G.R. No.

106611 July 21, 1994

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX
APPEALS, respondents.
The Solicitor General for petitioner.
Palaez, Adriano & Gregorio for private respondent.

REGALADO, J.:
The judicial proceedings over the present controversy commenced with CTA Case No. 4099, wherein the Court
of Tax Appeals ordered herein petitioner Commissioner of Internal Revenue to grant a refund to herein private
respondent Citytrust Banking Corporation (Citytrust) in the amount of P13,314,506.14, representing its overpaid
income taxes for 1984 and 1985, but denied its claim for the alleged refundable amount reflected in its 1983
income tax return on the ground of prescription. 1 That judgment of the tax court was affirmed by respondent Court
of Appeals in its judgment in CA-G.R. SP
No. 26839. 2 The case was then elevated to us in the present petition for review on certiorari wherein the latter
judgment is impugned and sought to be nullified and/or set aside.

It appears that in a letter dated August 26, 1986, herein private respondent corporation filed a claim for refund
with the Bureau of Internal Revenue (BIR) in the amount of P19,971,745.00 representing the alleged aggregate
of the excess of its carried-over total quarterly payments over the actual income tax due, plus carried-over
withholding tax payments on government securities and rental income, as computed in its final income tax return
for the calendar year ending December 31, 1985. 3
Two days later, or on August 28, 1986, in order to interrupt the running of the prescriptive period, Citytrust filed a
petition with the Court of Tax Appeals, docketed therein as CTA Case No. 4099, claiming the refund of its
income tax overpayments for the years 1983, 1984 and 1985 in the total amount of P19,971,745.00. 4
In the answer filed by the Office of the Solicitor General, for and in behalf of therein respondent commissioner, it
was asserted that the mere averment that Citytrust incurred a net loss in 1985 does not ipso facto merit a refund;
that the amounts of P6,611,223.00, P1,959,514.00 and P28,238.00 claimed by Citytrust as 1983 income tax
overpayment, taxes withheld on proceeds of government securities investments, as well as on rental income,
respectively, are not properly documented; that assuming arguendo that petitioner is entitled to refund, the right
to claim the same has prescribed
with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of the National
Internal Revenue Code of 1977, as amended, since the petition was filed only on August 28, 1986. 5
On February 20, 1991, the case was submitted for decision based solely on the pleadings and evidence
submitted by herein private respondent Citytrust. Herein petitioner could not present any evidence by reason of
the repeated failure of the Tax Credit/Refund Division of the BIR to transmit the records of the case, as well as
the investigation report thereon, to the Solicitor General. 6
However, on June 24, 1991, herein petitioner filed with the tax court a manifestation and motion praying for the
suspension of the proceedings in the said case on the ground that the claim of Citytrust for tax refund in the
amount of P19,971,745.00 was already being processed by the Tax Credit/Refund Division of the BIR, and that
said bureau was only awaiting the submission by Citytrust of the required confirmation receipts which would
show whether or not the aforestated amount was actually paid and remitted to the BIR. 7
Citytrust filed an opposition thereto, contending that since the Court of Tax Appeals already acquired jurisdiction
over the case, it could no longer be divested of the same; and, further, that the proceedings therein could not be
1

suspended by the mere fact that the claim for refund was being administratively processed, especially where the
case had already been submitted for decision.
It also argued that the BIR had already conducted an audit, citing therefor Exhibits Y, Y-1, Y-2 and Y-3 adduced
in the case, which clearly showed that there was an overpayment of income taxes and for which a tax credit or
refund was due to Citytrust. The Foregoing exhibits are allegedly conclusive proof of and an admission by herein
petitioner that there had been an overpayment of income taxes. 8
The tax court denied the motion to suspend proceedings on the ground that the case had already been
submitted for decision since February 20, 1991. 9
Thereafter, said court rendered its decision in the case, the decretal portion of which declares:
WHEREFORE, in view of the foregoing, petitioner is entitled to a refund but only for the overpaid
taxes incurred in 1984 and 1985. The refundable amount as shown in its 1983 income tax return
is hereby denied on the ground of prescription. Respondent is hereby ordered to grant a refund to
petitioner Citytrust Banking Corp. in the amount of P13,314,506.14 representing the overpaid
income taxes for 1984 and 1985, recomputed as follows:
1984 Income tax due P 4,715,533.00
Less: 1984 Quarterly payments P 16,214,599.00*
1984 Tax Credits
W/T on int. on gov't. sec. 1,921,245.37*
W/T on rental inc. 26,604.30* 18,162,448.67

Tax Overpayment (13,446,915.67)
Less: FCDU payable 150,252.00

Amount refundable for 1984 P (13,296,663.67)

1985 Income tax due (loss) P 0
Less: W/T on rentals 36,716.47*

Tax Overpayment (36,716.47)*

Less: FCDU payable 18,874.00

Amount Refundable for 1985 P (17,842.47)

* Note:
These credits are smaller than the claimed amount because only the above
figures are well supported by the various exhibits presented during the hearing.
No pronouncement as to costs.
SO ORDERED. 10
The order for refund was based on the following findings of the Court of Tax Appeals: (1) the fact of withholding
has been established by the statements and certificates of withholding taxes accomplished by herein private
respondent's withholding agents, the authenticity of which were neither disputed nor controverted by herein
petitioner; (2) no evidence was presented which could effectively dispute the correctness of the income tax return
filed by herein respondent corporation and other material facts stated therein; (3) no deficiency assessment was
issued by herein petitioner; and (4) there was an audit report submitted by the BIR Assessment Branch,
recommending the refund of overpaid taxes for the years concerned (Exhibits Y to Y-3), which enjoys the
presumption of regularity in the performance of official duty. 11
A motion for the reconsideration of said decision was initially filed by the Solicitor General on the sole ground that
the statements and certificates of taxes allegedly withheld are not conclusive evidence of actual payment and
remittance of the taxes withheld to the BIR. 12 A supplemental motion for reconsideration was thereafter filed,
wherein it was contended for the first time that herein private respondent had outstanding unpaid deficiency income
taxes. Petitioner alleged that through an inter-office memorandum of the Tax Credit/Refund Division, dated August 8,
1991, he came to know only lately that Citytrust had outstanding tax liabilities for 1984 in the amount of
2

P56,588,740.91 representing deficiency income and business taxes covered by Demand/Assessment Notice No. FAS1-84-003291-003296. 13

Oppositions to both the basic and supplemental motions for reconsideration were filed by private respondent
Citytrust. 14 Thereafter, the Court of Tax Appeals issued a resolution denying both motions for the reason that Section
52 (b) of the Tax Code, as implemented by Revenue Regulation
6-85, only requires that the claim for tax credit or refund must show that the income received was declared as part of
the gross income, and that the fact of withholding was duly established. Moreover, with regard to the argument raised
in the supplemental motion for reconsideration anent the deficiency tax assessment against herein petitioner, the tax
court ruled that since that matter was not raised in the pleadings, the same cannot be considered, invoking therefor the
salutary purpose of the omnibus motion rule which is to obviate multiplicity of motions and to discourage dilatory
pleadings. 15

As indicated at the outset, a petition for review was filed by herein petitioner with respondent Court of Appeals
which in due course promulgated its decision affirming the judgment of the Court of Tax Appeals. Petitioner
eventually elevated the case to this Court, maintaining that said respondent court erred in affirming the grant of
the claim for refund of Citytrust, considering that, firstly, said private respondent failed to prove and substantiate
its claim for such refund; and, secondly, the bureau's findings of deficiency income and business tax liabilities
against private respondent for the year 1984 bars such payment. 16
After a careful review of the records, we find that under the peculiar circumstances of this case, the ends of
substantial justice and public interest would be better subserved by the remand of this case to the Court of Tax
Appeals for further proceedings.
It is the sense of this Court that the BIR, represented herein by petitioner Commissioner of Internal Revenue,
was denied its day in court by reason of the mistakes and/or negligence of its officials and employees. It can
readily be gleaned from the records that when it was herein petitioner's turn to present evidence, several
postponements were sought by its counsel, the Solicitor General, due to the unavailability of the necessary
records which were not transmitted by the Refund Audit Division of the BIR to said counsel, as well as the
investigation report made by the Banks/Financing and Insurance Division of the said bureau/ despite repeated
requests. 17 It was under such a predicament and in deference to the tax court that ultimately, said records being still
unavailable, herein petitioner's counsel was constrained to submit the case for decision on February 20, 1991 without
presenting any evidence.

For that matter, the BIR officials and/or employees concerned also failed to heed the order of the Court of Tax
Appeals to remand the records to it pursuant to Section 2, Rule 7 of the Rules of the Court of Tax Appeals which
provides that the Commissioner of Internal Revenue and the Commissioner of Customs shall certify and forward
to the Court of Tax Appeals, within ten days after filing his answer, all the records of the case in his possession,
with the pages duly numbered, and if the records are in separate folders, then the folders shall also be
numbered.
The aforestated impass came about due to the fact that, despite the filing of the aforementioned initiatory
petition in CTA Case No. 4099 with the Court of Tax Appeals, the Tax Refund Division of the BIR still continued
to act administratively on the claim for refund previously filed therein, instead of forwarding the records of the
case to the Court of Tax Appeals as ordered. 18
It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its
agents.19 In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent
and officers. Although the Government may generally be estopped through the affirmative acts of public officers acting
within their authority, their neglect or omission of public duties as exemplified in this case will not and should not
produce that effect.

Nowhere is the aforestated rule more true than in the field of taxation. 20 It is axiomatic that the Government cannot
and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which
the government agencies continue to operate and with which the State effects its functions for the welfare of its
constituents. 21The errors of certain administrative officers should never be allowed to jeopardize the Government's
3

financial position, 22especially in the case at bar where the amount involves millions of pesos the collection whereof, if
justified, stands to be prejudiced just because of bureaucratic lethargy.

Further, it is also worth nothing that the Court of Tax Appeals erred in denying petitioner's supplemental motion
for reconsideration alleging bringing to said court's attention the existence of the deficiency income and business
tax assessment against Citytrust. The fact of such deficiency assessment is intimately related to and inextricably
intertwined with the right of respondent bank to claim for a tax refund for the same year. To award such refund
despite the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects. Herein
private respondent cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for
the same year.
The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are
true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitutes a
challenge against the truth and accuracy of the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the refund.
Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law when the
claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any list, statement, or return,
which in the opinion of the Commissioner of Internal Revenue was false or fraudulent or contained any
understatement or undervaluation, no tax collected under such assessment shall be recovered by any suits
unless it is proved that the said list, statement, or return was not false nor fraudulent and did not contain any
understatement or undervaluation; but this provision shall not apply to statements or returns made or to be made
in good faith regarding annual depreciation of oil or gas wells and mines."
Moreover, to grant the refund without determination of the proper assessment and the tax due would inevitably
result in multiplicity of proceedings or suits. If the deficiency assessment should subsequently be upheld, the
Government will be forced to institute anew a proceeding for the recovery of erroneously refunded taxes which
recourse must be filed within the prescriptive period of ten years after discovery of the falsity, fraud or omission in
the false or fraudulent return involved. 23 This would necessarily require and entail additional efforts and expenses on
the part of the Government, impose a burden on and a drain of government funds, and impede or delay the collection
of much-needed revenue for governmental operations.

Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically necessary and
legally appropriate that the issue of the deficiency tax assessment against Citytrust be resolved jointly with its
claim for tax refund, to determine once and for all in a single proceeding the true and correct amount of tax due
or refundable.
In fact, as the Court of Tax Appeals itself has heretofore conceded, 24 it would be only just and fair that the taxpayer
and the Government alike be given equal opportunities to avail of remedies under the law to defeat each other's claim
and to determine all matters of dispute between them in one single case. It is important to note that in determining
whether or not petitioner is entitled to the refund of the amount paid, it would necessary to determine how much the
Government is entitled to collect as taxes. This would necessarily include the determination of the correct liability of the
taxpayer and, certainly, a determination of this case would constitute res judicata on both parties as to all the matters
subject thereof or necessarily involved therein.

The Court cannot end this adjudication without observing that what caused the Government to lose its case in
the tax court may hopefully be ascribed merely to the ennui or ineptitude of officialdom, and not to syndicated
intent or corruption. The evidential cul-de-sac in which the Solicitor General found himself once again gives
substance to the public perception and suspicion that it is another proverbial tip in the iceberg of venality in a
government bureau which is pejoratively rated over the years. What is so distressing, aside from the financial
losses to the Government, is the erosion of trust in a vital institution wherein the reputations of so many honest
and dedicated workers are besmirched by the acts or omissions of a few. Hence, the liberal view we have here
taken pro hac vice, which may give some degree of assurance that this Court will unhesitatingly react to any
bane in the government service, with a replication of such response being likewise expected by the people from
the executive authorities.

WHEREFORE, the judgment of respondent Court of Appeals in CA-G.R. SP No. 26839 is hereby SET ASIDE
and the case at bar is REMANDED to the Court of Tax Appeals for further proceedings and appropriate action,
more particularly, the reception of evidence for petitioner and the corresponding disposition of CTA Case No.
4099 not otherwise inconsistent with our adjudgment herein.
SO ORDERED.

G.R. No. 112024 January 28, 1999

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF
APPEALS,respondent.

QUISUMBING, J.:
This petition for review assails the Resolution 1 of the Court of Appeals dated September 22, 1993 affirming the
Decision 2 and a Resolution 3 of the Court Of Tax Appeals which denied the claims of the petitioner for tax refund and
tax credits, and disposing as follows:

IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED due course. The
Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993,
are hereby AFFIRMED in toto.
SO ORDERED. 4
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax for 1985 in the
amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period.
The 1986 claim for refund amounting to P234,077.69 is likewise denied since petitioner has opted
and in all likelihood automatically credited the same to the succeeding year. The petition for
review is dismissed for lack of merit.
SO ORDERED. 5
The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized
under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported
profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax
credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and
0747-85 for P3,401,701.00 and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the yearended December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no
tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees withheld and
remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
5

On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of
P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from
property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for
Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed as CTA Case
No. 4309 entitled: "Philippine Bank of Communications vs. Commissioner of Internal Revenue."
The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for 1985 and
1986, filed before the Court of Tax Appeals, are as follows:
1985 1986

Net Income (Loss) (P25,317,288.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax.
Payments Made 5,016,954.00
Tax Withheld at Source 282,795.50 234,077.69

Excess Tax Payments P5,299,749.50* P234,077.69
=============== =============
* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A forty five
centavo difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of petitioner
for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year
reglementary period provided for by law. The petitioner's claim for refund in 1986 amounting to P234,077.69 was
likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the
succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but the same was denied
due course for lack of merit. 6
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of
Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTA's resolution dated July
20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom which relied in good faith on the formal
assurances of BIR in RMC No. 7-85 and did not immediately file with the CTA a
petition for review asking for the refund/tax credit of its 1985-86 excess quarterly
income tax payments can be prejudiced by the subsequent BIR rejection,
6

applied retroactivity, of its assurances in RMC No. 7-85 that the prescriptive
period for the refund/tax credit of excess quarterly income tax payments is not two
years but ten (10). 7
II. Whether the Court of Appeals seriously erred in affirming the CTA decision which
denied PBCom's claim for the refund of P234,077.69 income tax overpaid in 1986 on
the mere speculation, without proof, that there were taxes due in 1987 and that
PBCom availed of tax-crediting that year. 8

Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund
or tax credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the
prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the
applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that
overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that
taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10) years
under Article 1144 of the Civil Code. The pertinent portions of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF
EXCESS CORPORATE INCOME TAX RESULTING FROM THE
FILING OF THE FINAL ADJUSTMENT RETURN.
TO: All Internal Revenue Officers and Others Concerned.
Sec. 85 And 86 Of the National Internal Revenue Code provide:
xxx xxx xxx
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77
which provide;
xxx xxx xxx
It has been observed, however, that because of the excess tax payments, corporations file claims
for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from
the date of payment, in accordance with sections 292 and 295 of the National Internal Revenue
Code. It is obvious that the filing of the case in court is to preserve the judicial right of the
corporation to claim the refund or tax credit.
It should he noted, however, that this is not a case of erroneously or illegally paid tax under the
provisions of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund of the
overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate
annual income tax returns showing refundable amounts arising from overpaid quarterly income
taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976,
containing the procedure in processing said returns. Under these procedures, the returns are
merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the
return. After which, the refund or tax credit is granted, and, this procedure was adopted to
facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in
order to preserve the right to claim refund or tax credit the two year period. As already stated,
7

actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax
returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income
tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of
payment considering that it is an obligation created by law (Article 1144 of the Civil
Code). 9 (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it
would result to injustice to taxpayers. Citing ABS CBN Broadcasting Corporation vs. Court of Tax
Appeals 10petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no
retroactive effect if it would be prejudicial to taxpayers, In ABS-CBN case, the Court held that the government is
precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or
where there has been a misrepresentation to the taxpayer.

Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rules as
follows:
Sec. 246 Non-retroactivity of rulings Any revocation, modification or reversal of any of the rules
and regulations promulgated in accordance with the preceding section or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial to the taxpayers except in the following
cases:
a). where the taxpayer deliberately misstates or omits material
facts from his return or in any document required of him by the
Bureau of Internal Revenue;
b). where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which
the ruling is based;
c). where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through Solicitor General, argues that the two-year prescriptive
period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of
filing the Final Adjusted Income Tax Return, which is generally done on April 15 following the close of the
calendar year. As precedents, respondent Commissioner cited cases which adhered to this principle, to
wit ACCRA Investments Corp. vs. Court of Appeals, et al., 11 and Commissioner of Internal Revenue vs. TMX
Sales, Inc., et al.. 12Respondent Commissioner also states that since the Final Adjusted Income Tax Return of the
petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988
to seek relief from the court. Further, respondent Commissioner stresses that when the petitioner filed the case before
the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to
petitioner's cause of action.

After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the
petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the
two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the
State to finance the needs of the citizenry and to advance the common weal. 13 Due process of law under the
Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation
that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the
modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. 14

From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law
because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly
delayed or hampered by incidental matters.
8

Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the
prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected, viz.:
Sec. 230. Recovery of tax erroneously or illegally collected. No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceedings shall begun after the expiration of two years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment;Provided however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. (Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue,
within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period
provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the
year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 15 this Court explained the
application of Sec. 230 of 1977 NIRC, as follows:

Clearly, the prescriptive period of two years should commence to run only from the time that the
refund is ascertained, which can only be determined after a final adjustment return is
accomplished. In the present case, this date is April 16, 1984, and two years from this date would
be April 16, 1986. . . . As we have earlier said in the TMX Sales case, Sections 68. 16 69, 17 and
70 18 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in
conjunction with it 19

When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two
years to ten years on claims of excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law;
rather it legislated guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of
more specific and less general interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous. 20 Thus, courts will not
countenance administrative issuances that override, instead of remaining consistent and in harmony with the law they
seek to apply and implement. 21

In the case of People vs. Lim, 22 it was held that rules and regulations issued by administrative officials to implement
a law cannot go beyond the terms and provisions of the latter.

Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with
but is contrary to the provisions and spirit of Act. No 4003 as amended, because whereas the
prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five
years duration, FAO No 37-1 fixed no period, that is to say, it establishes an absolute ban for all
time. This discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an
oversight on the part of Secretary of Agriculture and Natural Resources. Of course, in case of
discrepancy, the basic Act prevails, for the reason that the regulation or rule issued to implement
a law cannot go beyond the terms and provisions of the
9

latter. . . . In this connection, the attention of the technical men in the offices of Department
Heads who draft rules and regulation is called to the importance and necessity of closely
following the terms and provisions of the law which they intended to implement, this to avoid any
possible misunderstanding or confusion as in the present case. 23
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials
or agents. 24 As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting
Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977
NIRC. for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to
do so would, in effect, amend the statute.

It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 785, is estopped by the principle of non-retroactively of BIR rulings. Again We do not agree. The
Memorandum Circular, stating that a taxpayer may recover the excess income tax paid within 10
years from date of payment because this is an obligation created by law, was issued by the
Acting Commissioner of Internal Revenue. On the other hand, the decision, stating that the
taxpayer should still file a claim for a refund or tax credit and corresponding petition fro review
within the
two-year prescription period, and that the lengthening of the period of limitation on refund from
two to ten years would be adverse to public policy and run counter to the positive mandate of
Sec. 230, NIRC, - was the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel
has no application in the case at bar because it was not the Commissioner of Internal Revenue
who denied petitioner's claim of refund or tax credit. Rather, it was the Court of Tax Appeals who
denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the
Commissioner of Internal Revenue is an administrative interpretation which is out of harmony
with or contrary to the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot
be given weight for to do so would in effect amend the statute. 25
Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as part of the legal system of
the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau
head could not operate to vest a taxpayer with shield against judicial action. For there are no vested rights to speak of
respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place
the Government in estoppel to correct or overrule the same. 27 Moreover, the non-retroactivity of rulings by the
Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by
respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held
by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi
juris against the taxpayer. 28

On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTA's decision
denying its claim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation, without proof,
that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments
over the actual income tax computed 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 (by marking the option box provided in the
BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding
taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of
one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 the Court of Tax Appeals,
after examining the adjusted final corporate annual income tax return for taxable year 1986,
found out that petitioner opted to apply for automatic tax credit. This was the basis used (vis10

avis the fact that the 1987 annual corporate tax return was not offered by the petitioner as
evidence) by the CTA in concluding that petitioner had indeed availed of and applied the
automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the
two remedies of refund and tax credit are alternative. 30
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in
its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987
annual corporate tax return of the petitioner was not offered as evidence to contovert said fact. Thus, we are
bound by the findings of fact by respondent courts, there being no showing of gross error or abuse on their part
to disturb our reliance thereon. 31
WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals appealed from is
AFFIRMED, with COSTS against the petitioner.
1w phi 1.nt

SO ORDERED.

G.R. No. L-23645

October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee,

vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his capacity
as Secretary of Public Works and Communications, and DOMINGO GOPEZ, in his capacity as Acting
Postmaster of San Fernando, Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C. Zaballero and Solicitor
Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635,1 as amended by Republic Act 2631,2 which
provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for the period
from August nineteen to September thirty every year the printing and issue of semi-postal stamps of
different denominations with face value showing the regular postage charge plus the additional amount of
five centavos for the said purpose, and during the said period, no mail matter shall be accepted in the
mails unless it bears such semi-postal stamps: Provided, That no such additional charge of five centavos
shall be imposed on newspapers. The additional proceeds realized from the sale of the semi-postal
stamps shall constitute a special fund and be deposited with the National Treasury to be expended by the
Philippine Tuberculosis Society in carrying out its noble work to prevent and eradicate tuberculosis.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4) administrative
orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15, 1960). All these
administrative orders were issued with the approval of the respondent Secretary of Public Works and
Communications.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from August 19 to September
30, 1957, for lack of time. However, two denominations of such stamps, one at "5 + 5" centavos and
another at "10 + 5" centavos, will soon be released for use by the public on their mails to be posted
during the same period starting with the year 1958.
11

xxx

xxx

xxx

During the period from August 19 to September 30 each year starting in 1958, no mail matter of whatever
class, and whether domestic or foreign, posted at any Philippine Post Office and addressed for delivery in
this country or abroad, shall be accepted for mailing unless it bears at least one such semi-postal stamp
showing the additional value of five centavos intended for the Philippine Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or impressions of postage
meters, each piece of such mail shall bear at least one such semi-postal stamp if posted during the
period above stated starting with the year 1958, in addition to being charged the usual postage
prescribed by existing regulations. In the case of business reply envelopes and cards mailed during said
period, such stamp should be collected from the addressees at the time of delivery. Mails entitled to
franking privilege like those from the office of the President, members of Congress, and other offices to
which such privilege has been granted, shall each also bear one such semi-postal stamp if posted during
the said period.
Mails posted during the said period starting in 1958, which are found in street or post-office mail boxes
without the required semi-postal stamp, shall be returned to the sender, if known, with a notation calling
for the affixing of such stamp. If the sender is unknown, the mail matter shall be treated as nonmailable
and forwarded to the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege which are not
exempted from the payment of the five centavos intended for the Philippine Tuberculosis Society, such
extra charge may be collected in cash, for which official receipt (General Form No. 13, A) shall be issued,
instead of affixing the semi-postal stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of five
centavos for the Philippine Tuberculosis Society shall be collected on each separately-addressed piece
of second-class mail matter, and the total sum thus collected shall be entered in the same official receipt
to be issued for the postage at the second-class rate. In making such entry, the total number of pieces of
second-class mail posted shall be stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The
extra charge shall be entered separate from the postage in both of the official receipt and the Record of
Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed under permits
issued by this Bureau shall each be charged the usual postage, in addition to the five-centavo extra
charge intended for said society. The total extra charge thus received shall be entered in the same official
receipt to be issued for the postage collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under metered mail permit
issued by this Bureau, the extra charge of five centavos for said society shall be collected in cash and an
official receipt issued for the total sum thus received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and envelopes to
holders of business reply permits, the five-centavo charge intended for said society shall be collected in
cash on each reply card or envelope delivered, in addition to the required postage which may also be
paid in cash. An official receipt shall be issued for the total postage and total extra charge received, in the
manner shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other persons entitled to the
franking privilege under existing laws may pay in cash such extra charge intended for said society,
instead of affixing the semi-postal stamps to their mails, provided that such mails are presented at the
post-office window, where the five-centavo extra charge for said society shall be collected on each piece
12

of such mail matter. In such case, an official receipt shall be issued for the total sum thus collected, in the
manner stated in subparagraph 1.
Mail under permits, metered mails and franked mails not presented at the post-office window shall be
affixed with the necessary semi-postal stamps. If found in mail boxes without such stamps, they shall be
treated in the same way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and
Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as amended,
exempts "copies of periodical publications received for mailing under any class of mail matter, including
newspapers and magazines admitted as second-class mail."
The FACTS. On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San
Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street,
Singalong, Manila did not bear the special anti-TB stamp required by the statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First Instance of
Pampanga, to test the constitutionality of the statute, as well as the implementing administrative orders issued,
contending that it violates the equal protection clause of the Constitution as well as the rule of uniformity and
equality of taxation. The lower court declared the statute and the orders unconstitutional; hence this appeal by
the respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents' contention that declaratory
relief is unavailing because this suit was filed after the petitioner had committed a breach of the statute. While
conceding that the mailing by the petitioner of a letter without the additional anti-TB stamp was a violation of
Republic Act 1635, as amended, the trial court nevertheless refused to dismiss the action on the ground that
under section 6 of Rule 64 of the Rules of Court, "If before the final termination of the case a breach or violation
of ... a statute ... should take place, the action may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought "before breach or violation" of
the statute has been committed. Rule 64, section 1 so provides. Section 6 of the same rule, which allows the
court to treat an action for declaratory relief as an ordinary action, applies only if the breach or violation occurs
after the filing of the action but before the termination thereof.3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before the firing of this action,
then indeed the remedy of declaratory relief cannot be availed of, much less can the suit be converted into an
ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question did not constitute a breach
of the statute because the statute appears to be addressed only to postal authorities. The statute, it is true, in
terms provides that "no mail matter shall be accepted in the mails unless it bears such semi-postal stamps." It
does not follow, however, that only postal authorities can be guilty of violating it by accepting mails without the
payment of the anti-TB stamp. It is obvious that they can be guilty of violating the statute only if there are people
who use the mails without paying for the additional anti-TB stamp. Just as in bribery the mere offer constitutes a
breach of the law, so in the matter of the anti-TB stamp the mere attempt to use the mails without the stamp
constitutes a violation of the statute. It is not required that the mail be accepted by postal authorities. That
requirement is relevant only for the purpose of fixing the liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct because this suit was filed not
only with respect to the letter which he mailed on September 15, 1963, but also with regard to any other mail that
he might send in the future. Thus, in his complaint, the petitioner prayed that due course be given to "other mails
without the semi-postal stamps which he may deliver for mailing ... if any, during the period covered by Republic
13

Act 1635, as amended, as well as other mails hereafter to be sent by or to other mailers which bear the required
postage, without collection of additional charge of five centavos prescribed by the same Republic Act." As one
whose mail was returned, the petitioner is certainly interested in a ruling on the validity of the statute requiring the
use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the implementing orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution. More specifically the
claim is made that it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of
the population and that even among postal patrons the statute discriminatorily grants exemption to newspapers
while Administrative Order 9 of the respondent Postmaster General grants a similar exemption to offices
performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid upon the
exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled against it must be
viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation and to
grant exemptions.4 This power has aptly been described as "of wide range and flexibility."5 Indeed, it is said that
in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in
classification.6 The reason for this is that traditionally, classification has been a device for fitting tax programs to
local needs and usages in order to achieve an equitable distribution of the tax burden.7
That legislative classifications must be reasonable is of course undenied. But what the petitioner asserts is that
statutory classification of mail users must bear some reasonable relationship to the end sought to be attained,
and that absent such relationship the selection of mail users is constitutionally impermissible. This is altogether a
different proposition. As explained in Commonwealth v. Life Assurance Co.:8
While the principle that there must be a reasonable relationship between classification made by the
legislation and its purpose is undoubtedly true in some contexts, it has no application to a measure
whose sole purpose is to raise revenue ... So long as the classification imposed is based upon some
standard capable of reasonable comprehension, be that standard based upon ability to produce revenue
or some other legitimate distinction, equal protection of the law has been afforded. See Allied Stores of
Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S. Ct. at 441; Brown Forman Co. v. Commonwealth of
Kentucky, 2d U.S. 56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the clearest demonstration that it
sanctions invidious discrimination, which is all that the Constitution forbids. The remedy for unwise legislation
must be sought in the legislature. Now, the classification of mail users is not without any reason. It is based on
ability to pay, let alone the enjoyment of a privilege, and on administrative convinience. In the allocation of the tax
burden, Congress must have concluded that the contribution to the anti-TB fund can be assured by those whose
who can afford the use of the mails.
The classification is likewise based on considerations of administrative convenience. For it is now a settled
principle of law that "consideration of practical administrative convenience and cost in the administration of tax
laws afford adequate ground for imposing a tax on a well recognized and defined class."9 In the case of the antiTB stamps, undoubtedly, the single most important and influential consideration that led the legislature to select
mail users as subjects of the tax is the relative ease and convenienceof collecting the tax through the post
offices. The small amount of five centavos does not justify the great expense and inconvenience of collecting
through the regular means of collection. On the other hand, by placing the duty of collection on postal authorities
the tax was made almost self-enforcing, with as little cost and as little inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class. Mail users were
already a class by themselves even before the enactment of the statue and all that the legislature did was merely
14

to select their class. Legislation is essentially empiric and Republic Act 1635, as amended, no more than reflects
a distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living
law; to disregard [them] and concentrate on some abstract identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant exemption must likewise be
conceded as a necessary corollary. Tax exemptions are too common in the law; they have never been thought of
as raising issues under the equal protection clause.
It is thus erroneous for the trial court to hold that because certain mail users are exempted from the levy the law
and administrative officials have sanctioned an invidious discrimination offensive to the Constitution. The
application of the lower courts theory would require all mail users to be taxed, a conclusion that is hardly tenable
in the light of differences in status of mail users. The Constitution does not require this kind of equality.
As the United States Supreme Court has said, the legislature may withhold the burden of the tax in order to
foster what it conceives to be a beneficent enterprise.11 This is the case of newspapers which, under the
amendment introduced by Republic Act 2631, are exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity from
taxation. The State cannot be taxed without its consent and such consent, being in derogation of its sovereignty,
is to be strictly construed.12 Administrative Order 9 of the respondent Postmaster General, which lists the various
offices and instrumentalities of the Government exempt from the payment of the anti-TB stamp, is but a
restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis to the exclusion of other
diseases which, it is said, are equally a menace to public health. But it is never a requirement of equal protection
that all evils of the same genus be eradicated or none at all.13 As this Court has had occasion to say, "if the law
presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to
which it might have been applied."14
2. The petitioner further argues that the tax in question is invalid, first, because it is not levied for a public
purpose as no special benefits accrue to mail users as taxpayers, and second, because it violates the rule of
uniformity in taxation.
The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to
a taxpayer as a return for what he pays, then it is sufficient answer to say that the only benefit to which the
taxpayer is constitutionally entitled is that derived from his enjoyment of the privileges of living in an organized
society, established and safeguarded by the devotion of taxes to public purposes. Any other view would preclude
the levying of taxes except as they are used to compensate for the burden on those who pay them and would
involve the abandonment of the most fundamental principle of government that it exists primarily to provide for
the common good.15
Nor is the rule of uniformity and equality of taxation infringed by the imposition of a flat rate rather than a
graduated tax. A tax need not be measured by the weight of the mail or the extent of the service rendered. We
have said that considerations of administrative convenience and cost afford an adequate ground for
classification. The same considerations may induce the legislature to impose a flat tax which in effect is a charge
for the transaction, operating equally on all persons within the class regardless of the amount involved.16 As Mr.
Justice Holmes said in sustaining the validity of a stamp act which imposed a flat rate of two cents on every $100
face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The inequality of
the tax, so far as actual values are concerned, is manifest. But, here again equality in this sense has to
yield to practical considerations and usage. There must be a fixed and indisputable mode of ascertaining
a stamp tax. In another sense, moreover, there is equality. When the taxes on two sales are equal, the
same number of shares is sold in each case; that is to say, the same privilege is used to the same extent.
Valuation is not the only thing to be considered. As was pointed out by the court of appeals, the familiar
15

stamp tax of 2 cents on checks, irrespective of income or earning capacity, and many others, illustrate
the necessity and practice of sometimes substituting count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is spent for the benefit of the
Philippine Tuberculosis Society, a private organization, without appropriation by law. But as the Solicitor General
points out, the Society is not really the beneficiary but only the agency through which the State acts in carrying
out what is essentially a public function. The money is treated as a special fund and as such need not be
appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the respondents had to issue
administrative orders far beyond their powers. Indeed, this is one of the grounds on which the lower court
invalidated Republic Act 1631, as amended, namely, that it constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that for certain classes of mail
matters (such as mail permits, metered mails, business reply cards, etc.), the five-centavo charge may be paid in
cash instead of the purchase of the anti-TB stamp. It further states that mails deposited during the period August
19 to September 30 of each year in mail boxes without the stamp should be returned to the sender, if known,
otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except through the sale of antiTB stamps, but such authority may be implied in so far as it may be necessary to prevent a failure of the
undertaking. The authority given to the Postmaster General to raise funds through the mails must be liberally
construed, consistent with the principle that where the end is required the appropriate means are given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of the additional charge but
also that of the regular postage. In the case of business reply cards, for instance, it is obvious that to require
mailers to affix the anti-TB stamp on their cards would be to make them pay much more because the cards
likewise bear the amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do not bear the anti-TB
stamp, but a declaration therein that "no mail matter shall be accepted in the mails unless it bears such semipostal stamp" is a declaration that such mail matter is nonmailable within the meaning of section 1952 of the
Administrative Code. Administrative Order 7 of the Postmaster General is but a restatement of the law for the
guidance of postal officials and employees. As for Administrative Order 9, we have already said that in listing the
offices and entities of the Government exempt from the payment of the stamp, the respondent Postmaster
General merely observed an established principle, namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as to
costs.

G.R. No. L-41631 December 17, 1976

HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as Secretary to
the Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of Manila,
Branch XXX and the FEDERATION OF MANILA MARKET VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.
16

MARTIN, J.:
The chief question to be decided in this case is what law shall govern the publication of a tax ordinance enacted
by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as amended), which requires publication
of the ordinance before its enactment and after its approval, or the Local Tax Code (P.D. No. 231), which only
demands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF
STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The
petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case 96787
before the Court of First Instance of Manila presided over by respondent Judge, seeking the declaration of nullity
of Ordinance No. 7522 for the reason that (a) the publication requirement under the Revised Charter of the City
of Manila has not been complied with; (b) the Market Committee was not given any participation in the enactment
of the ordinance, as envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices
Act has been violated; and (d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972
prescribing the collection of fees and charges on livestock and animal products.
Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent Judge issued
an order on March 11, 1975, denying the plea for failure of the respondent Federation of Manila Market Vendors,
Inc. to exhaust the administrative remedies outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975, declaring the nullity
of Ordinance No. 7522 of the City of Manila on the primary ground of non-compliance with the requirement of
publication under the Revised City Charter. Respondent Judge ruled:
There is, therefore, no question that the ordinance in question was not published at all in two
daily newspapers of general circulation in the City of Manila before its enactment. Neither was it
published in the same manner after approval, although it was posted in the legislative hall and in
all city public markets and city public libraries. There being no compliance with the mandatory
requirement of publication before and after approval, the ordinance in question is invalid and,
therefore, null and void.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is
required by the Local Tax Code; and (b) private respondent failed to exhaust all administrative remedies before
instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the City of
Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the Municipal Board of
Manila. For, while Section 17 of the Revised Charter provides:
Each proposed ordinance shall be published in two daily newspapers of general circulation in the
city, and shall not be discussed or enacted by the Board until after the third day following such
publication. * * * Each approved ordinance * * * shall be published in two daily newspapers of
general circulation in the city, within ten days after its approval; and shall take effect and be in
force on and after the twentieth day following its publication, if no date is fixed in the ordinance.
17

Section 43 of the Local Tax Code directs:

Within ten days after their approval, certified true copies of all provincial, city, municipal and
barrioordinances levying or imposing taxes, fees or other charges shall be published for three
consecutive days in a newspaper or publication widely circulated within the jurisdiction of the
local government, or posted in the local legislative hall or premises and in two other conspicuous
places within the territorial jurisdiction of the local government. In either case, copies of all
provincial, city, municipal and barrio ordinances shall be furnished the treasurers of the
respective component and mother units of a local government for dissemination.
In other words, while the Revised Charter of the City of Manila requires publication before the enactment of the
ordinance and after the approval thereof in two daily newspapers of general circulation in the city, the Local Tax
Code only prescribes for publication after the approval of "ordinances levying or imposing taxes, fees or other
charges" either in a newspaper or publication widely circulated within the jurisdiction of the local government or
by posting the ordinance in the local legislative hall or premises and in two other conspicuous places within the
territorial jurisdiction of the local government. Petitioners' compliance with the Local Tax Code rather than with
the Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the City
of Manila, whereas the Local Tax Code is a general law because it applies universally to all local governments.
Blackstone defines general law as a universal rule affecting the entire community and special law as one relating
to particular persons or things of a class. 1 And the rule commonly said is that a prior special law is not ordinarily
repealed by a subsequent general law. The fact that one is special and the other general creates a presumption that
the special is to be considered as remaining an exception of the general, one as a general law of the land, the other as
the law of a particular case. 2 However, the rule readily yields to a situation where the special statute refers to a subject
in general, which the general statute treats in particular. The exactly is the circumstance obtaining in the case at bar.
Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in general, i.e., irrespective of the nature
and scope thereof,whereas, Section 43 of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or
other charges" in particular. In regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is
doubtless dominant, but, that dominant force loses its continuity when it approaches the realm of "ordinances levying
or imposing taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a general
provision must give way to a particular provision. 3 Special provision governs. 4 This is especially true where the law
containing the particular provision was enacted later than the one containing the general provision. The City Charter of
Manila was promulgated on June 18, 1949 as against the Local Tax Code which was decreed on June 1, 1973. The
law-making power cannot be said to have intended the establishment of conflicting and hostile systems upon the same
subject, or to leave in force provisions of a prior law by which the new will of the legislating power may be thwarted and
overthrown. Such a result would render legislation a useless and Idle ceremony, and subject the law to the reproach of
uncertainty and unintelligibility. 5

The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for damages arising
from the injuries he suffered when he fell inside an uncovered and unlighted catchbasin or manhole on P. Burgos
Avenue. The City of Manila denied liability on the basis of the City Charter (R.A. 409) exempting the City of Manila
from any liability for damages or injury to persons or property arising from the failure of the city officers to enforce the
provisions of the charter or any other law or ordinance, or from negligence of the City Mayor, Municipal Board, or other
officers while enforcing or attempting to enforce the provisions of the charter or of any other law or ordinance. Upon
the other hand, Article 2189 of the Civil Code makes cities liable for damages for the death of, or injury suffered by any
persons by reason of the defective condition of roads, streets, bridges, public buildings, and other public works under
their control or supervision. On review, the Court held the Civil Code controlling. It is true that, insofar as its territorial
application is concerned, the Revised City Charter is a special law and the subject matter of the two laws, the Revised
City Charter establishes a general rule of liability arising from negligence in general, regardless of the object thereof,
whereas the Civil Code constitutes a particularprescription for liability due to defective streets in particular. In the same
manner, the Revised Charter of the City prescribes a rule for the publication of "ordinance" in general, while the Local
Tax Code establishes a rule for the publication of "ordinance levying or imposing taxes fees or other charges in
particular.

In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a general or
broad one. 7 A charter provision may be impliedly modified or superseded by a later statute, and where a statute is
controlling, it must be read into the charter notwithstanding any particular charter provision. 8 A subsequent general
18

law similarly applicable to all cities prevails over any conflicting charter provision, for the reason that a charter must not
be inconsistent with the general laws and public policy of the state. 9 A chartered city is not an independent
sovereignty. The state remains supreme in all matters not purely local. Otherwise stated, a charter must yield to the
constitution and general laws of the state, it is to have read into it that general law which governs the municipal
corporation and which the corporation cannot set aside but to which it must yield. When a city adopts a charter, it in
effect adopts as part of its charter general law of such character. 10

2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having been
violated by private respondent in bringing a direct suit in court. This is because Section 47 of the Local Tax Code
provides that any question or issue raised against the legality of any tax ordinance, or portion thereof, shall be
referred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion of the city fiscal is
appealable to the Secretary of Justice, whose decision shall be final and executory unless contested before a
competent court within thirty (30) days. But, the petition below plainly shows that the controversy between the
parties is deeply rooted in a pure question of law: whether it is the Revised Charter of the City of Manila or the
Local Tax Code that should govern the publication of the tax ordinance. In other words, the dispute is sharply
focused on the applicability of the Revised City Charter or the Local Tax Code on the point at issue, and not on
the legality of the imposition of the tax. Exhaustion of administrative remedies before resort to judicial bodies is
not an absolute rule. It admits of exceptions. Where the question litigated upon is purely a legal one, the rule
does not apply. 11 The principle may also be disregarded when it does not provide a plain, speedy and adequate
remedy. It may and should be relaxed when its application may cause great and irreparable damage. 12

3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because the
imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-raising function,
so that the procedure for publication under the Local Tax Code finds no application. The pretense bears its own
marks of fallacy. Precisely, the raising of revenues is the principal object of taxation. Under Section 5, Article XI
of the New Constitution, "Each local government unit shall have the power to create its own sources of revenue
and to levy taxes, subject to such provisions as may be provided by law." 13 And one of those sources of revenue is
what the Local Tax Code points to in particular: "Local governments may collect fees or rentals for the occupancy or
use of public markets and premises * * *." 14 They can provide for and regulate market stands, stalls and privileges,
and, also, the sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell or otherwise dispose
of stands, stalls or marketing privileges. 15

It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated September 30, 1972,
insofar as it affects livestock and animal products, because the said decree prescribes the collection of other
fees and charges thereon "with the exception of ante-mortem and post-mortem inspection fees, as well as the
delivery, stockyard and slaughter fees as may be authorized by the Secretary of Agriculture and Natural
Resources." 16Clearly, even the exception clause of the decree itself permits the collection of the proper fees for
livestock. And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may
collect fees for the slaughter of animals and the use of corrals * * * "

4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522 supposedly in
accordance with Republic Act No. 6039, an amendment to the City Charter of Manila, providing that "the market
committee shall formulate, recommend and adopt, subject to the ratification of the municipal board, and approval
of the mayor, policies and rules or regulation repealing or maneding existing provisions of the market code" does
not infect the ordinance with any germ of invalidity. 17 The function of the committee is purely recommendatory as
the underscored phrase suggests, its recommendation is without binding effect on the Municipal Board and the City
Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a condition sine qua non before the
Municipal Board could enact such ordinance. The native power of the Municipal Board to legislate remains undisturbed
even in the slightest degree. It can move in its own initiative and the Market Committee cannot demur. At most, the
Market Committee may serve as a legislative aide of the Municipal Board in the enactment of city ordinances affecting
the city markets or, in plain words, in the gathering of the necessary data, studies and the collection of consensus for
the proposal of ordinances regarding city markets. Much less could it be said that Republic Act 6039 intended to
delegate to the Market Committee the adoption of regulatory measures for the operation and administration of the city
markets. Potestas delegata non delegare potest.

5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are diverted to the
exclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let by the
City of Manila to the said corporation in a "Management and Operating Contract." The assumption is of course
19

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

ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522 of the
City of Manila, dated June 15, 1975, is hereby held to have been validly enacted. No. costs.
SO ORDERED.

G.R. No. L-29646 November 10, 1978

MAYOR ANTONIO J. VILLEGAS, petitioner,
vs.
HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner.
Sotero H. Laurel for respondents.

FERNANDEZ, J.:
This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent Judge Francisco
Arca of the Court of First Instance of Manila, Branch I, in Civil Case No. 72797, the dispositive portion of winch
reads.
Wherefore, judgment is hereby rendered in favor of the petitioner and against the respondents,
declaring Ordinance No. 6 37 of the City of Manila null and void. The preliminary injunction is
made permanent. No pronouncement as to cost.
SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.)
FRANCISCO
ARCA
Jud
ge 1
20

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and
signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. 2
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE
PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE ENGAGED IN
ANY KIND OF TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA
WITHOUT FIRST SECURING AN EMPLOYMENT PERMIT FROM THE MAYOR OF MANILA;
AND FOR OTHER PURPOSES. 3
Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or participate in any
position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing
an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the
diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine
Government and any foreign government, and those working in their respective households, and members of religious
orders or congregations, sect or denomination, who are not paid monetarily or in kind.

Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six (6) months
or fine of not less than P100.00 but not more than P200.00 or both such fine and imprisonment, upon conviction.5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with
the Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797, praying for the issuance of
the writ of preliminary injunction and restraining order to stop the enforcement of Ordinance No. 6537 as well as
for a judgment declaring said Ordinance No. 6537 null and void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared
null and void:
1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537
is discriminatory and violative of the rule of the uniformity in taxation;
2) As a police power measure, it makes no distinction between useful and non-useful
occupations, imposing a fixed P50.00 employment permit, which is out of proportion to the cost of
registration and that it fails to prescribe any standard to guide and/or limit the action of the Mayor,
thus, violating the fundamental principle on illegal delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus,
deprived of their rights to life, liberty and property and therefore, violates the due process and
equal protection clauses of the Constitution. 7
On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17, 1968
rendered judgment declaring Ordinance No. 6537 null and void and making permanent the writ of preliminary
injunction. 8
Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the present petition
on March 27, 1969. Petitioner assigned the following as errors allegedly committed by respondent Judge in the
latter's decision of September 17,1968: 9
I
THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN
RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF UNIFORMITY OF
TAXATION.
II
21

RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW IN

RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST UNDUE
DESIGNATION OF LEGISLATIVE POWER.
III
RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF LAW
IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND EQUAL
PROTECTION CLAUSES OF THE CONSTITUTION.
Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it
violated the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or
revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police
power of the state, it being principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is
regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise of discretion and judgment in the processing and
approval or disapproval of applications for employment permits and therefore is regulatory in character the
second part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure.
There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is
obvious that the purpose of the ordinance is to raise money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are required to pay it. Although the equal protection clause
of the Constitution does not forbid classification, it is imperative that the classification should be based on real
and substantial differences having a reasonable relation to the subject of the particular legislation. The same
amount of P50.00 is being collected from every employed alien whether he is casual or permanent, part time or
full time or whether he is a lowly employee or a highly paid executive
Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his
discretion. It has been held that where an ordinance of a municipality fails to state any policy or to set up any
standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a permit,
enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor
arbitrary and unrestricted power to grant or deny the issuance of building permits, such ordinance is invalid,
being an undefined and unlimited delegation of power to allow or prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a government agency
power to determine the allocation of wheat flour among importers, the Supreme Court ruled against the interpretation
of uncontrolled power as it vested in the administrative officer an arbitrary discretion to be exercised without a policy,
rule, or standard from which it can be measured or controlled.

It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse permits of all classes
conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled discretion but legal discretion
to be exercised within the limits of the law.

Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor
in the exercise of the power which has been granted to him by the ordinance.
The ordinance in question violates the due process of law and equal protection rule of the Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold
or refuse it at will is tantamount to denying him the basic right of the people in the Philippines to engage in a
means of livelihood. While it is true that the Philippines as a State is not obliged to admit aliens within its territory,
once an alien is admitted, he cannot be deprived of life without due process of law. This guarantee includes the
22

means of livelihood. The shelter of protection under the due process and equal protection clause is given to all
persons, both aliens and citizens. 13
The trial court did not commit the errors assigned.
WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs.
SO ORDERED.

G.R. No. 51593 November 5, 1992

NATIONAL DEVELOPMENT COMPANY, plaintiff-appellee,
vs.
CEBU CITY and AUGUSTO PACIS as Treasurer of Cebu City, defendant-appellants.

BELLOSILLO, J.:
Is a public land reserved by the President for warehousing purposes in favor of a government-owned or
controlled corporation, 1 as well as the warehouse subsequently erected thereon, exempt from real property tax?
Petitioner National Development Company (NDC), a government-owned or controlled corporation (GOCC)
existing by virtue of C.A. 182 2 and E.O. 399, 3 is authorized to engage in commercial, industrial, mining, agricultural
and other enterprises necessary or contributory to economic development or important to public interest. It also
operates, in furtherance of its objectives, subsidiary corporations one of which is the now defucnt National
Warehousing Corporation (NWC). 4

On August 10, 1939, the President issued Proclamation No. 430 5 reserving Block no. 4, Reclamation Area No. 4, of
Cebu City, consisting of 4,599 square meters, for warehousing purposes under the administration of
NWC. 6 Subsequently, in 1940, a warehouse with a floor area of 1,940 square meters more or less, was constructed
thereon. 7

On October 4, 1947, E.O. 93 dissolved NWC 8 with NDC taking over its assets and functions. 9
Commencing 1948, Cebu City (CEBU) assessed and collected from NDC real estate taxes on the land and the
warehouse thereon. 10 By the first quarter of 1970, a total of P100,316.31 was paid by NDC 11 of which only P3,895.06
was under protest. 12

On 20 March 1970, NDC wrote the City Assessor demanding full refund of the real estate taxes paid to CEBU
claiming that the land and the warehouse standing thereon belonged to the Republic and therefore exempt from
taxation. 13 CEBU did not acquiesce in the demand, hence, the present suit filed 25 October 1972 in the Court of First
Instance of Manila.

On 29 May 1973, the Court of First Instance of Manila, Branch XXII, promulgated a decision 14 the dispositive
portion of which reads

WHEREFORE, judgment is hereby rendered sentencing the City of Cebu, thru the Treasurer of
said City, to refund to the plaintiff, National Development Company, the real estate taxes paid by
it for the parcel of land covered by Presidential Proclamation No. 430 of August 10, 1939, and the
warehouse erected thereon from and after October 25, 1966, with interests thereon at the legal
rate from the date of the filing of the complaint and the costs of the suit.
23

The defendants appealed to the Court of Appeals which however certified the case to Us as one involving pure
questions of law, pursuant to Sec. 17, R.A. 296.
In this appeal, CEBU assigns five (5) errors 15 imputed to the trial court which may be synopsized into whether NDC
is exempted from payment of the real estate taxes on the land reserved by the President for warehousing purposes as
well as the warehouse constructed thereon, and in the affirmative, whether NDC may recover in refund unprotested
real estate taxes it paid from 1948 to 1970.

On the first question, CEBU insists on taxability of the subject properties, claiming that no law grants NDC
exemption from real estate taxes, and that NDC, as recipient of the land reserved by the President pursuant to
Sec. 83 of the Public Land Act, 16 is liable for payment or ordinary (real estate) taxes under Sec. 115 therefore. CEBU
contends that the properties have ceased to be tax exempt under the Assessment Law. 17 when the government
disposed of them in favor of NDC, and even assuming that title to the land remains with the government (ownership
being the basis for real estate taxability under the Assessment Law), the Supreme Court rulings establish increasing
rather than "ownership" as basis for real estate tax liability.

On the other hand, NDC maintains the Sec. 3 of the Assessment Law, which exempts properties owned by the
Republic from real estate tax, includes subject properties in the exemption. It invokes the ruling in Board of
Assessment Appeals vs. CTA & NWSA 18 which held that properties of NWSA, a GOCC, were exempt from real
estate tax because Sec. 3 of the Assessment Law applied to all government properties whether held in governmental
or proprietary capacity. NDC rejects the applicability of Sec. 115 of the Public Land Act to the subject land, claiming
that provision contemplates dispositions of public land with eventual transfer of title. In addition, NDC believes that it is
neither a grantee of a public land nor an applicant within the purview of the same provision.

As already adverted to, one of the principal issues before Us is the interpretation of a provision of the
Assessment Law, the precursor of the then Real Property Tax Code and the Local Government Code, where
"ownership" of the property and not "use" is the test of tax liability. 19
Section, 3 par. (a), of the Assessment Law, on which NDC claims real estate tax exemption, provides
Section 3. Property exempt from tax. The exemptions shall be as follows: (a) Property owned
by the United States of America, the Commonwealth of the Philippines, any province, city,
municipality at municipal district . . .
The same opinion of NDC was passed upon in National Development Co. v. Province of Nueva Ecija 20 where We
held that its properties were not comprehended in Sec. 3, par (a), of the Assessment Law. In part, We stated:

1. Commonwealth Act No. 182 which created NDC contains no provision exempting it from the
payment of real estate tax on properties it may acquire . . . There is justification in the contention
of plaintiff-appellee that . . . [I]t is undeniable that to any municipality the principal source of
revenue with which it would defray its operation will came from real property taxes. If the National
Development Company would be exempt from paying real property taxes over these properties,
the town of Gabaldon will bee deprived of much needed revenues with which it will maintain itself
and finance the compelling needs of its inhabitants (p. 6, Brief of Plaintiff-Appellee).
2. Defendant-appellant NDC does not come under classification of municipal or public corporation
in the sense that it may sue and be sued in the same manner as any other private corporations,
and in this sense, it is an entity different from the government, defendant corporation may be
sued without its consent, and is subject to taxation. In the case NDC vs. Jose Yulo Tobias, 7
SCRA 692, it was held that . . . plaintiff is neither the Government of the Republic nor a branch or
subdivision thereof, but a government owned and controlled corporation which cannot be said to
exercise a sovereign function (Association Cooperativa de Credito Agricola de Miagao vs.
Monteclaro, 74 Phil. 281). it is a business corporation, and as such, its causes of action are
subject to the statute of limitations. . . . That plaintiff herein does not exercise sovereign powers
and, hence, cannot invoke the exemptions thereof but is an agency for the performance of
purely corporate, proprietary or business functions, is apparent from its Organic Act
(Commonwealth Act 182, as amended by Commonwealth Act 311) pursuant to Section 3 of
24

which it "shall be subject to the provisions of the Corporation Law insofar as they are not
inconsistent" with the provisions of said Commonwealth Act, "and shall have the general powers
mentioned in said" Corporation Law, and, hence, "may engage in commercial, industrial, mining,
agricultural, and other enterprises which may be necessary or contributory to the economic
development of the country, or important in the public interest," as well as "acquire, hold,
mortgage and alienate personal and real property in the Philippines or elsewhere; . . . make
contracts of any kind and description", and "perform any and all acts which a corporation or
natural persons is authorized to perform under the laws now existing or which may be enacted
hereafter."
We find no compelling reason why the foregoing ruling, although referring to lands which would eventually be
transferred to private individuals, should not apply equally to this case.
NDC cites Board of Assessment Appeals, Province of Laguna v. Court of Tax Appeal and National Waterworks
and Sewerage Authority (NWSA). In that case, We held that properties of NWSA, a GOCC, were exempt from
real estate tax because Sec. 3, par (c), of R.A. 470 did not distinguish between those possessed by the
government in sovereign/governmental/political capacity and those in private/proprietary/patrimonial character.
The conflict between NDC v. Nueva Ecija, supra, and BAA v. CTA and NWSA, supra, is more superficial than
real. The NDC decision speaks of properties owned by NDC, while the BAA ruling concerns properties belonging
to the Republic. The latter case appears to be exceptional because the parties therein stipulated
1. That the petitioner National Waterworks and Sewerage Authority (NAWASA) is a public
corporation created by virtue of Republic Act. No. 1383, and that it is owned by the Government
of the Philippines as well as all property comprising waterworks and sewerage systems placed
under it (Emphasis supplied).
There, the Court observed: "It is conceded, in the stipulation of facts, that the property involved in this case "is
owned by the Government of the Philippines." Hence, it belongs to the Republic of the Philippines and falls
squarely within letter of the above provision."
In the case at bar, no similar statement appears in the stipulation of facts, hence, ownership of subject properties
should first be established. For, while it may be stated that the Republic owns NDC, it does not necessary follow
that properties owned by NDC, are also owned by Republic in the same way that stockholders are not ipso
facto owners of the properties of their corporation.
The Republic, like any individual, may form a corporation with personality and existence distinct from its own.
The separate personality allows a GOCC to hold and possess properties in its own name and, thus, permit
greater independence and flexibility in its operations. It may, therefore, be stated that tax exemption of property
owned by the Republic of the Philippines "refers to properties owned by the Government and by its agencies
which do not have separate and distinct personalities (unincorporated entities). We find the separate opinion of
Justice Bautista-Angelo in Gonzales v. Hechanova, et al., 21 appropriate and enlightening
. . . The Government of the Republic of the Philippines under the Revised Administrative Code
refers to that entity through which the functions of government are exercised, including the
various arms through which political authority is made effective whether they be provincial,
municipal or other form of local government, whereas a government instrumentality refers to
corporations owned or controlled by the government to promote certain aspects of the economic
life of our people. A government agency therefore, must necessarily after refer to the government
itself to the Republic, as distinguished from any government instrumentality which has a
personality distinct and separate from it (Section 2).
The foregoing discussion does not mean that because NDC, like most GOCC's engages in commercial
enterprises all properties of the government and its unincorporated agencies possessed in propriety character
are taxable. Similarly, in the case at bar, NDC proceeded on the premise that the BAA ruling declared all
25

properties owed by GOCC's as properties in the name of the Republic, hence, exempt under Sec. 3 of the
Assessment Law.22
To come within the ambit of the exemption provided in Art. 3, par. (a), of the Assessment Law, it is important to
establish that the property is owned by the government or its unincorporated agency, and once government
ownership is determined, the nature of the use of the property, whether for proprietary or sovereign purposes,
becomes immaterial. What appears to have been ceded to NWC (later transferred to NDC), in the case before
Us, is merely the administration of the property while the government retains ownership of what has been
declared reserved for warehousing purposes under Proclamation No. 430.
Incidentally, the parties never raised the issued the issue of ownership from the court a quo to this Court.
A reserved land is defined as a "[p]ublic land that has been withheld or kept back from sale or disposition." 23 The
land remains "absolute property of the government." 24 The government "does not part with its title by reserving them
(lands), but simply gives notice to all the world that it desires them for a certain purpose." 25 Absolute disposition of
land is not implied from reservation; 26 it merely means "a withdrawal of a specified portion of the public domain from
disposal under the land laws and the appropriation thereof, for the time being, to some particular use or purpose of the
general government." 27 As its title remains with the Republic, the reserved land is clearly recovered by the tax
exemption provision.

CEBU nevertheless contends that the reservation of the property in favor of NWC or NDC is a form of disposition
of public land which, subjects the recipient (NDC ) to real estate taxation under Sec. 115 of the Public Land Act.
as amended by R.A. 436, 28 which estate:
Sec 115. All lands granted by virtue of this Act, including homesteads upon which final proof has
not been made or approved shall, even though and while the title remains in the State, be subject
to the ordinary taxes, which shall be paid by the grantee or the applicant, beginning with the year
next following the one in which the homestead application has been filed, or the concession has
been approved, or the contract has been signed, as the case may be, on the basis of the value
fixed in such filing, approval or signing of the application, concession or contract.
The essential question then is whether lands reserved pursuant to Sec. 83 are comprehended in Sec. 115 and,
therefore, taxable.
Section 115 of the Public Land Act should be treated as an exception to Art. 3, par. (a), of the Assessment Law.
While ordinary public lands are tax exempt because title thereto belongs to the Republic, Sec. 115 subjects them
to real estate tax even before ownership thereto is transferred in the name of the beneficiaries. Sec. 115
comprehends three (3) modes of disposition of Lands under the Public Land Act, to wit: homestead, concession,
and contract.
Liability to real property taxes under Sec. 115 is predicated on (a) filing of homestead application, (b) approval of
concession and, (c) signing of contract. Significantly, without these words, the date of the accrual of the real
estate tax would be indeterminate. Since NDC is not a homesteader and no "contract" (bilateral agreement) was
signed, it would appear, then, that reservation under Sec. 83, being a unilateral act of the President, falls under
"concession".
"Concession" as a technical term under the Public Land Act is synonymous with "alienation" and "disposition",
and is defined in Sec. 10 as "any of the methods authorized by this Act for the acquisition, lease, use, or benefit
of the lands of the public domain other than timber or mineral lands." Logically, where Sec. 115 contemplates
authorized methods for acquisition, lease, use, or benefit under the Act, the taxability of the land would depend
on whether reservation under Sec. 83 is one such method of acquisition, etc. Tersely put, is reservation
synonymous with alienation? Or, are the two terms antithetical and mutually exclusive? Indeed, reservation
connotes retention, while concession (alienation) signifies cession.
Section 8 and 88 of the Public Land Act provide that reserved lands are excluded from that may be subject of
disposition, to wit
26

Sec. 8. Only those lands shall be declared open to disposition or concession which have been
officially delimited and classified and, when practicable, surveyed, and which have not been
reservedfor public or quasi-public uses, nor appropriated by the Government, nor in any manner
become private property , nor those on which a private right authorized and recognized by this
Act or any valid law may be claimed, or which, having been reserved or appropriated, have
ceased to be so.
Sec. 88. The tract or tracts of land reserved under the provisions of section eighty-three shall
be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition
until again declared alienable under the provisions of this Act or by proclamation of the President
(Emphasis supplied)
As We view it, the effect of reservation under Sec. 83 is to segregate a piece of public land and transform it into
non-alienable or non-disposable under the Public Land Act. Section 115, on the other hand, applies to
disposable public lands. Clearly, therefore, Sec. 115 does not apply to lands reserved under Sec. 83.
Consequently, the subject reserved public land remains tax exempt.
However, as regards the warehouse constructed on a public reservation, a different rule should apply because
"[t]he exemption of public property from taxation does not extend to improvements on the public lands made by
pre-emptioners, homesteaders and other claimants, or occupants, at their own expense, and these are taxable
by the state . . ." 29 Consequently, the warehouse constructed on the reserved land by NWC (now under
administration by NDC), indeed, should properly be assessed real estate tax as such improvement does not appear to
belong to the Republic.

Since the reservation is exempt from realty tax, the erroneous tax payments collected by CEBU should be
refunded to NDC. This is in consonance with Sec. 40, par. (a) of the former Real Property Tax Code which
exempted from taxation real property owned by the Republic of the Philippines or any of its political subdivisions,
as well as any GOCC so exempt by its charter. 30
As regards the requirement of paying under protest before judicial recourse, CEBU argues that in any case NDC
is not entitled to refund because Sec. 75 of R.A. 3857, the Revised Charter of the City of Cebu, 31 requires
payment under protest before resorting to judicial action for tax refund; that it could not have acted on the first demand
letter of NDC of 20 May 1970 because it was sent to the City Assessor and not to the City Treasurer; that,
consequently, there having been no appropriate prior demand, resort to judicial remedy is premature; and, that even
on the premise that there was proper demand, NDC has yet to exhaust administrative remedies by way of appeal to
the Department of Finance and/or Auditor General before taking judicial action.

NDC does not agree. It disputes the applicability of the payment-under-protest requirement is Sec. 75 of the
Revised Cebu City Charter because the issue is not the validity of tax assessment but recovery of erroneous
payments under Arts. 2154 and 2155 of the Civil Code. 32 It cites the case of East Asiatic Co., Ltd. v. City of
Davao33 which held that where the tax is unauthorized, "it is not a tax assessed under the charter of the appellant City
of Davao and for that reason no protest is necessary for a claim or demand for its refund." In Ramie Textiles,
Inc. vs. Mathay, Sr., 34We held

. . . Protest is not a requirement in order that a taxpayer who paid under a mistaken belief that it is
required by law, may claim for a refund. Section 54 35 of Commonwealth Act No. 470 does not apply
to petitioner which could conceivably not have been expected to protest a payment it honestly
believed to be due. The same refers only to the case where the taxpayer, despite his knowledge of the
erroneous or illegal assessment, still pays and fails to make the proper protest, for in such case, he
should manifest an unwillingness to pay, and failing so, the taxpayer is deemed to have waved his
right to claim a refund.

In the case at bar, petitioner, therefore, cannot be said to have waived his right. He had no
knowledge of the fact that it was exempted from payment of the realty tax under Commonwealth
Act No. 470. Payment was made through error or mistake, in the honest belief that petitioner was
liable, and therefore could not have been made under protest, but with complete voluntariness. In
any case, a taxpayer should not be held to suffer loss by his good intention to comply with what
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he believes is his legal obligation, where such obligation does not really exist . . . The fact that
petitioner paid thru error or mistake, and the government accepted the payment, gave rise to the
application of the principle of solutio indebiti under Article 2154 of the New Civil Code, which
provides that "if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises." There is, therefore, created a tie or
juridical relation in the nature ofsolutio indebiti, expressly classified as quasi-contract under
Section 2, Chapter I of Title XVII of the New Civil code.
The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle
that no one shall enrich himself unjustly at the expense of another . . . Hence, it would seem
unedifying for the government, that knowing it has no right at all to collect or to receive money for
alleged taxes paid by mistake, it would be reluctant to return the same . . . Petitioner is not
unsatisfied in the assessment of its property. Assessment having been made, it paid the real
estate taxes without knowing that it is exempt.
As regards the claim for refund of tax payments spanning more than twenty (20) years, We also said in Ramie
Textiles that
Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio indebiti, the
claim for refund must be commenced within six (6) years from date of payment pursuant to Article
1145 (2) of the New Civil Code 36 . . .
We sustain the appellate court to the extent that its decision covers improperly collected taxes on the reserved
land under Proclamation No. 430, thus
The defense of prescription invoked by the defendant which counsel for the plaintiff, however, did
not answer in its memorandum, is partly well-taken. Actions for refund of taxes illegally collected
must be commenced within six (6) years from the date of collection. . . . .
The stipulation of facts and the pleadings filed by the parties do not contain data specifying when
and how much were paid by the year, of the taxes sought to be refunded. Accordingly, the Court
has no other alternative but to order the refund of an undetermined amount based, however, on
the date of payment counted six (6) years backward from October 25, 1972, when the complaint
in this case was filed. 37
As regards exhaustion of administrative remedies, We agree with the trial court that the case constitutes an
exception to the rule, as it involves purely question of law. 38 Specifically, on the requirement of appeal to the
Secretary of Finance, We further held in the same Ramie Textiles that "[E]qually not applicable is Section 17 of
Commonwealth Act No. 470 39 cited by respondent in relation to the right of a, property owner to contest the validity of
assessment . . ."

Respondent CEBU likewise invites Our attention to the availability of appeal to the Government Auditing Office
although no authority is cited to Us. We do not find any either to sustain the procedure.
WHEREFORE, finding that National Development Company (NDC) is exempt from real estate tax on the
reserved land but liable for the warehouse erected thereon, the decision appealed from is
accordingly MODIFIED. Consequently, let this case be remanded to the court of origin, now the Regional Trial
Court of Manila, to determine the proper liability of NDC, particularly on its warehouse, and effect the
corresponding refund, payment or set-off, as the case may be, conformably with this decision. No costs.
SO ORDERED.

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