regional Office No. 7, Cebu City complied with the requirement of review pursuant to Secs. 49 and 50 of the Local Tax Code, as said official is the alter ego of the Secretary of Finance, under an expanded application of the doctrine of qualified political agency, where "the Presidents power of control is directly exercised by him over the members of the Cabinet who, in turn, and by his authority, control the bureaus and other offices under their respective jurisdictions in the executive department."48 We now resolve the issue of exhaustion of administrative remedies. A perusal of the applicable provisions of the Local Tax Code would show that there are three administrative remedies available to an aggrieved taxpayer. A tax ordinance may either be (1) reviewed or suspended by the Provincial Treasurer49 or the Secretary of Finance,50 (2) the subject of a formal protest with the Secretary of Finance,51 or (3) questioned as to its legality and referred for opinion to the Provincial Fiscal.52 In the case at bar, petitioners question the validity of Tax Ordinance No. 88-11-36 for the following reasons: (1) no public hearing was conducted; (2) the taxes imposed therein are not based on the taxpayers ability to pay; (3) the taxes imposed are unjust, excessive, oppressive, discriminatory and confiscatory; (4) the ordinances are contrary to law, public policy and are in restraint of trade; (5) the ordinances violate the rule of a progressive system of taxation; and (6) the ordinances are contrary to the declared national policy. Of these issues, the first, second, fourth and fifth issues should have been referred for opinion to the Provincial Fiscal pursuant to Sec. 4753 of the Local Tax Code, because they are not among those mentioned in Sec. 4454 of the Local Tax Code. The other remaining issues, on the other hand, are proper subjects of a protest which should have been brought to the Secretary of Finance. However, petitioners did not even bring the issues relative to the legality or validity of Tax Ordinance No. 88-11-36 to the Provincial Fiscal. What they brought for the consideration of the Provincial Fiscal was Tax Ordinance No. 89-10-49. Thus, in Opinion No. 90-1,55 the Provincial Fiscal found said ordinance valid except insofar as it provided for the padlocking of the establishment as among the civil remedies available against a delinquent taxpayer. The ruling of the Provincial Treasurer declaring Tax Ordinance No. 89-10-49 valid and in order is of no moment because, under Sec. 47, the opinion of the Provincial Fiscal is appealable to the Secretary of Justice. With respect to the remaining issues proper for a formal protest, petitioners did not bring the same to the Secretary of Finance. What they filed instead was a petition with the Municipal Mayor requesting for a suspension of the implementation of the ordinance "pending final determination of its legality by appropriate authorities." Petitioners thereafter went to the Provincial Treasurer reiterating their request for a review and suspension of the ordinance. In fact, the first time petitioners wrote the DOF was on 13 June 1989, when they merely requested said official to require the Provincial Treasurer to resolve their protest expeditiously. Obviously, petitioners did not formally protest Tax Ordinance No. 88-11-36 as the same may properly be brought not before the Provincial Treasurer but before the Secretary of Finance. What Page 298 of 327

Tax 2 Cases for FE the Provincial Treasurer merely conducted was a review of Tax Ordinance No. 88-11-36 under Sec. 44 of the Local Tax Code, limiting itself to the issues proper for a review thereof. Thus, said official initially suspended some of the provisions of Tax Ordinance No. 88-11-36 for their failure to comply with the rates prescribed by the Local Tax Code and eventually decided in favor of its validity after the Sangguniang Bayan modified the objectionable provisions thereof via Municipal Revenue Ordinance No. 90-01-54. That what was filed before the Provincial Treasurer was merely a review is evident from the DOFs refusal to review the findings of the Provincial Treasurer, which, it said, was made pursuant to Sec. 44 of the Local Tax Code. Even if we were to consider petitioners appeal with the Secretary of Finance as a formal protest, despite its unseasonableness, still, it would be unavailing since they did not offer proof on how and in what manner Tax Ordinance No. 88-11-36 could be invalid. In fact, the Deputy Director and Officer-in-Charge of the Bureau of Local Government Finance, by authority of the Secretary of Finance, noted that petitioners counsel "did not state the grounds of his protest as provided under Section 45 of the Local Tax Code, as amended, in relation to Section 44 thereof."56 Verily, mere allegation that an ordinance is invalid on the grounds enumerated in Sec. 44 of the Local Tax Code will not work to rebut the presumption of the ordinances validity. Clearly, for failure to file a formal protest with the Secretary of Finance, or a legal question with the Provincial Fiscal on Tax Ordinance No. 88-11-36s validity, petitioners cannot be said to have exhausted administrative remedies available to them. The underlying principle of the rule on exhaustion of administrative remedies rests on the presumption that the administrative agency, if afforded a complete chance to pass upon the matter, will decide the same correctly.57 There are both legal and practical reasons for the principle. The administrative process is intended to provide less expensive and speedier solutions to disputes. Where the enabling statute indicates a procedure for administrative review and provides a system of administrative appeal or reconsideration, the courtsfor reasons of law, comity, and convenience will not entertain a case unless the available administrative remedies have been resorted to and the appropriate authorities have been given an opportunity to act and correct the errors committed in the administrative forum.58 From the above disquisitions, it follows that the validity of the questioned tax ordinances must be upheld. However, their enforceability is another matter that merits further deliberation considering the apparent lack of publication or posting of the questioned ordinances. Petitioners assert that pursuant to Sec. 43 of the Local Tax Code, certified true copies of the ordinance should have been published for three (3) days in a newspaper or publication widely circulated within the jurisdiction of the local government, or posted in the local legislative hall or premises and two other conspicuous places within the territorial jurisdiction of the local government within ten (10) days after its approval. Provincial Circular No. 22-73 states: All taxes, fees and charges authorized by the Code to be imposed by local governments, may only be collected by the treasurer concerned if an ordinance embodying the same has been duly enacted by the local board or council and approved in accordance with the provisions of the Code. Section 43 of the Code provides that within ten (10) days after their approval, certified true copies of all provincial, city, municipal and barrio ordinance levying or imposing taxes, fees or other charges shall be published for three (3) consecutive days in a newspaper or publication widely circulated Page 299 of 327

Tax 2 Cases for FE within the jurisdiction of the local government, or posted in the local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government. In either case, copies of all provincial, city, municipal and barrio revenue ordinances shall be furnished the treasurers of the respective component and mother units of a local government for dissemination. While non-compliance with the foregoing provisions of the Code will not render the tax or revenue ordinances null and void, still there must be publication and dissemination as provided in the Code to obviate abuses in the exercise of the taxing powers and preclude protests from the people adversely affected. Such publication and dissemination of tax ordinances will not only be in consonance with the objectives of the Code to secure fair, just and uniform local impositions but will also enhance the efficient collection of valid taxes, fees and other charges. [Emphasis supplied]1avvphi1 Thus, it would seem that while lack of publication does not render a tax ordinance null and void, said requirement must still be complied with in order "to obviate abuses in the exercise of the taxing powers and preclude protests from the people adversely affected." Publication is thus a condition precedent to the effectivity and enforceability of an ordinance to inform the public of its contents before rights are affected by the same. The records are bereft of any indication that evidence was presented to prove petitioners negative allegation that there was no publication. Neither is there a positive declaration on the part of respondents that there was publication or posting. Even the RTC and the CA decisions are silent on this issue. Consequently, an uncertainty exists on whether the ordinances were indeed published or not. We resolve this uncertainty in favor of petitioners and accordingly rule that the questioned tax ordinances must be published before the new tax rates imposed therein are to be collected from the affected taxpayers. This does not mean however that the municipality is deprived of the income that would have been collected under the subject tax ordinances because taxes may still be collected at the old rates previously imposed. While we partially grant this petition, we note with disapproval petitioners commission of forum shopping prior to the filing of this petition. Petitioners simultaneously prayed for the same relief of suspension of the ordinance in four different fora. It should be remembered that petitioners initially filed a protest of Tax Ordinance No. 88-11-36 with the Municipal Mayor and the Municipal Treasurer on 11 January 1989. Even as this protest was unresolved, they elevated their request for a review and suspension of the same ordinance to the Provincial Treasurer on 17 February 1989. Again, in view of the threat of closure of their establishment, petitioners sent a letter to the DOF on 21 August 1989 praying for the same relief of suspension of the ordinance. Again, despite the pendency of the various requests, petitioners filed Civil Case No. 4577, again praying for a writ of preliminary injunction to restrain respondents from enforcing the ordinance, a prayer which is essentially a prayer for the suspension of the ordinance. WHEREFORE, premises considered, the instant petition is GRANTED IN PART. The decision of the Court of Appeals in CA-G.R. SP No. 39045 is hereby MODIFIED in that the Sangguniang Bayan of Tubigon, Bohol is hereby DIRECTED to cause the publication of Tax Ordinance No. 88-11-36, Tax Ordinance No. 89-10-49, and Municipal Revenue Ordinance No. 90-01-54 for three (3) days in a newspaper or publication widely circulated within the jurisdiction of the local government, or their posting in the local legislative hall or premises and two other conspicuous places within the territorial jurisdiction of the local government. In all other respects, the decision of the Court of

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Tax 2 Cases for FE Appeals in CA-G.R. SP No. 39045 affirming the 26 May 1998 Decision of the Regional Trial Court in Civil Case No. 4577 is hereby AFFIRMED. Costs against petitioners. SO ORDERED. DANTE O. TINGA Associate Justice WE CONCUR: (On Official Leave) LEONARDO A. QUISUMBING* Associate Justice Chairperson ANTONIO T. CARPIO Associate Justice CONCHITA CARPIO MORALES Associate Justice

PRESBITERO J. VELASCO, JR. Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO** Associate Justice Acting Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
*

On official leave. Acting Chairperson.

**

Rollo, pp. 8-29. Page 301 of 327

Tax 2 Cases for FE

2

Id. at 454-461. Penned by Justice Hector L. Hofilea and concurred in by Justices Jesus M. Elbinias and Omar U. Amin.
3

Id. at 428-435. Penned by Presiding Judge Achilles L. Melicor. Id. at 279-383. The taxes imposed by the ordinance are as follows: Chapter II. Municipal Taxes (A) Real Property Tax (B) Business Tax, and (C) Tax on Advertisements Chapter III. Permit and Regulatory Fees (A) Mayors Permit Fees on Business (B) Permit Fees for Gaffer, Referee, Bettaker, Promoter and Cashier (C) Cart and Sledge Registration Fee (D) Large Cattle Registration and Transfer Fees (E) Registration/Permit Fees on Bicycles, Tricycles, Pedicabs and Motorcabs (F) Poundage Fee (G) Registration Fees on Fishing Boats and Motorboats (H) Permit Fee on Parades (I) Registration Fee on Calesa or Caretela (J) Permit Fee on Film-Making and Video Tape Coverage, and (K) Permit Fee on Agricultural Machineries and other Heavy Equipment Chapter IV. Other Permit and Regulatory Fees (A) Permit Fee on Sand and Gravel (B) Building Permit Fees (C) Permit Fee on Storage of Flammable, Combustible or Explosive Subtances

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Tax 2 Cases for FE (D) Permit and Inspection Fees on Machineries and Engines (E) Permit Fee for Excavation (F) Permit Fee for Inspection and Verification of Subdivisions (G) Permit Fee for the Use of Sidewalks, Alleys, Roads, Streets, Parks, Plazas, Public Structures and Buildings; Other Personal/Real Owned by the State (H) Permit Fee for Hunting (I) Permit Fees for other activities Chapter V. Service Fees (A) Secretarys Fees (B) Local Registry Fees (C) Clearance, Certification and Other Similar Fees (D) Service Fee for Health Examination (E) Sanitary Inspection Fee (F) Service Charge for Garbage Collection Chapter VI. Municipal Charges (A) Market Fees (B) Fishery Rentals or Fees (C) Slaughter and Corral Fees (D) Rental of Municipal Cemetery Lots (E) Waterworks Fees (F) Municipal Service Fees (G) Parking Fees
5

Id. at 39. Petitioner Berdin reiterated his request in another letter (Id. at 42). He also requested a copy of the Minutes of the deliberations of the Sangguniang Bayan on Tax Ordinance No. 88-11-36.
6

Id. at 40-41.

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Tax 2 Cases for FE

7

Id. at 43.

See 1st Indorsement, id. at 44. Petitioners would subsequently write: (1) the Secretary of Finance, requesting said official to require the Provincial Treasurer to resolve their protest expeditiously (Id. at 210), and (2) the Provincial Treasurer, reminding him of the protest and requesting him for either a suspension of the ordinance or a determination of its validity (Id. at 209). The Finance Service Chief of the Local Finance Policy Enforcement Service of the DOF would thereafter refer petitioners letter to the Provincial Treasurer for comment within 10 days, with an inquiry on whether Tax Ordinance No. 88-11-36 had already been reviewed by the Provincial Treasurer, and with instructions that if the ordinance had already been reviewed, the Provincial Treasurer furnish his office with the results of the review (Id. at 211). For his part, the Provincial Treasurer would again write the Municipal Treasurer for the latter official to transmit a copy of the ordinance so that the same may be reviewed and to comment and answer the protest of the Association (Id. at 212).
9

Id. at 269. It appears that a copy of the ordinance had earlier been submitted to said official on 29 December 1988 for review.
10

Id. at 204-207. Id. at 208. Id. at 213.

11

12

13

Id. at 32-38. The complaint in Civil Case No. 4577 was amended (with leave of Court) on 2 February 1990 (Id. at 75-81). The following allegations were added: 17. That in addition to the grounds set forth in their protest, the ordinance in question have [sic] been enacted without the mandatory public hearing which is a condition precedent under Secs. 49 and 50 of the Local Tax Code since the same refer to similar tax or fee not specifically enumerated and/or not provided by law; to the failure to comply with Sec. 5 of Executive Order No. 249 which took effect July 1987 impl[e]mented on Oct. 22, 1987, for the classification to be the basis for fixing the maximum tax ceilings imposable; xxxx 22. x x x Efforts were exerted to ascertain whether the ordinance was published in a newspaper of general circulation or posted as required by law, but Plaintiffs were not aware thereof; (Id. at 78-79.) The complaint was further amended on 19 October 1991 with the inclusion of Cresenciana P. La Fuente and Samuel Purisima, incumbent Municipal Treasurer and INP Station Commander, respectively, as defendants.

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14

The RTC issued a writ of preliminary injunction on 11 March 1990 upon petitioners filing of a bond in the amount of P10,000.00.
15

Rollo, p. 147.

16

Tax Ordinance No. 88-11-36 merely stated that "[t]he civil remedies available shall be by distraint of personal property and by legal action."
17

Rollo, p. 272. The Local Tax Code, as amended by P.D. No. 426, became effective on 30 March 1974 and has been superseded by the Local Government Code.
18

Id. at 221-223. Id. at 224. Id. at 253. Said official wrote the Sangguniang Bayan. After careful review thereof, pursuant to Section 44 of P.D. 231, as amended, the imposition of permit and regulatory fees are within the taxing power of the Sangguniang Bayan and the rates are found to be just and reasonable as authorized under Section 36 of the Local Tax Code. However the effectivity of the rates imposed under Section 2B.02 (1-15), (16-b-1-5) of Article B; Section 2C.01 (a-h) of Article C; Section 5A.01 (1-7) of Article A; Section. 5B.01 (a-1) (b-c) of Article B; Section 5C.01 (a-e),(h-4) of Article C; Section 6C.01 (d-a) of Article C; and all other rates not allowed under P.D. 231, as amended, are hereby suspended pending the enactment of an amendatory ordinance by that Honorable Body in order to conform with the rates prescribed under the Local Tax Code. Pursuant to Section 30 of P.D. 231, as amended, the rates fixed for the rentals of stalls, booths and block tiendas are also hereby approved it appearing that the same are reasonable. The Fishery rental fees maybe [sic] given due course provided that prior approval from the Bureau of Fisheries and Aquatic Resources has been obtained, pursuant to the provisions of P.D. 704, as amended. Therefore, the said ordinance maybe [sic] given force and effect not earlier than the date fixed for its effectivity, except those sections and articles which are declared to be suspended."

19

20

21

Id. at 387-400. Id. at 401. Id. at 252. Id. at 254. Id. at 255. Page 305 of 327

22

23

24

25

Tax 2 Cases for FE

26

See 1st Indorsement, id. at 261. See 2nd Indorsement, id. at 260. See 3rd Indorsement, id. at 257-258. Said official wrote: Apparently, it is the intention of Atty. Legaspi to raise a protest on the impositions prescribed under the said Ordinance. However, he did not state the grounds of his protest as provided for under Section 45 of the Local Tax Code, as amended, in relation to Section 44 thereof. For emphasis and clarity, it is informed that tax ordinances of municipalities are reviewed by Provincial Treasurers pursuant to the provisions of Section 44 of the Code. The Provincial Treasurer, by virtue of its power to review, may suspend the ordinance in whole or in part on the ground that the tax or fee therein levied or imposed is unjust, excessive, oppressive, confiscatory, or not among those that a particular local government may impose or when the ordinance is contrary to declared national policy. A formal protest against a tax ordinance may be filed based on the same grounds for suspending an ordinance pursuant to Section 45 of the Code. x x x

27

28

29

See 4th Indorsement, id. at 256. Id. at 428-435. Id. at 435. Id. at 437. Id. at 439. The appeal was docketed as CA-G.R. SP No. 39045.

30

31

32

33

34

Id. at 454-461. Penned by Justice Hector L. Hofilea, concurred in by Justices Jesus M. Elbinias and Omar U. Amin.
35

See Resolution, id. at 467. Id. at 507-529.

36

37

Const., Art. III, Sec. 7 states: "The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law."
38

See J.G. Bernas, The Constitution of the Republic of the Philippines: A Commentary (First Ed., 1987), p. 265, citing Subido v. Ozaeta, 80 Phil. 383 (1948).
39

SEC. 49. Similar tax or fee not specifically enumerated. The local board or council may exercise the power to impose a tax or fee on a tax base or subject similar to Page 306 of 327

Tax 2 Cases for FE those authorized in this Code but which may not have been specifically enumerated herein, the rate of which shall in no case exceed that fixed for the similar tax base or subject. No ordinance, however, imposing such a tax or fee shall be enacted without any public hearing having been held for the purpose. The Secretary of Finance shall within six months from the date of receipt of copy of the ordinance review the same and the tax or fee therein imposed shall accrue, should the ordinance be approved by the Secretary of Finance, at such date as may be determined and fixed by him. (As amended by P.D. No. 426) [Emphasis supplied]
40

SEC. 50. Tax or fee not provided for. Where the tax base or tax subject is not similar or comparable to any tax base or subject specifically mentioned or otherwise provided for in this Code, the local board or council may impose a tax, fee or other imposition thereon. No ordinance, however, imposing such a tax or fee shall be enacted without any public hearing having been held for the purpose. The Secretary of Finance shall within six months from the date or receipt of copy of the ordinance review the same and the tax or fee therein imposed shall accrue, should the ordinance be approved by the Secretary of Finance, at such date as may be determined and fixed by him. (As amended by P.D. No. 426) [Emphasis supplied]
41

See Reyes v. Court of Appeals, 378 Phil. 232 (1999), citing Figuerres v. Court of Appeals, 364 Phil. 683 (1999).
42

Id.

43

See Reyes v. Court of Appeals, supra note 41 at 239, citing People v. Pajenado, 142 Phil. 702, 707 (1970).
44

These modes of discovery are the following: (1) Depositions Pending Action, (2) Depositions Before Action or Pending Appeal, (3) Interrogatories to Parties, (4) Admission by Adverse Party, (5) Production or Inspection of Documents of Things, and (5) Physical and Mental Examination of Persons.
45

SEC. 44. Review and suspension of tax ordinance. - x x x The x x x provincial treasurer x x x shall review and have the authority to suspend the effectivity of any tax ordinance within one hundred and twenty days after receipt of a copy thereof, if in his opinion, the tax or fee therein levied or imposed is unjust, excessive, oppressive, confiscatory, or not among those that the particular local government may impose in the exercise of its power in accordance with this Code; or when the tax ordinance is, in whole or in part, contrary to declared national economic policy; or when the ordinance is discriminatory in nature on the conduct of business or calling or in restraint of trade. When the x x x provincial treasurer x x x exercises this authority, the effectivity of such ordinance shall be suspended, either in part or, if necessary, in toto. The local legislative body, within thirty days after receipt of the notice of suspension, may either modify the tax ordinance to meet the objections thereto or file an appeal with the proper court, otherwise, the tax ordinance or the part or parts thereof declared suspended shall be considered as revoked. [Emphasis supplied]

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46

Entitled "Revising and Consolidating All Laws and Decrees Affecting Fishing and Fisheries."
47

The first paragraph of this provision states that: "The Bureau shall have jurisdiction and responsibility in the management, conservation, development, protection, utilization and disposition of all fishery and aquatic resources of the country except municipal waters which shall be under the municipal or city government concerned: Provided, That fish pens and seaweed culture in municipal centers shall be under the jurisdiction of the Bureau: Provided, further, That all municipal or city ordinances and resolutions affecting fishing and fisheries and any disposition thereunder shall be submitted to the Secretary for appropriate action and shall have full force and effect only upon his approval. The Bureau shall also have authority to regulate and supervise the production, capture and gathering of fish and fishery/aquatic products." [Emphasis supplied]
48

See also Constantino. Jr. v. Cuisia, G.R. No. 106064, 13 October 2005, 472 SCRA 505; Carpio v. Executive Secretary, G.R. No. 96409, 14 February 1992, 206 SCRA 290, 295-296; De Leon v. Carpio, G.R. No. 85243, 12 October 1989, 178 SCRA 457; LacsonMagallanes Co., Inc. v. Pao, et al., 129 Phil. 123 (1967); Mondano v. Silvosa, 97 Phil. 143 (1955); Villena v. Secretary of Interior, 67 Phil. 451 (1939).
49

Local Tax Code (1974), Sec. 44. Local Tax Code (1974), Secs. 49 and 50. Local Tax Code (1974), Sec. 45. Local Tax Code (1974), Sec. 47.

50

51

52

53

Sec. 47. Question on the legality of a tax ordinance. Any question or issue raised against the legality of any tax ordinance, or portion thereof, on grounds other than those mentioned in Section 44 of this Code, shall be referred for opinion to the Provincial Fiscal, in the case of provincial, municipal and barrio tax ordinances, or to the City Fiscal, in the case of tax ordinances of the city and barrios within the city, whose opinion shall be rendered within a period of thirty days after receipt by him of the query or protest. The opinion of the Provincial or City Fiscal, as the case may be, shall be appealable to the Secretary of Justice who shall render an opinion on the matter within sixty days after receipt of the appeal. The decision of the Secretary of Justice shall be final and executory unless, within thirty days upon receipt thereof, the aggrieved party contests the same in a court of competent jurisdiction.
54

The grounds enumerated by Sec. 44 are the following: 1) the tax or fee therein levied or imposed is unjust, excessive, oppressive, confiscatory; (2) the tax is not among those that the particular local government may impose in accordance with the Local Tax Code; (3) the tax ordinance is, in whole or in part, contrary to declared national economic policy; or (4) the ordinance is discriminatory in nature on the conduct of business or calling or in restraint of trade.
55

Rollo, pp. 221-223. See 3rd Indorsement, id. at 257-258. Page 308 of 327

56

Tax 2 Cases for FE

57

University of the Philippines v. Hon. Catungal, Jr., 338 Phil. 728, 747 (1997), citing De los Santos v. Limbaga, No. L-15976, 31 January 1962, 4 SCRA 224, 226.
58

University of the Philippines v. Hon. Catungal, supra, citing R. Cortes, Philippine Administrative Law, Cases and Materials 394 (Rev. 2nd ed., 1984). See Hon. Carale v. Hon. Abarintos, 336 Phil. 126 (1997).

Page 309 of 327

Tax 2 Cases for FE Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 165827 June 16, 2006 NATIONAL POWER CORPORATION, Petitioner, vs. PROVINCE OF ISABELA, represented by HON. BENJAMIN G. DY, Provincial Governor, Respondent. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) dated October 21, 2004 affirming the decision of the Regional Trial Court (RTC) of Ilagan, Isabela, Branch 17, which ordered petitioner National Power Corporation (NPC) to immediately deposit in escrow with the Land Bank of the Philippines the franchise tax due. The antecedents are as follows: Respondent Province of Isabela filed an action for sum of money against petitioner NPC, a government-owned and controlled corporation engaged in the generation and sale of electric power. Respondent alleged in the complaint that petitioners Magat River Hydro-Electric Plant is located within its territory and that, for this reason, it imposed a franchise tax on petitioner pursuant to Section 1372 of Republic Act No. 7160 (Local Government Code of 1991). It averred that petitioner paid the franchise tax for the years 1992 and 1993 in the amount of P9,473,275.00 but failed and refused to pay, despite demands, the franchise tax for the year 1994 in the amount of P7,116,949.00. Respondent likewise sought the payment of legal interest amounting to P854,033.88 plus damages.3 In its Answer, petitioner averred that the Magat River Hydro-Electric Plant is constructed on the land owned by the National Irrigation Administration, which is situated at Susoc, Sto. Domingo, Potia, Ifugao. It admitted that it paid franchise tax to the respondent for the years 1992 and 1993, but that it did so only upon respondents representation that the Magat Hydro-Electric Plant is located within its territorial jurisdiction. It alleged that, due to the boundary dispute between the respondent and the Province of Ifugao, it is in a quandary as to whom it should pay the franchise tax. Petitioner averred that the lower court had no jurisdiction over the subject matter of the action by virtue of Presidential Decree No. 242 prescribing the procedure for the administrative settlement or adjudication of disputes, claims, and controversies between or among government offices, agencies and instrumentalities, including government-owned and controlled corporations. Moreover, respondent did not exhaust administrative remedies by first settling its boundary dispute with the Province of Ifugao. The controversy on the payment of franchise tax could be settled in an action for interpleader, which petitioner intended to file against respondent and the Province of Ifugao.4

Page 310 of 327

Tax 2 Cases for FE With leave of court, the Province of Ifugao filed a Complaint-in-Intervention, later amended, against both petitioner and respondent, claiming that the Magat Hydro-Electric Power Plant from which petitioner derives its income subject to franchise tax is situated within its territory. All the principal structures of the power plant are within its jurisdiction; only those incidental structures which have nothing to do with the production of hydroelectric power are located within the respondents territory. It alleged that it is the one actually maintaining the power plant, as it maintains the watershed that ensures the continuous flow of water to plants reservoir. It averred that, through misrepresentation, respondent succeeded in claiming and receiving payment of franchise tax from the petitioner for the years 1992 and 1993. The intervenor also claimed that it is not precluded from asserting its lawful claim despite the undue payment of the franchise tax to the respondent. It maintained that respondent has no legal basis to assert a claim over the franchise tax over the power plant.5 It prayed that judgment be rendered 1. Ordering the National Power Corporation to pay unto intervenor the sum of P7,116,949.00 representing the franchise tax for 1994 and all franchise tax accruing thereafter; 2. Ordering the Province of Isabela to pay unto intervenor the aggregate amount of P9,473,275.00 representing the franchise tax for the years 1992 and 1993 plus legal interest; 3. Ordering defendants to pay jointly and severally attorneys fee and litigation expenses. Other reliefs just and equitable under the premises.6 In answer to the amended complaint-in-intervention, respondent asserted that the Magat HydroElectric Power Plant is located within its territory. It averred that the power plant is an expansion of the Magat River Irrigation System, constructed in 1957 and located in Ramon, Isabela, and the Siffu River Irrigation System, located along the boundaries of San Mateo and Ramon, Isabela. All communications received and sent during the construction of the power plant were addressed to the respondent and not the intervenor. If the power plant is located within the intervenors territorial boundary, it should have laid its claim over it during its construction in 1974. Petitioner and the intervenor are guilty of laches and estoppel because they have known way back in 1976 that the location of the power plant is within respondents territory. In fact, this has been well publicized all throughout the Philippines.7 Petitioner, for its part, asserts in its answer to the complaint-in-intervention that it is a non-profit corporation pursuant to Section 13 of Rep. Act No. 6395 (its charter); as such, it is not covered by the Local Government Code, and therefore not obliged to pay franchise tax. The imposition of the franchise tax on appellant would run counter to Section 13 of its charter.8 In a Decision dated July 30, 1997, the RTC ruled in favor of respondent and the intervenor, thus: WHEREFORE, for and in consideration of all the foregoing, judgment is hereby rendered in favor of the plaintiffs and against the defendant: declaring the defendant National Power Corporation liable for payment of Franchise Tax and ordering said defendant, to immediately deposit, in escrow, in favor of the plaintiffs, with the Land Bank of the Philippines, Ilagan Branch, the amount of P7,116,949.00, representing Franchise Tax for the year 1994, plus legal interest amounting to P854,033.00 for the same year 1994; and to pay the costs of this suit. Page 311 of 327

Tax 2 Cases for FE SO ORDERED.9 Petitioner then filed an appeal with the CA. On October 21, 2004, the CA rendered a decision affirming the RTC Decision. Citing the case of National Power Corporation v. City of Cabanatuan,10 the CA ruled that the petitioner is not exempt from paying the franchise tax. It held that Section 193 of the Local Government Code withdrew the tax exemption provided under the petitioners charter. Petitioner, however, contended that the court a quo had no basis in ordering it to pay franchise tax to respondent since the latters territorial dispute with the intervenor has not yet been resolved; the RTC likewise had no jurisdiction because respondent failed to exhaust administrative remedies before filing the complaint. In answer to this argument, the appellate court pointed out that the court a quo did not order petitioner to pay the franchise tax specifically to respondent, but merely to deposit the amount in escrow pending final determination in the proper forum of which province is entitled thereto. Thus, the CA upheld the dismissal of the complaint-in-intervention as against respondent since the matter refers to a boundary dispute and the legal steps for its resolution should have been followed.11 Petitioner, through the Office of the Solicitor General, filed this petition for review with only the Province of Isabela as respondent. It ascribes the following error to the CA: THE COURT OF APPEALS ERRED IN HOLDING THAT THE NATIONAL POWER CORPORATION IS LIABLE FOR THE PAYMENT OF FRANCHISE TAX UNDER THE LOCAL GOVERNMENT CODE.12 Petitioner urges this Court to take a second look at its ruling in National Power Corporation v. City of Cabanatuan,13 which held it liable for franchise tax by virtue of the LGC. It contends that Section 193 thereof did not withdraw the tax exemption provided under Section 13 of its charter, Rep. Act No. 6395, which provides: Section 13. Non-profit Character of the Corporation; Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the Government and Government Instrumentalities. The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries, is hereby declared, exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings. Petitioner stresses that there was no provision in the LGC expressly repealing the said provision; neither was there an implied repeal thereof. It points out that repeals by implication are not favored. Moreover, a general law, such as the LGC, cannot repeal a special law, such as Rep. Act No. 6395, unless it clearly appears that the legislature intended to do so.14 Petitioner argues that, in this case, there was clearly no intention to repeal; on the contrary, the intention to exempt it from local taxes is clearly manifest in said Section 13. This is bolstered by the Declaration of Policy which provides that "the total electrification of the Philippines through the development of power from all sources to meet the needs of industrial development and dispersal, and the needs of rural electrification are primary objectives of the nation which shall be pursued coordinately and supported by all instrumentalities of the government, including its financial institutions." In addition, petitioner cites the case of Maceda v. Macaraig, Jr.15 to show the intent of lawmakers to exempt it from all forms of taxes. Petitioner further maintains that it is a government-owned and controlled corporation with an original charter and its shares of stock are owned by the National Government; as such, it is exempt from local taxes.16

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Tax 2 Cases for FE In any case, petitioner argues that, assuming that Section 13 of its charter has been repealed by Section 193 of the LGC, it will still not be liable for franchise tax for the following reasons: First. Section 137 of the LGC is not applicable to it, as the said provision empowers local government units to impose franchise tax only with respect to private individuals and corporations. Thus, Section 137 of the Code provides: SECTION 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on business enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. Petitioner stresses that, under the LGC, "business" means a trade or commercial activity regularly engaged in as a means of livelihood or with a view to a profit.17 On the other hand, "franchise" means a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of public welfare, security and safety.18 Petitioner thus asserts that it cannot be held liable to pay franchise tax because it is neither a private corporation nor a business created for profit. Second. Petitioner contends that the authority of respondent to tax does not extend to it. Section 133 (o) of the LGC states that Section 133. Common Limitations on the Taxing Powers of the Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities and barangays shall not extend to the levy of the following: xxxx (o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. Petitioner claims that it is an instrumentality of the National Government, which is beyond the authority of local government units to tax. It points out that it remits the profits derived from its operations to the National Government; Congress approves its yearly budget, which forms part of the General Appropriations Act; and all of its indebtedness, foreign or domestic, is guaranteed by the National Government.19 Finally, petitioner posits that to require it to pay franchise tax could have deleterious effects on its operations. It would compel petitioner to borrow from domestic and foreign financial institutions to meet both its operational expenses and the franchise tax. Ultimately, it is the national government that will pay the tax, and the burden shouldered by the Filipino people. Respondent, for its part, maintains that petitioner has failed to overcome the presumption that it is taxable. It stresses that tax exemptions are highly disfavored and construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Petitioner, as the taxpayer, had the burden of proving that it is exempt from paying the franchise tax. Respondent avers that petitioner cannot find solace in the tax exemption privilege provided in its charter because this has already been withdrawn by the LGC. Contrary to petitioners assertion, respondent contends that such tax exemption privilege has been expressly repealed by the LGC, and cites the City Government of San Pablo, Laguna v. Reyes20 where the Court declared that the legislative purpose to withdraw tax Page 313 of 327

Tax 2 Cases for FE privileges enjoyed under existing law is clearly manifested by the language used in Sections 137 and 193 which categorically withdrew such exemptions subject only to the exceptions enumerated. Respondent avers that petitioners status as a non-profit government corporation does not exempt it from liability to pay franchise tax to local government units. Petitioner, as a corporation created to undertake ministrant or proprietary function, has long been treated in this jurisdiction as akin to a private commercial corporation. Its dealings are considered to be purely private and commercial undertakings although imbued with public interest.21 The fundamental issue to be resolved in this case is whether or not petitioner is subject to franchise tax under the LGC. The petition has no merit. The case is on all fours with the case of National Power Corporation v. City of Cabanatuan,22 where this very same issue was settled by the Court. In the Cabanatuan case, petitioner likewise refused to pay franchise tax to the City of Cabanatuan by invoking the tax exemption provided under its charter. It argued that Section 137 of the LGC does not apply to it because its stocks are wholly owned by the National Government, and its charter characterizes it as a "non-profit" organization. The Court, however, declared that petitioner is not exempt from paying franchise tax. Indeed, taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the exemption so claimed.23 Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken. They cannot be extended by mere implication or inference.24 In this case, petitioner relies solely on the exemption granted to it by its charter, arguing that its exemption from franchise tax remained despite the enactment of the LGC. The Court also addressed this issue in the Cabanatuan case where it held that the LGC has expressly withdrawn such exemption, thus: x x x [S]ection 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the contention of petitioner, Section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. It reads: Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (italics supplied) It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. Not being a local water district, a cooperative registered under R.A. No. 6938, or a nonstock and non-profit hospital or educational institution, petitioner clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from local taxes. But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can impose franchise tax "notwithstanding any exemption granted by any law or other special law." This particular provision of the LGC does not admit any exception. x x x25 Page 314 of 327

Tax 2 Cases for FE Even prior to the Cabanatuan case, the Court already declared in City Government of San Pablo, Laguna v. Reyes26 that the franchise tax may still be imposed despite any exemption enjoyed under special laws, explaining thus: x x x The legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used in Sections 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used.27 Nonetheless, petitioner seeks to avoid paying the franchise tax by arguing further that it is not liable therefor under Section 137 of the LGC because said tax applies only to a "business enjoying a franchise." It contends that it is not a private corporation or a business for profit. Again, we do not agree. The Court also declared in the Cabanatuan case that petitioner qualifies as a "business enjoying a franchise": In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise. This is to avoid any confusion when the word franchise is used in the concept of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state." It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise. It is within this context that the phrase "tax on businesses enjoying a franchise" in Section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government. Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 6395, constitutes petitioners primary and secondary franchises. It serves as the petitioners charter, defining its composition, capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span. As its secondary franchise, Commonwealth Act No. 120, as amended, vests the petitioner [with x x x certain] powers which are not available to ordinary corporations x x x xxxx Petitioner also fulfills the second requisite. It is operating within the respondent city governments territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as amended. x x x28 Petitioner was likewise characterized therein as a private enterprise for profit, on the following ratiocination: Petitioner was created to "undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis. Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature Page 315 of 327

Tax 2 Cases for FE of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society.29 Petitioner nevertheless contends that respondent cannot impose a franchise tax on it because it is an instrumentality of the National Government. It also cites the case of Basco v. Philippine Amusements and Gaming Corporation30 which held that a government-owned and controlled corporation whose shares of stock are owned by the national government is exempt from local taxes. This contention, however, is without merit. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities.31 Section 137 of the LGC is one of those exceptions. It authorizes the province to impose a tax on business enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the Court noted primarily that the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect.32 It further explained that in enacting the LGC, Congress empowered the LGUs to impose certain taxes even on instrumentalities of the National Government. WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals dated October 21, 2004, is AFFIRMED. SO ORDERED. ROMEO J. CALLEJO, SR. Associate Justice WE CONCUR: ARTEMIO V. PANGANIBAN Chief Justice Chairperson CONSUELO YNARES-SANTIAGO Associate Justice MA. ALICIA AUSTRIA-MARTINEZ Asscociate Justice

MINITA V. CHICO-NAZARIO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. Page 316 of 327

Tax 2 Cases for FE ARTEMIO V. PANGANIBAN Chief Justice

Footnotes
1

Penned by Associate Justice Edgardo P. Cruz with Associate Justices Godardo A. Jacinto and Jose C. Mendoza, concurring; rollo, pp. 44-54.
2

Section 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on business enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.
3

Records, p. 2. Id. at 13-15. Id. at 185. Id. at 185-186. Id. at 191-194. Id. at 199-200. Rollo, pp. 67-68. 449 Phil. 233, 256 (2003). Rollo, pp. 49-53. Id. at 20. Supra note 10, at 259. Rollo, pp. 24-25. G.R. No. 88291, June 8, 1993, 223 SCRA 217. Rollo, pp. 25-27. Section 131 (d), Rep. Act No. 7160. Section 131 (m), Rep. Act No. 7160. Rollo, pp. 28-35. 364 Phil. 842, 854 (1999). Page 317 of 327

10

11

12

13

14

15

16

17

18

19

20

Tax 2 Cases for FE

21

Rollo, pp. 85-86. Supra note 10. Cyanamid Philippines, Inc. v. Court of Appeals, 379 Phil. 689, 703 (2000).

22

23

24

Philippine Long Distance Telephone Company, Inc. v. City of Davao, 447 Phil. 571, 585-586 (2003).
25

National Power Corporation v. City of Cabanatuan, supra note 10, at 259-260. Supra note 20. Id. at 854. National Power Corporation v. City of Cabanatuan, supra note 10, at 252-255. Id. at 257. 274 Phil. 323, 339 (1991). National Power Corporation v. City of Cabanatuan, supra note 10, at 250. Id.

26

27

28

29

30

31

32

Page 318 of 327

Tax 2 Cases for FE Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 156252 June 27, 2006 COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner, vs. CITY OF MANILA, LIBERTY M. TOLEDO City Treasurer and JOSEPH SANTIAGO Chief, Licensing Division, Respondents. DECISION CHICO-NAZARIO, J.: Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Order1 of the Regional Trial Court (RTC) of Manila, Branch 21, dated 8 May 2002, dismissing petitioners Petition for Injunction, and the Order2 dated 5 December 2002, denying petitioners Motion for Reconsideration. Petitioner Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the business of manufacturing and selling beverages and maintains a sales office located in the City of Manila. On 25 February 2000, the City Mayor of Manila approved Tax Ordinance No. 7988, otherwise known as "Revised Revenue Code of the City of Manila" repealing Tax Ordinance No. 7794 entitled, "Revenue Code of the City of Manila." Tax Ordinance No. 7988 amended certain sections of Tax Ordinance No. 7794 by increasing the tax rates applicable to certain establishments operating within the territorial jurisdiction of the City of Manila, including herein petitioner. Aggrieved by said tax ordinance, petitioner filed a Petition3 before the Department of Justice (DOJ), against the City of Manila and its Sangguniang Panlungsod, invoking Section 1874 of the Local Government Code of 1991 (Republic Act No. 7160). Said Petition questions the constitutionality or legality of Section 21 of Tax Ordinance No. 7988. According to petitioner: Section 21 of the Old Revenue Code of the City of Manila (Ordinance No. 7794, as amended) was reproduced verbatim as Section 21 under the new Ordinance except for the last paragraph thereof which reads: "PROVIDED, that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof", which was deleted; that said deletion would, in effect, impose additional business tax on businesses, including herein petitioner, that are already subject to business tax under the other sections, specifically Sec. 14, of the New Revenue Code of the City of Manila, which imposition, petitioner claims, "is beyond or exceeds the limitation on the taxing power of the City of Manila under Sec. 143 (h) of the LGC of 1991; and that deletion is a palpable and manifest violation of the Local Government Code of 1991, and the clear mandate of Article X, Sec. 5 of the 1987 Constitution, hence Section 21 is "illegal and unconstitutional." On 17 August 2000, then DOJ Secretary Artemio G. Tuquero issued a Resolution declaring Tax Ordinance No. 7988 null and void and without legal effect, the pertinent portions of which read:

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Tax 2 Cases for FE After a judicious scrutiny of the records of this case, in the light of the pertinent provisions of the Local Government Code of 1991, this Department finds for the petitioner. The Local Government Code of 1991 provides: "Section 188. Publication of Tax Ordinances and Revenue Measures. Within ten (10) days after their approval, certified true copies of all provincial, city and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation; Provided, however, that in provinces, cities, and municipalities where there are no newspapers or local circulations the same may be posted in at least two (2) conspicuous and publicly accessible places." (R.A. No. 7160) (stress supplied) Upon the other hand, the Rules and Regulations Implementing the Local Government Code of 1991, insofar as pertinent, mandates: "Art. 277. Publication of Tax Ordinances and Revenue Measures. (a) within ten (10) days after their approval, certified true copies of all provincial, city and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation provided that in provinces, cities and municipalities where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places. If the tax ordinances or revenue measure contains penal provisions as authorized under Art. 279 of this Rule, the gist of such tax ordinance or revenue measure shall be published in a newspaper of general circulation within the province, posting of such ordinance or measure shall be made in accessible and conspicuous public places in all municipalities and cities of the province to which the sanggunian enacting the ordinance or revenue measure belongs. xxx xxx xxx." (emphasis ours) It is clear from the above-quoted provisions of R.A. No. 7160 and its implementing rules that the requirement of publication is MANDATORY and leaves no choice. The use of the word "shall" in both provisions is imperative, operating to impose a duty that may be enforced (Soco v. Militante, 123 SCRA 160, 167; Modern Coach Corp. v. Faver 173 SE 2d 497, 499). Its essence is simply to inform the people and the entities who may likely be affected, of the existence of the tax measure. It bears emphasis, that, strict observance of the said procedural requirement is the only safeguard against any unjust and unreasonable exercise of the taxing powers by ensuring that the taxpayers are notified through publication of the existence of the measure, and are therefore able to voice out their views or objections to the said measure. For, after all, taxes are obligatory exactions or enforced contributions corollary to taking of property. xxxx In the case at bar, respondents, by its failure to file their comments and present documentary evidence to show that the mandatory requirement of law on publication, among other things, has been met, may be deemed to have waived its right to controvert or dispute the documentary evidence submitted by petitioner which indubitably show that subject tax ordinance was published only once, i.e., on the May 22, 2000 issue of the Philippine Post. Clearly, therefore, herein

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Tax 2 Cases for FE respondents failed to satisfy the requirement that said ordinance shall be published for three (3) consecutive days as required by law. xxxx In view of the foregoing, we find it unnecessary to pass upon the other issues raised by the petitioner. WHEREFORE, premises considered, Tax Ordinance No. 7988 of the City of Manila is hereby declared NULL and VOID and WITHOUT LEGAL EFFECT for having been enacted in contravention of the provisions of the Local Government Code of 1991 and its implementing rules and regulations.5 The City of Manila failed to file a Motion for Reconsideration nor lodge an appeal of said Resolution, thus, said Resolution of the DOJ Secretary declaring Tax Ordinance No. 7988 null and void has lapsed into finality. On 16 November 2000, Atty. Leonardo A. Aurelio wrote the Bureau of Local Government Finance (BLGF) requesting in behalf of his client, Singer Sewing Machine Company, an opinion on whether the Office of the City Treasurer of Manila has the right to enforce Tax Ordinance No. 7988 despite the Resolution, dated 17 August 2000, of the DOJ Secretary. Acting on said letter, the BLGF Executive Director issued an Indorsement on 20 November 2000 ordering the City Treasurer of Manila to "cease and desist" from enforcing Tax Ordinance No. 7988. According to the BLGF: In the attached Resolution dated August 17, 2000 of the Department of Justice, it is stated that "x x x Ordinance No. 7988 of the City of Manila is hereby declared NULL AND VOID AND WITHOUT LEGAL EFFECT for having been enacted in contravention of the provisions of the Local Government Code of 1991 and its implementing rules and regulations." xxxx In view thereof, that Office is hereby instructed to cease and desist from implementing the aforementioned Manila Tax Ordinance No. 7988, inviting attention to Section 190 of the Local Government Code (LGC) of 1991, quoted hereunder: "Section 190. Attempt to Enforce Void or Suspended Tax Ordinances and Revenue Measures.- The enforcement of any tax ordinance or revenue measures after due notice of the disapproval or suspension thereof shall be sufficient ground to administrative disciplinary action against the local officials and employees responsible therefore." Be guided accordingly.6 Despite the Resolution of the DOJ declaring Tax Ordinance No. 7988 null and void and the directive of the BLGF that respondents cease and desist from enforcing said tax ordinance, respondents continued to assess petitioner business tax for the year 2001 based on the tax rates prescribed under Tax Ordinance No. 7988. Thus, petitioner filed a Complaint with the RTC of Manila, Branch 21, on 17 January 2001, praying that respondents be enjoined from implementing the aforementioned tax ordinance. On 28 November 2001, the RTC of Manila, Branch 21, rendered a Decision in favor of petitioner, the decretal portion of which states:

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Tax 2 Cases for FE The defendants did not follow the procedure in the enactment of Tax Ordinance No. 7988. The Court agrees with plaintiffs contention that the ordinance should first be published for three (3) consecutive days in a newspaper of local circulation aside from the posting of the same in at least four (4) conspicuous public places. xxxx WHEREFORE, premises considered, judgment is hereby rendered declaring the injunction permanent. Defendants are enjoined from implementing Tax Ordinance No. 7988. The bond posted by the plaintiff is hereby CANCELLED.7 During the pendency of the said case, the City Mayor of Manila approved on 22 February 2001 Tax Ordinance No. 8011 entitled, "An Ordinance Amending Certain Sections of Ordinance No. 7988." Said tax ordinance was again challenged by petitioner before the DOJ through a Petition questioning the legality of the aforementioned tax ordinance on the grounds that (1) said tax ordinance amends a tax ordinance previously declared null and void and without legal effect by the DOJ; and (2) said tax ordinance was likewise not published upon its approval in accordance with Section 188 of the Local Government Code of 1991. On 5 July 2001, then DOJ Secretary Hernando Perez issued a Resolution declaring Tax Ordinance No. 8011 null and void and legally not existing. According to the DOJ Secretary: After a careful examination/evaluation of the records of this case and applying the pertinent provisions of the Local Government Code of 1991, this Department finds the instant petition of Coca-Cola Bottlers, Philippines, Inc. meritorious. It bears stress, at the outset, that the subject ordinance was passed and approved by the respondents principally to amend Ordinance No. 7988 which was earlier nullified by this Department in its Resolution Dated August 17, 2000, also at the instance of the herein petitioner. x x x xxxx x x x [T]he only logical conclusion, therefore, is that Ordinance No. 8011, subject herein, is also null and void, it being a mere amendatory ordinance of Ordinance No. 7988 which, as earlier stated, had been nullified by this Department. An invalid or unconstitutional law or ordinance does not, in legal contemplation, exist (Manila Motors Co., Inc. vs. Flores, 99 Phil. 738). Where a statute which has been amended is invalid, nothing, in effect, has been amended. As held in People vs. Lim, 108 Phil. 1091: "If an order or law sought to be amended is invalid, then it does not legally exist. There would be no occasion or need to amend it; x x x" (at p. 1097) Instead of amending Ordinance No. 7988, herein respondent should have enacted another tax measure which strictly complies with the requirements of law, both procedural and substantive. The passage of the assailed ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way, does not legally exist. xxxx WHEREFORE, premises considered, Tax Ordinance No. 8011 is hereby declared NULL and VOID and LEGALLY NOT EXISTING.8 Page 322 of 327

Tax 2 Cases for FE Respondents Motion for Reconsideration of the Resolution of the DOJ was subsequently denied in a Resolution,9 dated 12 March 2002. The City of Manila appealed the DOJ Resolution, dated 12 March 2002, denying its Motion for Reconsideration of the Resolution nullifying Tax Ordinance No. 8011 before the RTC of Manila, Branch 17, but the same was dismissed for lack of jurisdiction in an Order, dated 2 December 2002. According to the trial court: From whatever angle the recourse of herein petitioners was viewed, either from the standpoint of Section 1, Rule 43, or Section 1 and the last sentence of the second paragraph of Section 4, Rule 65 of the 1997 Rules of Civil Procedure, the conclusion was inevitable that petitioners remedial measure from dispositions of the Secretary of Justice should have been ventilated before the next judicial plane. x x x Accordingly, by reason of the foregoing premises, Civil Case No. 02-103372 for "Certiorari" is DISMISSED. Consequently, respondents appealed the foregoing Order, dated 2 December 2002, via a Petition for Review on Certiorari to the Supreme Court docketed as G.R. No. 157490. However, said appeal was dismissed in our Resolution, dated 23 June 2003, the dispositive of which reads: Pursuant to Rule 45 and other related provisions of the 1997 Rules of Civil Procedure as amended governing appeals by certiorari to the Supreme Court, only petitions which are accompanied by or which comply strictly with the requirements specified therein shall be entertained. On the basis thereof, the Court resolves to DENY the instant petition for review on certiorari of the orders of the Regional Trial Court, Manila, Branch 17 dated December 2, 2002 and March 7, 2003 for the late filing as the petition was filed beyond the reglementary period of fifteen (15) days fixed in Sec. 2, Rule 45 in relation to Sec. 5(a), Rule 56. The omnibus motion of petitioners for reconsideration of the resolution of April 23, 2003 which denied the motion for an extension of time to file a petition is DENIED for lack of merit. Respondents Motion for Reconsideration was subsequently denied in a Resolution, dated 11 August 2003, in which the Court resolved as follows: Acting on the motion of petitioners for reconsideration of the resolution of June 23, 2003 which denied the petition for review on certiorari and considering that there is no compelling reason to warrant a modification of this Courts resolution, the Court resolves to DENY reconsideration with FINALITY. Meanwhile, on the basis of the enactment of Tax Ordinance No. 8011, the City of Manila filed a Motion for Reconsideration with the RTC of Manila, Branch 21, of its Decision, dated 28 November 2001, which the court a quo granted in the herein assailed Order dated 8 May 2002, the full text of which reads: Considering that Ordinance No. 7988 (Amended Revenue Code of the City of Manila) has already been amended by Ordinance No. 8011 entitled "An Ordinance Amending Certain Sections of Ordinance No. 7988" approved by the City Mayor of Manila on February 22, 2001, let the aboveentitled case be as it is hereby DISMISSED. Without pronouncement as to costs."10

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Tax 2 Cases for FE Petitioners Motion for Reconsideration of the abovequoted Order was denied by the trial court in the second challenged Order, dated 5 December 2002; hence the instant Petition. The case at bar revolves around the sole pivotal issue of whether or not Tax Ordinance No. 7988 is null and void and of no legal effect. However, respondents, in their Comment and Memorandum, raise the procedural issue of whether or not the instant Petition has complied with the requirements of the 1997 Rules on Civil Procedure; thus, the Court resolves to first pass upon this issue before tackling the substantial matters involved in this case. Respondents insist that the instant Petition raises questions of fact that are proscribed under Rule 45 of the 1997 Rules of Civil Procedure which states that Petitions for Certiorari before the Supreme Court shall raise only questions of law. We do not agree. There is a question of fact when doubt or controversy arises as to the truth or falsity of the alleged facts, when there is no dispute as to fact, the question of whether or not the conclusion drawn therefrom is correct is a question of law.11 A thorough reading of the Petition will reveal that petitioner does not present an issue in which we are called to rule on the truth or falsity of any fact alleged in the case. Furthermore, the resolution of whether or not the court a quo erred in dismissing petitioners case in light of the enactment of Tax Ordinance No. 8011, allegedly amending Tax Ordinance No. 7988, does not necessitate an incursion into the facts attending the case. Contrarily, it is respondents who actually raise questions of fact before us. While accusing petitioner of raising questions of fact, respondents, in the same breath, proceeded to allege that the RTC of Manila, Branch 21, in its Decision, dated 28 November 2001, failed to take into account the evidence presented by respondents allegedly proving that Tax Ordinance No. 7988 was published for four times in a newspaper of general circulation in accordance with the requirements of law. A determination of whether or not the trial court erred in concluding that Tax Ordinance No. 7988 was indeed published for four times in a newspaper of general circulation would clearly involve a calibration of the probative value of the evidence presented by respondents to prove such allegation. Therefore, said issue is a question of fact which this Court, not being a trier of facts, will decline to pass upon. Respondents also point out that the Petition was not properly verified and certified because Nelson Empalmado, the Vice President for Tax and Financial Services of Coca-Cola Bottlers Philippines, Inc. who verified the subject Petition was not duly authorized to file said Petition. Respondents assert that nowhere in the attached Secretarys Certificate can it be found the authority of Nelson Empalmado to institute the instant Petition. Thus, there being a lack of proper verification, respondents contend that the Petition must be treated as a mere scrap of paper, which has no legal effect as declared in Section 4, Rule 7 of the 1997 Rules of Civil Procedure. An inspection of the Secretarys Certificate attached to the petition will show that Nelson Empalmado is not among those designated as representative to prosecute claims in behalf of CocaCola Bottlers Philippines, Inc. However, it would seem that the authority of Mr. Empalmado to file the instant Petition emanated from a Special Power of Attorney signed by Ramon V. Lapez, Jr., Associate Legal Counsel/Assistant Corporate Secretary of Coca-Cola Bottlers Philippines, Inc. and one of those named in the Secretarys Certificate as authorized to file a Petition in behalf of the corporation. A careful perusal of said Secretarys Certificate will further reveal that the persons authorized therein to represent petitioner corporation in any suit are also empowered to designate and appoint any individual as attorney-in-fact of the corporation for the prosecution of any suit. Accordingly, by virtue of the Special Power of Attorney executed by Ramon V. Lapez, Jr. authorizing Nelson Emplamado to file a Petition before the Supreme Court, the instant Petition has been properly verified, in accordance with the 1997 Rules of Civil Procedure. Page 324 of 327

Tax 2 Cases for FE Having disposed of the procedural issues raised by respondents, We now come to the pivotal issue in this petition. It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already been declared by the DOJ Secretary, in its Order, dated 17 August 2000, as null and void and without legal effect due to respondents failure to satisfy the requirement that said ordinance be published for three consecutive days as required by law. Neither is there quibbling on the fact that the said Order of the DOJ was never appealed by the City of Manila, thus, it had attained finality after the lapse of the period to appeal. Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated the findings of the DOJ Secretary that respondents failed to follow the procedure in the enactment of tax measures as mandated by Section 188 of the Local Government Code of 1991, in that they failed to publish Tax Ordinance No. 7988 for three consecutive days in a newspaper of local circulation. From the foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said ordinance was published only for one day in the 22 May 2000 issue of the Philippine Post in contravention of the unmistakable directive of the Local Government Code of 1991. Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May 2002, went on to dismiss petitioners case on the force of the enactment of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988. Significantly, said amending ordinance was likewise declared null and void by the DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that "[I]nstead of amending Ordinance No. 7988, [herein] respondent should have enacted another tax measure which strictly complies with the requirements of law, both procedural and substantive. The passage of the assailed ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way, does not legally exist." Said Resolution of the DOJ Secretary had, as well, attained finality by virtue of the dismissal with finality by this Court of respondents Petition for Review on Certiorari in G.R. No. 157490 assailing the dismissal by the RTC of Manila, Branch 17, of its appeal due to lack of jurisdiction in its Order, dated 11 August 2003. Based on the foregoing, this Court must reverse the Order of the RTC of Manila, Branch 21, dismissing petitioners case as there is no basis in law for such dismissal. The amending law, having been declared as null and void, in legal contemplation, therefore, does not exist. Furthermore, even if Tax Ordinance No. 8011 was not declared null and void, the trial court should not have dismissed the case on the reason that said tax ordinance had already amended Tax Ordinance No. 7988. As held by this Court in the case of People v. Lim,12 if an order or law sought to be amended is invalid, then it does not legally exist, there should be no occasion or need to amend it.13 WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Orders of the RTC of Manila, Branch 21, dated 8 May 2002 and 5 December 2002, respectively, are hereby REVERSED and SET ASIDE. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice WE CONCUR:

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Tax 2 Cases for FE ARTEMIO V. PANGANIBAN Chief Justice Chairperson CONSUELO YNARES-SANTIAGO Associate Justice MA. ALICIA AUSTRIA-MARTINEZ Asscociate Justice

ROMEO J. CALLEJO, SR. Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ARTEMIO V. PANGANIBAN Chief Justice

Footnotes
1

Civil Case No. 01-99848, penned by Judge Amor A. Reyes; Rollo, p. 36. Rollo, p. 37. Records, pp. 42-48.

Section 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory Public Hearings. The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal x x x. (Emphasis ours)
5

Resolution pp. 2-5; Rollo, pp. 48-51. Rollo, p. 52. Rollo, p. 56. DOJ Resolution, pp. 3, 5-6; Rollo, pp. 59, 61-62. Rollo, pp. 64-68. Rollo, p. 36. Page 326 of 327

10

Tax 2 Cases for FE

11

Morales v. The Board of Regents of the University of the Philippines, G.R. No. 161172, 13 December 2004, 446 SCRA 227, 237, citing Far East Marble (Philippines), Inc. v. Court of Appeals, G.R. No. 94093, 10 August 1993, 225 SCRA 249, 255.
12

108 Phil. 1091 (1960). Id. at 1097.

13

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