G.R. No.

L-22734

September 15, 1967

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO
PINEDA, respondent.
Office of the Solicitor General for petitioner.
Manuel B. Pineda for and in his own behalf as respondent.

BENGZON, J.P., J.:

On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima
Bagtas, and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer.
Estate proceedings were had in the Court of First Instance of Manila (Case
No. 71129) wherein the surviving widow was appointed administratrix. The
estate was divided among and awarded to the heirs and the proceedings
terminated on June 8, 1948. Manuel B. Pineda's share amounted to about
P2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue
investigated the income tax liability of the estate for the years 1945, 1946,
1947 and 1948 and it found that the corresponding income tax returns were
not filed. Thereupon, the representative of the Collector of Internal Revenue
filed said returns for the estate on the basis of information and data obtained
from the aforesaid estate proceedings and issued an assessment for the
following:
1 Deficiency income tax
. 194
P135.83
5
194
436.95
6
194
1,206.91
7
Add: 5% surcharge
1% monthly
interest from
November 30,
1953 to April 15,
1957
Compromise for

P1,779.69
88.98

720.77
80.00

late filing
Compromise for
late payment
Total amount due
2 Additional residence
. tax for 1945
3 Real Estate dealer's
. tax for the fourth
quarter of 1946 and
the whole year of
1947

40.00
P2,707.44
=======
====
P14.50
=======
====
P207.50
=======
====

Manuel B. Pineda, who received the assessment, contested the same.

Subsequently, he appealed to the Court of Tax Appeals alleging that he was
appealing "only that proportionate part or portion pertaining to him as one of
the heirs."
After hearing the parties, the Court of Tax Appeals rendered judgment
reversing the decision of the Commissioner on the ground that his right to
assess and collect the tax has prescribed. The Commissioner appealed and
this Court affirmed the findings of the Tax Court in respect to the assessment
for income tax for the year 1947 but held that the right to assess and collect
the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the
returns were filed on August 24, 1953; assessments for both taxable years
were made within five years therefrom or on October 19, 1953; and the
action to collect the tax was filed within five years from the latter date, on
August 7, 1957. For taxable year 1947, however, the return was filed on
March 1, 1948; the assessment was made on October 19, 1953, more than
five years from the date the return was filed; hence, the right to assess
income tax for 1947 had prescribed. Accordingly, We remanded the case to
the Tax Court for further appropriate proceedings.1
In the Tax Court, the parties submitted the case for decision without
additional evidence.
On November 29, 1963 the Court of Tax Appeals rendered judgment holding
Manuel B. Pineda liable for the payment corresponding to his share of the
following taxes:
Deficiency income tax

1945

P135.8
3
436.95

1946
Real estate
dealer's fixed
tax 4th quarter
of 1946 and
whole year of
P187.5
1947
0

The Commissioner of Internal Revenue has appealed to Us and has proposed

to hold Manuel B. Pineda liable for the payment of all the taxes found by the
Tax Court to be due from the estate in the total amount of P760.28 instead of
only for the amount of taxes corresponding to his share in the
estate.1awphl.nt
Manuel B. Pineda opposes the proposition on the ground that as an heir he is
liable for unpaid income tax due the estate only up to the extent of and in
proportion to any share he received. He relies on Government of the
Philippine Islands v. Pamintuan2 where We held that "after the partition of an
estate, heirs and distributees are liable individually for the payment of all
lawful outstanding claims against the estate in proportion to the amount or
value of the property they have respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to pay the full
amount of the taxes assessed.
Pineda is liable for the assessment as an heir and as a holder-transferee of
property belonging to the estate/taxpayer. As an heir he is individually
answerable for the part of the tax proportionate to the share he received
from the inheritance.3 His liability, however, cannot exceed the amount of his
share.4
As a holder of property belonging to the estate, Pineda is liable for he tax up
to the amount of the property in his possession. The reason is that the
Government has a lien on the P2,500.00 received by him from the estate as
his share in the inheritance, for unpaid income taxes4a for which said estate
is liable, pursuant to the last paragraph of Section 315 of the Tax Code,
which we quote hereunder:
If any person, corporation, partnership, joint-account (cuenta en
participacion), association, or insurance company liable to pay the
income tax, neglects or refuses to pay the same after demand, the
amount shall be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the Commissioner of

Internal Revenue until paid with interest, penalties, and costs that may
accrue in addition thereto upon all property and rights to property
belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to subject the property
in Pineda's possession, i.e., the P2,500.00, to satisfy the income tax
assessment in the sum of P760.28. After such payment, Pineda will have a
right of contribution from his co-heirs,5 to achieve an adjustment of the
proper share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One,
by going after all the heirs and collecting from each one of them the amount
of the tax proportionate to the inheritance received. This remedy was
adopted in Government of the Philippine Islands v. Pamintuan, supra. In said
case, the Government filed an action against all the heirs for the collection of
the tax. This action rests on the concept that hereditary property consists
only of that part which remains after the settlement of all lawful claims
against the estate, for the settlement of which the entire estate is first
liable.6 The reason why in case suit is filed against all the heirs the tax due
from the estate is levied proportionately against them is to achieve thereby
two results: first, payment of the tax; and second, adjustment of the shares
of each heir in the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the Tax Code
upon all property and rights to property belonging to the taxpayer for unpaid
income tax, is by subjecting said property of the estate which is in the hands
of an heir or transferee to the payment of the tax due, the estate. This
second remedy is the very avenue the Government took in this case to
collect the tax. The Bureau of Internal Revenue should be given, in instances
like the case at bar, the necessary discretion to avail itself of the most
expeditious way to collect the tax as may be envisioned in the particular
provision of the Tax Code above quoted, because taxes are the lifeblood of
government and their prompt and certain availability is an imperious
need.7 And as afore-stated in this case the suit seeks to achieve only one
objective: payment of the tax. The adjustment of the respective shares due
to the heirs from the inheritance, as lessened by the tax, is left to await the
suit for contribution by the heir from whom the Government recovered said
tax.
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is
hereby ordered to pay to the Commissioner of Internal Revenue the sum of
P760.28 as deficiency income tax for 1945 and 1946, and real estate dealer's
fixed tax for the fourth quarter of 1946 and for the whole year 1947, without
prejudice to his right of contribution for his co-heirs. No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro,

Angeles and Fernando, JJ., concur.

G.R. No. L-31364 March 30, 1979

MISAEL P. VERA, as Commissioner of Internal Revenue, and JAIME
ARANETA, as Regional Director, Revenue Region No. 14, Bureau of
Internal Revenue, petitioners,
vs.
HON. JOSE F. FERNANDEZ, Judge of the Court of First Instance of
Negros Occidental, Branch V, and FRANCIS A. TONGOY,
Administrator of the Estate of the late LUIS D. TONGOY respondents.

DE CASTRO, J.:
Appeal from two orders of the Court of First Instance of Negros Occidental,
Branch V in Special Proceedings No. 7794, entitled: "Intestate Estate of Luis
D. Tongoy," the first dated July 29, 1969 dismissing the Motion for Allowance
of Claim and for an Order of Payment of Taxes by the Government of the
Republic of the Philippines against the Estate of the late Luis D. Tongoy, for
deficiency income taxes for the years 1963 and 1964 of the decedent in the
total amount of P3,254.80, inclusive 5% surcharge, 1% monthly interest and
compromise penalties, and the second, dated October 7, 1969, denying the
Motion for reconsideration of the Order of dismissal.
The Motion for allowance of claim and for payment of taxes dated May 28,
1969 was filed on June 3, 1969 in the abovementioned special proceedings,
(par. 3, Annex A, Petition, pp. 1920, Rollo). The claim represents the
indebtedness to the Government of the late Luis D. Tongoy for deficiency
income taxes in the total sum of P3,254.80 as above stated, covered by
Assessment Notices Nos. 11-50-29-1-11061-21-63 and 11-50-291-1 1087564, to which motion was attached Proof of Claim (Annex B, Petition, pp. 2122, Rollo). The Administrator opposed the motion solely on the ground that
the claim was barred under Section 5, Rule 86 of the Rules of Court (par. 4,
Opposition to Motion for Allowance of Claim, pp. 23-24, Rollo). Finding the
opposition well-founded, the respondent Judge, Jose F. Fernandez, dismissed
the motion for allowance of claim filed by herein petitioner, Regional Director

of the Bureau of Internal Revenue, in an order dated July 29, 1969 (Annex D,
Petition, p. 26, Rollo). On September 18, 1969, a motion for reconsideration
was filed, of the order of July 29, 1969, but was denied in an Order dated
October 7, 1969.
Hence, this appeal on certiorari, petitioner assigning the following errors:
1. The lower court erred in holding that the claim for taxes by the
government against the estate of Luis D. Tongoy was filed
beyond the period provided in Section 2, Rule 86 of the Rules of
Court.
2. The lower court erred in holding that the claim for taxes of the
government was already barred under Section 5, Rule 86 of the
Rules of Court.
which raise the sole issue of whether or not the statute of non-claims Section
5, Rule 86 of the New Rule of Court, bars claim of the government for unpaid
taxes, still within the period of limitation prescribed in Section 331 and 332
of the National Internal Revenue Code.
Section 5, Rule 86, as invoked by the respondent Administrator in hid
Oppositions to the Motion for Allowance of Claim, etc. of the petitioners reads
as follows:
All claims for money against the decedent, arising from
contracts, express or implied, whether the same be due, not due,
or contingent, all claims for funeral expenses and expenses for
the last sickness of the decedent, and judgment for money
against the decedent, must be filed within the time limited in
they notice; otherwise they are barred forever, except that they
may be set forth as counter claims in any action that the
executor or administrator may bring against the claimants.
Where the executor or administrator commence an action, or
prosecutes an action already commenced by the deceased in his
lifetime, the debtor may set forth may answer the claims he has
against the decedents, instead of presenting them independently
to the court has herein provided, and mutual claims may be set
off against each other in such action; and in final judgment is
rendered in favored of the decedent, the amount to determined
shall be considered the true balance against the estate, as

though the claim has been presented directly before the court in
the administration proceedings. Claims not yet due, or
contingent may be approved at their present value.
A perusal of the aforequoted provisions shows that it makes no mention of
claims for monetary obligation of the decedent created by law, such as taxes
which is entirely of different character from the claims expressly enumerated
therein, such as: "all claims for money against the decedent arising from
contract, express or implied, whether the same be due, not due or
contingent, all claim for funeral expenses and expenses for the last sickness
of the decedent and judgment for money against the decedent." Under the
familiar rule of statutory construction ofexpressio unius est exclusio
alterius, the mention of one thing implies the exclusion of another thing not
mentioned. Thus, if a statute enumerates the things upon which it is to
operate, everything else must necessarily, and by implication be excluded
from its operation and effect (Crawford, Statutory Construction, pp. 334-335).
In the case of Commissioner of Internal Revenue vs. Ilagan Electric & Ice
Plant, et al., G.R. No. L-23081, December 30, 1969, it was held that the
assessment, collection and recovery of taxes, as well as the matter of
prescription thereof are governed by the provisions of the National Internal
revenue Code, particularly Sections 331 and 332 thereof, and not by other
provisions of law. (See also Lim Tio, Dy Heng and Dee Jue vs. Court of Tax
Appeals & Collector of Internal Revenue, G.R. No. L-10681, March 29, 1958).
Even without being specifically mentioned, the provisions of Section 2 of Rule
86 of the Rules of Court may reasonably be presumed to have been also in
the mind of the Court as not affecting the aforecited Section of the National
Internal Revenue Code.
In the case of Pineda vs. CFI of Tayabas, 52 Phil. 803, it was even more
pointedly held that "taxes assessed against the estate of a deceased
person ... need not be submitted to the committee on claims in the ordinary
course of administration. In the exercise of its control over the administrator,
the court may direct the payment of such taxes upon motion showing that
the taxes have been assessed against the estate." The abolition of the
Committee on Claims does not alter the basic ruling laid down giving
exception to the claim for taxes from being filed as the other claims
mentioned in the Rule should be filed before the Court. Claims for taxes may
be collected even after the distribution of the decedent's estate among his

heirs who shall be liable therefor in proportion of their share in the

inheritance. (Government of the Philippines vs. Pamintuan, 55 Phil. 13).
The reason for the more liberal treatment of claims for taxes against a
decedent's estate in the form of exception from the application of the statute
of non-claims, is not hard to find. Taxes are the lifeblood of the Government
and their prompt and certain availability are imperious need. (Commissioner
of Internal Revenue vs. Pineda, G. R. No. L-22734, September 15, 1967, 21
SCRA 105). Upon taxation depends the Government ability to serve the
people for whose benefit taxes are collected. To safeguard such interest,
neglect or omission of government officials entrusted with the collection of
taxes should not be allowed to bring harm or detriment to the people, in the
same manner as private persons may be made to suffer individually on
account of his own negligence, the presumption being that they take good
care of their personal affairs. This should not hold true to government
officials with respect to matters not of their own personal concern. This is the
philosophy behind the government's exception, as a general rule, from the
operation of the principle of estoppel. (Republic vs. Caballero, L-27437,
September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and
Protective Order of the Elks Inc. vs. Court of Appeals, L-41001, September
30, 1976, 73 SCRA 162; Sy vs. Central Bank of the Philippines, L-41480, April
30,1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA 553;
Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine
Rabbit Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance
Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs.
Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E.
Rodriguez, Inc. vs. Collector of Internal Revenue, L- 23041, July 31, 1969, 28
SCRA 119.) As already shown, taxes may be collected even after the
distribution of the estate of the decedent among his heirs (Government of
the Philippines vs. Pamintuan, supra; Pineda vs. CFI of Tayabas, supra Clara
Diluangco Palanca vs. Commissioner of Internal Revenue, G. R. No. L-16661,
January 31, 1962).
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, supra,
citing the last paragraph of Section 315 of the Tax Code payment of income
tax shall be a lien in favor of the Government of the Philippines from the time
the assessment was made by the Commissioner of Internal Revenue until
paid with interests, penalties, etc. By virtue of such lien, this court held that
the property of the estate already in the hands of an heir or transferee may
be subject to the payment of the tax due the estate. A fortiori before the

inheritance has passed to the heirs, the unpaid taxes due the decedent may
be collected, even without its having been presented under Section 2 of Rule
86 of the Rules of Court. It may truly be said that until the property of the
estate of the decedent has vested in the heirs, the decedent, represented by
his estate, continues as if he were still alive, subject to the payment of such
taxes as would be collectible from the estate even after his death. Thus in
the case above cited, the income taxes sought to be collected were due from
the estate, for the three years 1946, 1947 and 1948 following his death in
May, 1945.
Even assuming arguendo that claims for taxes have to be filed within the
time prescribed in Section 2, Rule 86 of the Rules of Court, the claim in
question may be filed even after the expiration of the time originally fixed
therein, as may be gleaned from the italicized portion of the Rule herein cited
which reads:
Section 2. Time within which claims shall be filed. - In the notice
provided in the preceding section, the court shall state the time
for the filing of claims against the estate, which shall not be more
than twelve (12) nor less than six (6) months after the date of
the first publication of the notice. However, at any time before an
order of distribution is entered, on application of a creditor who
has failed to file his claim within the time previously limited the
court may, for cause shown and on such terms as are equitable,
allow such claim to be flied within a time not exceeding one (1)
month. (Emphasis supplied)
In the instant case, petitioners filed an application (Motion for Allowance of
Claim and for an Order of Payment of Taxes) which, though filed after the
expiration of the time previously limited but before an order of the
distribution is entered, should have been granted by the respondent court, in
the absence of any valid ground, as none was shown, justifying denial of the
motion, specially considering that it was for allowance Of claim for taxes due
from the estate, which in effect represents a claim of the people at large, the
only reason given for the denial that the claim was filed out of the previously
limited period, sustaining thereby private respondents' contention,
erroneously as has been demonstrated.
WHEREFORE, the order appealed from is reverse. Since the Tax
Commissioner's assessment in the total amount of P3,254.80 with 5 %

surcharge and 1 % monthly interest as provided in the Tax Code is a final one
and the respondent estate's sole defense of prescription has been herein
overruled, the Motion for Allowance of Claim is herein granted and
respondent estate is ordered to pay and discharge the same, subject only to
the limitation of the interest collectible thereon as provided by the Tax Code.
No pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Fernandez, Guerrero, and MelencioHerrera, JJ., concur.
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
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

P56,588,740.91 representing deficiency income and business taxes covered

by Demand/Assessment Notice No. FAS-1-84-003291-003296. 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. 19In 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 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.
Narvasa, C.J., Padilla, Puno and Mendoza, JJ., concur.

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be
achieved.
The main issue in this case is whether or not the Collector of Internal
Revenue correctly disallowed the P75,000.00 deduction claimed by private
respondent Algue as legitimate business expenses in its income tax returns.
The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and
in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a
domestic corporation engaged in engineering, construction and other allied
activities, received a letter from the petitioner assessing it in the total
amount of P83,183.85 as delinquency income taxes for the years 1958 and
1959. 1 On January 18, 1965, Algue flied a letter of protest or request for
reconsideration, which letter was stamp received on the same day in the
office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy
was presented to the private respondent, through its counsel, Atty. Alberto
Guevara, Jr., who refused to receive it on the ground of the pending
protest. 3 A search of the protest in the dockets of the case proved fruitless.

Atty. Guevara produced his file copy and gave a photostat to BIR agent
Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty.
Guevara was finally informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and
levy earlier sought to be served. 5Sixteen days later, on April 23, 1965, Algue
filed a petition for review of the decision of the Commissioner of Internal
Revenue with the Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably.
According to Rep. Act No. 1125, the appeal may be made within thirty days
after receipt of the decision or ruling challenged. 7 It is true that as a rule the
warrant of distraint and levy is "proof of the finality of the assessment" 8 and
renders hopeless a request for reconsideration," 9 being "tantamount to an
outright denial thereof and makes the said request deemed rejected." 10 But
there is a special circumstance in the case at bar that prevents application of
this accepted doctrine.
The proven fact is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was
apparently not taken into account before the warrant of distraint and levy
was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest
that it was, if at all, considered by the tax authorities. During the intervening
period, the warrant was premature and could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private
respondent was not pro forma and was based on strong legal considerations.
It thus had the effect of suspending on January 18, 1965, when it was filed,
the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on
April 7, 1965, when the private respondent was definitely informed of the
implied rejection of the said protest and the warrant was finally served on it.
Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was
properly disallowed because it was not an ordinary reasonable or necessary
business expense. The Court of Tax Appeals had seen it differently. Agreeing
with Algue, it held that the said amount had been legitimately paid by the

private respondent for actual services rendered. The payment was in the
form of promotional fees. These were collected by the Payees for their work
in the creation of the Vegetable Oil Investment Corporation of the Philippines
and its subsequent purchase of the properties of the Philippine Sugar Estate
Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed
these promotional fees to be personal holding company income 12 but later
conformed to the decision of the respondent court rejecting this
assertion.13 In fact, as the said court found, the amount was earned through
the joint efforts of the persons among whom it was distributed It has been
established that the Philippine Sugar Estate Development Company had
earlier appointed Algue as its agent, authorizing it to sell its land, factories
and oil manufacturing process. Pursuant to such authority, Alberto Guevara,
Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez,
worked for the formation of the Vegetable Oil Investment Corporation,
inducing other persons to invest in it. 14 Ultimately, after its incorporation
largely through the promotion of the said persons, this new corporation
purchased the PSEDC properties. 15 For this sale, Algue received as agent a
commission of P126,000.00, and it was from this commission that the
P75,000.00 promotional fees were paid to the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of
the fees in their income tax returns and paid the corresponding taxes
thereon. 17 The Court of Tax Appeals also found, after examining the
evidence, that no distribution of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the
payees are members of the same family in control of Algue. It is argued that
no indication was made as to how such payments were made, whether by
check or in cash, and there is not enough substantiation of such payments.
In short, the petitioner suggests a tax dodge, an attempt to evade a
legitimate assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private
respondent when its President, Alberto Guevara, and the accountant, Cecilia
V. de Jesus, testified that the payments were not made in one lump sum but
periodically and in different amounts as each payee's need arose. 19 It should
be remembered that this was a family corporation where strict business
procedures were not applied and immediate issuance of receipts was not

required. Even so, at the end of the year, when the books were to be closed,
each payee made an accounting of all of the fees received by him or her, to
make up the total of P75,000.00. 20 Admittedly, everything seemed to be
informal. This arrangement was understandable, however, in view of the
close relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees
was not excessive. The total commission paid by the Philippine Sugar Estate
Development Co. to the private respondent was P125,000.00. 21After
deducting the said fees, Algue still had a balance of P50,000.00 as clear
profit from the transaction. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the
payees who did practically everything, from the formation of the Vegetable
Oil Investment Corporation to the actual purchase by it of the Sugar Estate
properties. This finding of the respondent court is in accord with the following
provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net
income there shall be allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or
business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the
ordinary and necessary expenses paid or incurred in carrying on
any trade or business may be included a reasonable allowance
for salaries or other compensation for personal services actually
rendered. The test of deductibility in the case of compensation
payments is whether they are reasonable and are, in fact,
payments purely for service. This test and deductibility in the
case of compensation payments is whether they are reasonable
and are, in fact, payments purely for service. This test and its
practical application may be further stated and illustrated as
follows:

Any amount paid in the form of compensation, but not in fact as

the purchase price of services, is not deductible. (a) An
ostensible salary paid by a corporation may be a distribution of a
dividend on stock. This is likely to occur in the case of a
corporation having few stockholders, Practically all of whom draw
salaries. If in such a case the salaries are in excess of those
ordinarily paid for similar services, and the excessive payment
correspond or bear a close relationship to the stockholdings of
the officers of employees, it would seem likely that the salaries
are not paid wholly for services rendered, but the excessive
payments are a distribution of earnings upon the stock. . . .
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular
employ of Algue nor were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the
taxpayer to prove the validity of the claimed deduction. In the present case,
however, we find that the onus has been discharged satisfactorily. The
private respondent has proved that the payment of the fees was necessary
and reasonable in the light of the efforts exerted by the payees in inducing
investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.
It is said that taxes are what we pay for civilization society. Without taxes,
the government would be paralyzed for lack of the motive power to activate
and operate it. Hence, despite the natural reluctance to surrender part of
one's hard earned income to the taxing authorities, every person who is able
to must contribute his share in the running of the government. The
government for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance
their moral and material values. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that it is an arbitrary method
of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is
a requirement in all democratic regimes that it be exercised reasonably and
in accordance with the prescribed procedure. If it is not, then the taxpayer

has a right to complain and the courts will then come to his succor. For all
the awesome power of the tax collector, he may still be stopped in his tracks
if the taxpayer can demonstrate, as it has here, that the law has not been
observed.
We hold that the appeal of the private respondent from the decision of the
petitioner was filed on time with the respondent court in accordance with
Rep. Act No. 1125. And we also find that the claimed deduction by the
private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is
AFFIRMED in toto, without costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

CIR vs CA and YMCA, [298 SCRA 83]

Post under case digests, Taxation at Sunday,
by Schizophrenic Mind

February

26,

2012 Posted

Facts: The main question in this case is: is the income derived from rentals
of real property owned by Young Mens Christian Association of the
Philippines (YMCA) established as a welfare, educational and charitable
non-profit corporation subject to income tax under the NIRC and the
Constitution? In 1980, YMCA earned an income of P676,829 from leasing out
a portion of its premises to small shop owners, like restaurants and canteen
operators and P44k form parking fees.
Issue: Is the rental income of the YMCA taxable?
Held: Yes. The exemption claimed by the YMCA is expressly disallowed by
the very wording of the last paragraph of then Sec. 27 of the NIRC; court is
duty-bound to abide strictly by its literal meaning and to refrain from
resorting to any convoluted attempt at construction. The said provision

mandates that the income of exempt organizations (such as YMCA) from any
of their properties, real or personal, be subject to the tax imposed by the
same Code. Private respondent is exempt from the payment of property tax,
but nit income tax on rentals from its property.

EN BANC
[G.R. No. 117359. July 23, 1998]

DAVAO GULF LUMBER

CORPORATION, petitioner,
vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
DECISION
PANGANIBAN, J.:

Because taxes are the lifeblood of the nation, statutes that allow exemptions are
construed strictly against the grantee and liberally in favor of the government. Otherwise
stated, any exemption from the payment of a tax must be clearly stated in the language
of the law; it cannot be merely implied therefrom.
Statement of the Case
This principium is applied by the Court in resolving this petition for review under
Rule 45 of the Rules of Court, assailing the Decision of Respondent Court of
Appeals in CA-GR SP No. 34581 dated September 26, 1994, which affirmed the June
21, 1994 Decision of the Court of Tax Appeals in CTA Case No. 3574. The dispositive
portion of the CTA Decision affirmed by Respondent Court reads:
[1]

[2]

[3]

[4]

WHEREFORE, judgment is hereby rendered ordering the respondent to

refund to the petitioner the amount of P2,923.15 representing the partial
refund of specific taxes paid on manufactured oils and fuels.
[5]

The Antecedent Facts

The facts are undisputed. Petitioner is a licensed forest concessionaire possessing
a Timber License Agreement granted by the Ministry of Natural Resources (now
Department of Environment and Natural Resources).From July 1, 1980 to January 31,
[6]

1982 petitioner purchased, from various oil companies, refined and manufactured
mineral oils as well as motor and diesel fuels, which it used exclusively for the
exploitation and operation of its forest concession. Said oil companies paid the specific
taxes imposed, under Sections 153 and 156 of the 1977 National Internal Revenue
Code (NIRC), on the sale of said products. Being included in the purchase price of the
oil products, the specific taxes paid by the oil companies were eventually passed on to
the user, the petitioner in this case.
[7]

On December 13, 1982, petitioner filed before Respondent Commissioner of

Internal
Revenue
(CIR)
a
claim
for
refund
in
the
amount
of P120,825.11, representing 25% of the specific taxes actually paid on the abovementioned fuels and oils that were used by petitioner in its operations as forest
concessionaire. The claim was based on Insular Lumber Co. vs. Court of Tax
Appeals and Section 5 of RA 1435 which reads:
[8]

Section 5. The proceeds of the additional tax on manufactured oils shall

accrue to the road and bridge funds of the political subdivision for whose
benefit the tax is collected: Provided, however, That whenever any oils
mentioned above are used by miners or forest concessionaires in their
operations, twenty-five per centum of the specific tax paid thereon shall be
refunded by the Collector of Internal Revenue upon submission of proof of
actual use of oils and under similar conditions enumerated in subparagraphs
one and two of section one hereof, amending section one hundred forty-two of
the Internal Revenue Code: Provided, further, That no new road shall be
constructed unless the routes or location thereof shall have been approved by
the Commissioner of Public Highways after a determination that such road
can be made part of an integral and articulated route in the Philippine
Highway System, as required in section twenty-six of the Philippine Highway
Act of 1953.
It is an unquestioned fact that petitioner complied with the procedure for refund,
including the submission of proof of the actual use of the aforementioned oils in its
forest concession as required by the above-quoted law.Petitioner, in support of its claim
for refund, submitted to the CIR the affidavits of its general manager, the president of
the Philippine Wood Products Association, and three disinterested persons, all attesting
that the said manufactured diesel and fuel oils were actually used in the exploitation and
operation of its forest concession.

On January 20, 1983, petitioner filed at the CTA a petition for review docketed as
CTA Case No. 3574. On June 21, 1994, the CTA rendered its decision finding petitioner
entitled to a partial refund of specific taxes the latter had paid in the reduced amount
of P2,923.15. The CTA ruled that the claim on purchases of lubricating oil (from July 1,
1980 to January 19, 1981), and on manufactured oils other than lubricating oils (from
July 1, 1980 to January 4, 1981) had prescribed. Disallowed on the ground that they
were not included in the original claim filed before the CIR were the claims for refund on
purchases of manufactured oils from January 1, 1980 to June 30, 1980 and from
February 1, 1982 to June 30, 1982. In regard to the other purchases, the CTA granted
the claim, but it computed the refund based on rates deemed paid under RA 1435, and
not on the higher rates actually paid by petitioner under the NIRC.
Insisting that the basis for computing the refund should be the increased rates
prescribed by Sections 153 and 156 of the NIRC, petitioner elevated the matter to the
Court of Appeals. As noted earlier, the Court of Appeals affirmed the CTA
Decision. Hence, this petition for review.
[9]

Public Respondents Ruling

In its petition before the Court of Appeals, petitioner raised the following arguments:

I. The respondent Court of Tax Appeals failed to apply the Supreme Courts
Decision in Insular Lumber Co. v. Court of Tax Appeals which granted the
claim for partial refund of specific taxes paid by the claimant, without
qualification or limitation.
II. The respondent Court of Tax Appeals ignored the increase in rates imposed
by succeeding amendatory laws, under which the petitioner paid the specific
taxes on manufactured and diesel fuels.
III. In its decision, the respondent Court of Tax Appeals ruled contrary to
established tenets of law when it lent itself to interpreting Section 5 of R.A.
1435, when the construction of said law is not necessary.
IV. Sections 1 and 2 of R.A. 1435 are not the operative provisions to be
applied but rather, Sections 153 and 156 of the National Internal Revenue
Code, as amended.
V. To rule that the basis for computation of the refunded taxes should be
Sections 1 and 2 of R.A. 1435 rather than Section 153 and 156 of the National

Internal Revenue Code is unfair, erroneous, arbitrary, inequitable and

oppressive.
[10]

The Court of Appeals held that the claim for refund should indeed be computed on
the basis of the amounts deemed paid under Sections 1 and 2 of RA 1435. In so ruling,
it cited our pronouncement in Commissioner of Internal Revenue v. Rio Tuba Nickel
Mining Corporation and our subsequent Resolution dated June 15, 1992 clarifying the
said Decision. Respondent Court further ruled that the claims for refund which
prescribed and those which were not filed at the administrative level must be excluded.
[11]

The Issue
In its Memorandum, petitioner raises one critical issue:

Whether or not petitioner is entitled under Republic Act No. 1435 to the refund
of 25% of the amount of specific taxes it actually paid on various refined and
manufactured mineral oils and other oil products taxed under Sec. 153 and
Sec. 156 of the 1977 (Sec. 142 and Sec. 145 of the 1939) National Internal
Revenue Code.
[12]

In the main, the question before us pertains only to the computation of the tax
refund. Petitioner argues that the refund should be based on the increased rates of
specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the
NIRC. Public respondent, on the other hand, contends that it should be based on
specific taxes deemed paid under Sections 1 and 2 of RA 1435.
The Courts Ruling
The petition is not meritorious.
Petitioner Entitled to Refund
Under Sec. 5 of RA 1435
At the outset, it must be stressed that petitioner is entitled to a partial refund under
Section 5 of RA 1435, which was enacted to provide means for increasing the Highway
Special Fund.
The rationale for this grant of partial refund of specific taxes paid on purchases of
manufactured diesel and fuel oils rests on the character of the Highway Special
Fund. The specific taxes collected on gasoline and fuel accrue to the Fund, which is to

be used for the construction and maintenance of the highway system. But because the
gasoline and fuel purchased by mining and lumber concessionaires are used within
their own compounds and roads, and their vehicles seldom use the national highways,
they do not directly benefit from the Fund and its use. Hence, the tax refund gives the
mining and the logging companies a measure of relief in light of their peculiar situation.
When the Highway Special Fund was abolished in 1985, the reason for the refund
likewise ceased to exist. Since petitioner purchased the subject manufactured diesel
and fuel oils from July 1, 1980 to January 31, 1982 and submitted the required proof
that these were actually used in operating its forest concession, it is entitled to claim the
refund under Section 5 of RA 1435.
[13]

[14]

Tax Refund Strictly Construed

Against the Grantee
Petitioner submits that it is entitled to the refund of 25 percent of the specific taxes it
had actually paid for the petroleum products used in its operations. In other words, it
claims a refund based on the increased rates under Sections 153 and 156 of the NIRC.
Petitioner argues that the statutory grant of the refund privilege, specifically the
phrase twenty-five per centum of the specific tax paid thereon shall be refunded by the
Collector of Internal Revenue, is clear and unambiguous enough to require construction
or qualification thereof. In addition, it cites our pronouncement in Insular Lumber vs.
Court of Tax Appeals:
[15]

[16]

[17]

x x x Section 5 [of RA 1435] makes reference to subparagraphs 1 and 2 of

Section 1 only for the purpose of prescribing the procedure for refund. This
express reference cannot be expanded in scope to include the limitation of the
period of refund. If the limitation of the period of refund of specific taxes paid
on oils used in aviation and agriculture is intended to cover similar taxes paid
on oil used by miners and forest concessionaires, there would have been no
need of dealing with oil used by miners and forest concessions separately and
Section 5 would very well have been included in Section 1 of Republic Act No.
1435, notwithstanding the different rate of exemption.
Petitioner then reasons that the express mention of Section 1 of RA 1435 in Section
5 cannot be expanded to include a limitation on the tax rates to be applied x x x
[otherwise,] Section 5 should very well have been included in Section 1 x x x.
[18]

The Court is not persuaded. The relevant statutory provisions do not clearly support
petitioners claim for refund. RA 1435 provides:

SECTION 1. Section one hundred and forty-two of the National Internal

Revenue Code, as amended, is further amended to read as follows:
SEC. 142. Specific tax on manufactured oils and other fuels. -- On refined and
manufactured mineral oils and motor fuels, there shall be collected the
following taxes:
(a) Kerosene or petroleum, per liter of volume capacity, two and one-half
centavos;
(b) Lubricating oils, per liter of volume capacity, seven centavos;
(c) Naptha, gasoline, and all other similar products of distillation, per liter of
volume capacity, eight centavos; and
(d) On denatured alcohol to be used for motive power, per liter of volume
capacity, one centavo: Provided, That if the denatured alcohol is mixed with
gasoline, the specific tax on which has already been paid, only the alcohol
content shall be subject to the tax herein prescribed. For the purpose of this
subsection, the removal of denatured alcohol of not less than one hundred
eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to
have been removed for motive power, unless shown to the contrary.
Whenever any of the oils mentioned above are, during the five years from
June eighteen, nineteen hundred and fifty two, used in agriculture and
aviation, fifty per centum of the specific tax paid thereon shall be refunded by
the Collector of Internal Revenue upon the submission of the following:
(1) A sworn affidavit of the producer and two disinterested persons proving
that the said oils were actually used in agriculture, or in lieu thereof
(2) Should the producer belong to any producers association or federation,
duly registered with the Securities and Exchange Commission, the affidavit of
the president of the association or federation, attesting to the fact that the oils
were actually used in agriculture.
(3) In the case of aviation oils, a sworn certificate satisfactory to the Collector
proving that the said oils were actually used in aviation: Provided, That no

such refunds shall be granted in respect to the oils used in aviation by citizens
and corporations of foreign countries which do not grant equivalent refunds or
exemptions in respect to similar oils used in aviation by citizens and
corporations of the Philippines.
SEC. 2. Section one hundred and forty-five of the National Internal Revenue
Code, as amended, is further amended to read as follows:
SEC. 145. Specific Tax on Diesel fuel oil. -- On fuel oil, commercially known
as diesel fuel oil, and on all similar fuel oils, having more or less the same
generating power, there shall be collected, per metric ton, one peso.
xxxxxxxxx

Section 5. The proceeds of the additional tax on manufactured oils shall

accrue to the road and bridge funds of the political subdivision for whose
benefit the tax is collected: Provided, however, That whenever any oils
mentioned above are used by miners or forest concessionaires in their
operations, twenty-five per centum of the specific tax paid thereon shall be
refunded by the Collector of Internal Revenue upon submission of proof of
actual use of oils and under similar conditions enumerated in subparagraphs
one and two of section one hereof, amending section one hundred forty-two of
the Internal Revenue Code: Provided, further, That no new road shall be
constructed unless the route or location thereof shall have been approved by
the Commissioner of Public Highways after a determination that such road
can be made part of an integral and articulated route in the Philippine
Highway System, as required in section twenty-six of the Philippine Highway
Act of 1953.
Subsequently, the 1977 NIRC, PD 1672 and EO 672 amended the first two
provisions, renumbering them and prescribing higher rates. Accordingly, petitioner paid
specific taxes on petroleum products purchased from July 1, 1980 to January 31, 1982
under the following statutory provisions.
From February 8, 1980 to March 20, 1981, Sections 153 and 156 provided as
follows:

SEC. 153. Specific tax on manufactured oils and other fuels. -- On refined and
manufactured mineral oils and motor fuels, there shall be collected the
following taxes which shall attach to the articles hereunder enumerated as
soon as they are in existence as such:
(a) Kerosene, per liter of volume capacity, seven centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation, per liter of
volume capacity, ninety-one centavos: Provided, That, on premium and
aviation gasoline, the tax shall be one peso per liter of volume capacity;
(d) On denatured alcohol to be used for motive power, per liter of volume
capacity, one centavo: Provided, That, unless otherwise provided for by
special laws, if the denatured alcohol is mixed with gasoline, the specific tax
on which has already been paid, only the alcohol content shall be subject to
the tax herein prescribed. For the purposes of this subsection, the removal of
denatured alcohol of not less than one hundred eighty degrees proof (ninety
per centum absolute alcohol) shall be deemed to have been removed for
motive power, unless shown to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, fifty-seven centavos;
(g) Liquefied petroleum gas, per kilogram, fourteen centavos: Provided,
That, liquefied petroleum gas used for motive power shall be taxed at the
equivalent rate as the specific tax on diesel fuel oil;
(h) Asphalts, per kilogram, eight centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five centavos. (As
amended by Sec. 1, P.D. No. 1672.)
xxxxxxxxx

SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil, commercially known as
diesel fuel oil, and on all similar fuel oils, having more or less the same
generating power, per liter of volume capacity, seventeen and one-half
centavos, which tax shall attach to this fuel oil as soon as it is in existence as
such."
Then on March 21, 1981, these provisions were amended by EO 672 to read:

SEC. 153. Specific tax on manufactured oils and other fuels. -- On refined and
manufactured mineral oils and motor fuels, there shall be collected the
following taxes which shall attach to the articles hereunder enumerated as
soon as they are in existence as such:
(a) Kerosene, per liter of volume capacity, nine centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation, per liter of
volume capacity, one peso and six centavos: Provided, That on premium and
aviation gasoline, the tax shall be one peso and ten centavos and one peso,
respectively, per liter of volume capacity;
(d) On denatured alcohol to be used for motive power, per liter of volume
capacity, one centavo; Provided, That unless otherwise provided for by
special laws, if the denatured alcohol is mixed with gasoline, the specific tax
on which has already been paid, only the alcohol content shall be subject to
the tax herein prescribed. For the purpose of this subsection, the removal of
denatured alcohol of not less than one hundred eighty degrees proof
(ninety per centum absolute alcohol) shall be deemed to have been removed
for motive power, unless shown to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, sixty-one centavos;
(g) Liquefied petroleum gas, per kilogram, twenty-one
centavos: Provided, That, liquified petroleum gas used for motive power shall
be taxed at the equivalent rate as the specific tax on diesel fuel oil;

(h) Asphalts, per kilogram, twelve centavos;

(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo-jet fuel, per liter of volume capacity, sixty-four centavos.
xxxxxxxxx

SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil, commercially known as
diesel fuel oil, and all similar fuel oils, having more or less the same
generating power, per liter of volume capacity, twenty-five and one-half
centavos, which tax shall attach to this fuel oil as soon as it is in existence as
such.
A tax cannot be imposed unless it is supported by the clear and express language
of a statute; on the other hand, once the tax is unquestionably imposed, [a] claim of
exemption from tax payments must be clearly shown and based on language in the law
too plain to be mistaken. Since the partial refund authorized under Section 5, RA 1435,
is in the nature of a tax exemption, it must be construed strictissimi juris against the
grantee. Hence, petitioners claim of refund on the basis of the specific taxes it actually
paid must expressly be granted in a statute stated in a language too clear to be
mistaken.
[19]

[20]

[21]

We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and
found no expression of a legislative will authorizing a refund based on the higher rates
claimed by petitioner. The mere fact that the privilege of refund was included in Section
5, and not in Section 1, is insufficient to support petitioners claim. When the law itself
does not explicitly provide that a refund under RA 1435 may be based on higher rates
which were nonexistent at the time of its enactment, this Court cannot presume
otherwise. A legislative lacuna cannot be filled by judicial fiat.
[22]

The issue is not really novel. In Commissioner of Internal Revenue vs. Court of
Appeals and Atlas Consolidated Mining and Development Corporation (the second
Atlas case), the CIR contended that the refund should be based on Sections 1 and 2 of
RA 1435, not Sections 153 and 156 of the NIRC of 1977. In categorically ruling that
Private Respondent Atlas Consolidated Mining and Development Corporation was
entitled to a refund based on Sections 1 and 2 of RA 1435, the Court, through Mr.
Justice Hilario G. Davide, Jr., reiterated our pronouncement in Commissioner of Internal
Revenue vs. Rio Tuba Nickel and Mining Corporation:
[23]

Our Resolution of 25 March 1992 modifying our 30 September 1991 Decision

in the Rio Tuba case sets forth the controlling doctrine. In that Resolution, we
stated:
Since the private respondents claim for refund covers specific taxes paid from
1980 to July 1983 then we find that the private respondent is entitled to a
refund. It should be made clear, however, that Rio Tuba is not entitled to the
whole amount it claims as refund.
The specific taxes on oils which Rio Tuba paid for the aforesaid period were
no longer based on the rates specified by Sections 1 and 2 of R.A. No. 1435
but on the increased rates mandated under Sections 153 and 156 of the
National Internal Revenue Code of 1977. We note however, that the latter law
does not specifically provide for a refund to these mining and lumber
companies of specific taxes paid on manufactured and diesel fuel oils.
In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710 [1981]), the
Court held that the authorized partial refund under Section 5 of R.A. No. 1435
partakes of the nature of a tax exemption and therefore cannot be allowed
unless granted in the most explicit and categorical language. Since the grant
of refund privileges must be strictly construed against the taxpayer, the basis
for the refund shall be the amounts deemed paid under Sections 1 and 2 of
R.A. No. 1435.
ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby
MODIFIED. The private respondents CLAIM for REFUND is GRANTED,
computed on the basis of the amounts deemed paid under Sections 1 and 2
of R.A. NO. 1435, without interest.
[24]

We rule, therefore, that since Atlass claims for refund cover specific taxes paid
before 1985, it should be granted the refund based on the rates specified by
Sections 1 and 2 of R.A. No. 1435 and not on the increased rates under
Sections 153 and 156 of the Tax Code of 1977, provided the claims are not
yet barred by prescription. (Underscoring supplied.)
Insular Lumber Co. and First Atlas Case Not
Inconsistent With Rio Tuba

and Second Atlas Case

Petitioner argues that the applicable jurisprudence in this case should
be Commissioner of Internal Revenue vs. Atlas Consolidated and Mining Corp. (the first
Atlas case), an unsigned resolution, and Insular Lumber Co. vs. Court of Tax
Appeals, an en banc decision. Petitioner also asks the Court to take a second look
at Rio Tuba and the second Atlas case, both decided by Divisions, in view
of Insular which was decided en banc. Petitioner posits that [I]n view of the similarity of
the situation of herein petitioner with Insular Lumber Company (claimant in Insular
Lumber) and Rio Tuba Nickel Mining Corporation (claimant in Rio Tuba), a dilemma has
been created as to whether or not Insular Lumber, which has been decided by the
Honorable Court en banc, or Rio Tuba, which was decided only [by] the Third Division of
the Honorable Court, should apply.
[25]

[26]

We find no conflict between these two pairs of cases. Neither Insular Lumber
Co. nor the first Atlas case ruled on the issue of whether the
refund privilege under Section 5 should be computed based on the specific tax deemed
paid under Sections 1 and 2 of RA 1435, regardless of what was actually paid under the
increased rates. Rio Tuba and the second Atlas case did.
Insular Lumber Co. decided a claim for refund on specific tax paid on petroleum
products purchased in the year 1963, when the increased rates under the NIRC of 1977
were not yet in effect. Thus, the issue now before us did not exist at the time, since the
applicable rates were still those prescribed under Sections 1 and 2 of RA 1435.
On the other hand, the issue raised in the first Atlas case was whether the claimant
was entitled to the refund under Section 5, notwithstanding its failure to pay any
additional tax under a municipal or city ordinance. Although Atlas purchased petroleum
products in the years 1976 to 1978 when the rates had already been changed, the
Court did not decide or make any pronouncement on the issue in that case.
Clearly, it is impossible for these two decisions to clash with our pronouncement
in Rio Tuba and second Atlas case, in which we ruled that the refund granted be
computed on the basis of the amounts deemed paid under Sections 1 and 2 of RA
1435. In this light, we find no basis for petitioners invocation of the constitutional
proscription that no doctrine or principle of law laid down by the Court in a decision
rendered en banc or in division may be modified or reversed except by the Court
sitting en banc.
[27]

Finally, petitioner asserts that equity and justice demand that the computation of the
tax refunds be based on actual amounts paid under Sections 153 and 156 of the NIRC.

We disagree. According to an eminent authority on taxation, there is no tax exemption

solely on the ground of equity.
[28]

[29]

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the
Court of Appeals is AFFIRMED.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug,
Kapunan, Mendoza, Martinez, Quisumbing, and Purisima, JJ., concur.

SECOND DIVISION
[G.R. No. 120880. June 5, 1997]

FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE

COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and
HERMINIA D. DE GUZMAN,respondents.
DECISION
TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again assailed
as precipitate and unfair, suffering the basic and oftly implored requisites of due process
of law. Specifically, the petition assails the Decision of the Court of Appeals dated
November 29, 1994 in CA-G.R. SP No. 31363, where the said court held:
[1]

"In view of all the foregoing, we rule that the deficiency income tax assessments and
estate tax assessment, are already final and (u)nappealable -and- the subsequent levy
of real properties is a tax remedy resorted to by the government, sanctioned by
Section 213 and 218 of the National Internal Revenue Code. This summary tax
remedy is distinct and separate from the other tax remedies (such as Judicial Civil
actions and Criminal actions), and is not affected or precluded by the pendency of any
other tax remedies instituted by the government.

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the

petition for certiorari with prayer for Restraining Order and Injunction.
No pronouncements as to costs.
SO ORDERED."
More than seven years since the demise of the late Ferdinand E. Marcos, the
former President of the Republic of the Philippines, the matter of the settlement of his
estate, and its dues to the government in estate taxes, are still unresolved, the latter
issue being now before this Court for resolution. Specifically, petitioner Ferdinand R.
Marcos II, the eldest son of the decedent, questions the actuations of the respondent
Commissioner of Internal Revenue in assessing, and collecting through the summary
remedy of Levy on Real Properties, estate and income tax delinquencies upon the
estate and properties of his father, despite the pendency of the proceedings on probate
of the will of the late president, which is docketed as Sp. Proc. No. 10279 in the
Regional Trial Court of Pasig, Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and
Prohibition with an application for writ of preliminary injunction and/or temporary
restraining order on June 28, 1993, seeking to -

I. Annul and set aside the Notices of Levy on real property dated February 22, 1993
and May 20, 1993, issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;
III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service),
from proceeding with the Auction of the real properties covered by Notices of Sale.
After the parties had pleaded their case, the Court of Appeals rendered its
Decision on November 29, 1994, ruling that the deficiency assessments for estate and
income tax made upon the petitioner and the estate of the deceased President Marcos
have already become final and unappealable, and may thus be enforced by the
summary remedy of levying upon the properties of the late President, as was done by
the respondent Commissioner of Internal Revenue.
[2]

"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the

petition for Certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to cost.
SO ORDERED."
Unperturbed, petitioner is now before us assailing the validity of the appellate
court's decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE SUMMARY TAX
REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT AFFECTED AND
PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING FOR THE ALLOWANCE
OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE CONTRARY, THIS PROBATE
PROCEEDING PRECISELY PLACED ALL PROPERTIES WHICH FORM PART OF THE LATE
PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF THE PROBATE COURT TO THE
EXCLUSION OF ALL OTHER COURTS AND ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING THAT
SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD ALREADY
BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO INTO THE MERITS
OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF WHETHER THE TAX
ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER, PETITIONER HAS THE
RIGHT TO QUESTION THE UNLAWFUL MANNER AND METHOD IN WHICH TAX
COLLECTION IS SOUGHT TO BE ENFORCED BY RESPONDENTS COMMISSIONER AND
DE GUZMAN. THUS, RESPONDENT COURT SHOULD HAVE FAVORABLY CONSIDERED
THE MERITS OF THE FOLLOWING GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were issued beyond the period provided
in the Revenue Memorandum Circular No. 38-68.
(2) [a] The numerous pending court cases questioning the late President's
ownership or interests in several properties (both personal and real) make the total
value of his estate, and the consequent estate tax due, incapable of exact
pecuniary determination at this time. Thus, respondents assessment of the estate
tax and their issuance of the Notices of Levy and Sale are premature, confiscatory
and oppressive.
[b] Petitioner, as one of the late President's compulsory heirs, was never notified,
much less served with copies of the Notices of Levy, contrary to the mandate of
Section 213 of the NIRC. As such, petitioner was never given an opportunity to
contest the Notices in violation of his right to due process of law.

C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT COURT

MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT INJUNCTIVE
RELIEF TO PETITIONER. SECTION 219 OF THE NIRC NOTWITHSTANDING, COURTS
POSSESS THE POWER TO ISSUE A WRIT OF PRELIMINARY INJUNCTION TO RESTRAIN
RESPONDENTS COMMISSIONER'S AND DE GUZMAN'S ARBITRARY METHOD OF
COLLECTING THE ALLEGED DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF
LEVY.

The facts as found by the appellate court are undisputed, and are hereby adopted:

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations
and examinations of the tax liabilities and obligations of the late president, as well as
that of his family, associates and "cronies". Said audit team concluded its investigation
with a Memorandum dated July 26, 1991. The investigation disclosed that the
Marcoses failed to file a written notice of the death of the decedent, an estate tax
returns [sic], as well as several income tax returns covering the years 1982 to 1986,
-all in violation of the National Internal Revenue Code (NIRC).
Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized
under Sections 253 and 254 in relation to Section 252- a & b) of the National Internal
Revenue Code (NIRC).
The Commissioner of Internal Revenue thereby caused the preparation and filing of
the Estate Tax Return for the estate of the late president, the Income Tax Returns of
the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitionerFerdinand 'Bongbong' Marcos II for the years 1982 to 1985.
On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment
no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos in
the amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no.
FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of
P149,551.70 and P184,009,737.40 representing deficiency income tax for the years
1985 and 1986); (3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to
FAC-1-85-91-002463 (against petitioner Ferdinand 'Bongbong' Marcos II in the

amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos
representing his deficiency income taxes for the years 1982 to 1985).
The Commissioner of Internal Revenue avers that copies of the deficiency estate and
income tax assessments were all personally and constructively served on August 26,
1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes
'D' and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued
against petitioner Ferdinand 'Bongbong' Marcos II were also personally and
constructively served upon him (through his caretaker) on September 12, 1991, at his
last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan,
M.M. (Annexes 'J' and 'J-1' of the Petition). Thereafter, Formal Assessment notices
were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office,
House of Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a
conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel - but to
no avail.
The deficiency tax assessments were not protested administratively, by Mrs. Marcos
and the other heirs of the late president, within 30 days from service of said
assessments.
On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on
real property against certain parcels of land owned by the Marcoses - to satisfy the
alleged estate tax and deficiency income taxes of Spouses Marcos.
On May 20, 1993, four more Notices of Levy on real property were issued for the
purpose of satisfying the deficiency income taxes.
On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and 213
of the National Internal Revenue Code (NIRC).
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of
herein petitioner) calling the attention of the BIR and requesting that they be duly
notified of any action taken by the BIR affecting the interest of their client Ferdinand
'Bongbong Marcos II, as well as the interest of the late president - copies of the

aforesaid notices were served on April 7, 1993 and on June 10, 1993, upon Mrs.
Imelda Marcos, the petitioner, and their counsel of record, 'De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office'.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the
City Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels
of land took place on July 5, 1993. There being no bidder, the lots were declared
forfeited in favor of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition
for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for
temporary restraining order and/or writ of preliminary injunction."
It has been repeatedly observed, and not without merit, that the enforcement of tax
laws and the collection of taxes, is of paramount importance for the sustenance of
government. Taxes are the lifeblood of the government and should be collected without
unnecessary hindrance. However, such collection should be made in accordance with
law as any arbitrariness will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common
good, may be achieved."
[3]

Whether or not the proper avenues of assessment and collection of the said tax
obligations were taken by the respondent Bureau is now the subject of the Court's
inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of
properties of the late President Marcos effected by the BIR are null and void for
disregarding the established procedure for the enforcement of taxes due upon the
estate of the deceased. The case of Domingo vs. Garlitos is specifically cited to bolster
the argument that "the ordinary procedure by which to settle claims of indebtedness
against the estate of a deceased, person, as in an inheritance (estate) tax, is for the
claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount therefor." This remedy is allegedly, exclusive, and
cannot be effected through any other means.
[4]

Petitioner goes further, submitting that the probate court is not precluded from
denying a request by the government for the immediate payment of taxes, and should
order the payment of the same only within the period fixed by the probate court for the
payment of all the debts of the decedent. In this regard, petitioner cites the case of

Collector of Internal Revenue vs. The Administratrix of the Estate of Echarri (67 Phil
502), where it was held that:

"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on the
proposition that the court having control over the administration proceedings has
jurisdiction to entertain the claim presented by the government for taxes due and to
order the administrator to pay the tax should it find that the assessment was proper,
and that the tax was legal, due and collectible. And the rule laid down in that case
must be understood in relation to the case of Collector of Customs vs. Haygood,
supra., as to the procedure to be followed in a given case by the government to
effectuate the collection of the tax. Categorically stated, where during the pendency of
judicial administration over the estate of a deceased person a claim for taxes is
presented by the government, the court has the authority to order payment by the
administrator; but, in the same way that it has authority to order payment or
satisfaction, it also has the negative authority to deny the same. While there are cases
where courts are required to perform certain duties mandatory and ministerial in
character, the function of the court in a case of the present character is not one of
them; and here, the court cannot be an organism endowed with latitude of judgment in
one direction, and converted into a mere mechanical contrivance in another direction."
On the other hand, it is argued by the BIR, that the state's authority to collect
internal revenue taxes is paramount. Thus, the pendency of probate proceedings over
the estate of the deceased does not preclude the assessment and collection, through
summary remedies, of estate taxes over the same. According to the respondent, claims
for payment of estate and income taxes due and assessed after the death of the
decedent need not be presented in the form of a claim against the estate. These can
and should be paid immediately. The probate court is not the government agency to
decide whether an estate is liable for payment of estate of income taxes. Well-settled is
the rule that the probate court is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited
jurisdiction, as a probate court over estate of deceased individual, is not a trifling
thing. The court's jurisdiction, once invoked, and made effective, cannot be treated with
indifference nor should it be ignored with impunity by the very parties invoking its
authority.
In testament to this, it has been held that it is within the jurisdiction of the probate
court to approve the sale of properties of a deceased person by his prospective heirs

before final adjudication; to determine who are the heirs of the decedent; the
recognition of a natural child; the status of a woman claiming to be the legal wife of the
decedent; the legality of disinheritance of an heir by the testator; and to pass upon the
validity of a waiver of hereditary rights.
[5]

[6]

[7]

[8]

[9]

[10]

The pivotal question the court is tasked to resolve refers to the authority of the
Bureau of Internal Revenue to collect by the summary remedy of levying upon, and sale
of real properties of the decedent, estate tax deficiencies, without the cognition and
authority of the court sitting in probate over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:

"Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the
complete settlement of an estate, and, under some statutes, it is made the duty of the
probate court to make the amount of the inheritance tax a part of the final decree of
distribution of the estate. It is not against the property of decedent, nor is it a claim
against the estate as such, but it is against the interest or property right which the heir,
legatee, devisee, etc., has in the property formerly held by decedent. Further, under
some statutes, it has been held that it is not a suit or controversy between the parties,
nor is it an adversary proceeding between the state and the person who owes the tax
on the inheritance.However, under other statutes it has been held that the hearing and
determination of the cash value of the assets and the determination of the tax are
adversary proceedings. The proceeding has been held to be necessarily a proceeding
in rem.
[11]

In the Philippine experience, the enforcement and collection of estate tax, is

executive in character, as the legislature has seen it fit to ascribe this task to the Bureau
of Internal Revenue. Section 3 of the National Internal Revenue Code attests to this:

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of
Internal Revenue shall comprehend the assessment and collection of all national
internal revenue taxes, fees, and charges, and the enforcement of all forfeitures,
penalties, and fines connected therewith, including the execution of judgments in all
cases decided in its favor by the Court of Tax Appeals and the ordinary courts. Said
Bureau shall also give effect to and administer the supervisory and police
power conferred to it by this Code or other laws."

Thus, it was in Vera vs. Fernandez that the court recognized the liberal treatment
of claims for taxes charged against the estate of the decedent. Such taxes, we said,
were exempted from the application of the statute of non-claims, and this is justified by
the necessity of government funding, immortalized in the maxim that taxes are the
lifeblood of the government. Vectigalia nervi sunt rei publicae - taxes are the sinews of
the state.
[12]

"Taxes assessed against the estate of a deceased person, after administration is opened,
need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may
direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate."
Such liberal treatment of internal revenue taxes in the probate proceedings extends
so far, even to allowing the enforcement of tax obligations against the heirs of the
decedent, even after distribution of the estate's properties.

"Claims for taxes, whether assessed before or after the death of the deceased, can be
collected from the heirs even after the distribution of the properties of the
decedent. They are exempted from the application of the statute of non-claims. The
heirs shall be liable therefor, in proportion to their share in the inheritance."
[13]

"Thus, the Government has two ways of collecting the taxes in question. One, by
going after all the heirs and collecting from each one of them the amount of the tax
proportionate to the inheritance received. Another remedy, pursuant to the lien created
by Section 315 of the Tax Code upon all property and rights to property belong to the
taxpayer for unpaid income tax, is by subjecting said property of the estate which is in
the hands of an heir or transferee to the payment of the tax due the estate.
(Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)
From the foregoing, it is discernible that the approval of the court, sitting in probate,
or as a settlement tribunal over the deceased is not a mandatory requirement in the
collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in
proceeding with the levying and sale of the properties allegedly owned by the late
President, on the ground that it was required to seek first the probate court's
sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that
implies the necessity of the probate or estate settlement court's approval of the state's
claim for estate taxes, before the same can be enforced and collected.

On the contrary, under Section 87 of the NIRC, it is the probate or settlement court
which is bidden not to authorize the executor or judicial administrator of the decedent's
estate to deliver any distributive share to any party interested in the estate, unless it is
shown a Certification by the Commissioner of Internal Revenue that the estate taxes
have been paid. This provision disproves the petitioner's contention that it is the probate
court which approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate
taxes, this should have been pursued through the proper administrative and judicial
avenues provided for by law.
Section 229 of the NIRC tells us how:

"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or

his duly authorized representative finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings. Within a period to be prescribed by
implementing regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner shall issue an assessment based on his
findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed by
implementing regulations within (30) days from receipt of the assessment; otherwise,
the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation
adversely affected by the decision on the protest may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of said decision; otherwise, the decision
shall become final, executory and demandable. (As inserted by P.D. 1773)"
Apart from failing to file the required estate tax return within the time required for the
filing of the same, petitioner, and the other heirs never questioned the assessments
served upon them, allowing the same to lapse into finality, and prompting the BIR to
collect the said taxes by levying upon the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been
validly undertaken by the Government, collection thereof may have been done in
violation of the law. Thus, the manner and method in which the latter is enforced may be
questioned separately, and irrespective of the finality of the former, because the

Government does not have the unbridled discretion to enforce collection without regard
to the clear provision of law."
[14]

Petitioner specifically points out that applying Memorandum Circular No. 38-68,
implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's
Notices of Levy on the Marcos properties, were issued beyond the allowed period, and
are therefore null and void:

"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this

Petition) in satisfaction of said assessments were still issued by respondents well
beyond the period mandated in Revenue Memorandum Circular No. 38-68. These
Notices of Levy were issued only on 22 February 1993 and 20 May 1993 when at
least seventeen (17) months had already lapsed from the last service of tax assessment
on 12 September 1991. As no notices of distraint of personal property were first
issued by respondents, the latter should have complied with Revenue Memorandum
Circular No. 38-68 and issued these Notices of Levy not earlier than three (3) months
nor later than six (6) months from 12 September 1991. In accordance with the
Circular, respondents only had until 12 March 1992 (the last day of the sixth month)
within which to issue these Notices of Levy. The Notices of Levy, having been issued
beyond the period allowed by law, are thus void and of no effect."
[15]

We hold otherwise. The Notices of Levy upon real property were issued within the
prescriptive period and in accordance with the provisions of the present Tax Code. The
deficiency tax assessment, having already become final, executory, and demandable,
the same can now be collected through the summary remedy of distraint or levy
pursuant to Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and
collection of tax deficiency in this instance is Article 223 of the NIRC, which pertinently
provides:

"Sec. 223. Exceptions as to a period of limitation of assessment and collection of

taxes.- (a) In the case of a false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action for the collection thereof.

xxx

(c) Any internal revenue tax which has been assessed within the period of limitation
above prescribed, may be collected by distraint or levy or by a proceeding in court
within three years following the assessment of the tax.
xxx
The omission to file an estate tax return, and the subsequent failure to contest or
appeal the assessment made by the BIR is fatal to the petitioner's cause, as under the
above-cited provision, in case of failure to file a return, the tax may be assessed at any
time within ten years after the omission, and any tax so assessed may be collected by
levy upon real property within three years following the assessment of the tax. Since the
estate tax assessment had become final and unappealable by the petitioner's default as
regards protesting the validity of the said assessment, there is now no reason why the
BIR cannot continue with the collection of the said tax. Any objection against the
assessment should have been pursued following the avenue paved in Section 229 of
the NIRC on protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the
late president's ownership or interests in several properties (both real and personal)
make the total value of his estate, and the consequent estate tax due, incapable of
exact pecuniary determination at this time. Thus, respondents' assessment of the estate
tax and their issuance of the Notices of Levy and sale are premature and oppressive."
He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141,
which were filed by the government to question the ownership and interests of the late
President in real and personal properties located within and outside the
Philippines. Petitioner, however, omits to allege whether the properties levied upon by
the BIR in the collection of estate taxes upon the decedent's estate were among those
involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss
as to how these cases are relevant to the matter at issue. The mere fact that the
decedent has pending cases involving ill-gotten wealth does not affect the enforcement
of tax assessments over the properties indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total
assessment of P23,292,607,638.00, stating that this amount deviates from the findings
of the Department of Justice's Panel of Prosecutors as per its resolution of 20
September 1991. Allegedly, this is clear evidence of the uncertainty on the part of the
Government as to the total value of the estate of the late President.

This is, to our mind, the petitioner's last ditch effort to assail the assessment of
estate tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau of Internal
Revenue whose determinations and assessments are presumed correct and made in
good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of
any irregularities in the performance of official duties, an assessment will not be
disturbed. Even an assessment based on estimates is prima facie valid and lawful
where it does not appear to have been arrived at arbitrarily or capriciously. The burden
of proof is upon the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment will justify the judicial
affirmance of said assessment. In this instance, petitioner has not pointed out one
single provision in the Memorandum of the Special Audit Team which gave rise to the
questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on
the assessment bears mainly on the alleged improbable and unconscionable amount of
the taxes charged. But mere rhetoric cannot supply the basis for the charge of
impropriety of the assessments made.
[16]

[17]

[18]

Moreover, these objections to the assessments should have been raised,

considering the ample remedies afforded the taxpayer by the Tax Code, with the Bureau
of Internal Revenue and the Court of Tax Appeals, as described earlier, and cannot be
raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The
course of action taken by the petitioner reflects his disregard or even repugnance of the
established institutions for governance in the scheme of a well-ordered society. The
subject tax assessments having become final, executory and enforceable, the same can
no longer be contested by means of a disguised protest. In the main,Certiorari may not
be used as a substitute for a lost appeal or remedy. This judicial policy becomes more
pronounced in view of the absence of sufficient attack against the actuations of
government.
[19]

On the matter of sufficiency of service of Notices of Assessment to the petitioner, we

find the respondent appellate court's pronouncements sound and resilient to petitioner's
attacks.

"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after
considering the facts and circumstances, as well as evidences, that there was
sufficient, constructive and/or actual notice of assessments, levy and sale, sent to
herein petitioner Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda
Marcos.

Even if we are to rule out the notices of assessments personally given to the caretaker
of Mrs. Marcos at the latter's last known address, on August 26, 1991 and September
12, 1991, as well as the notices of assessment personally given to the caretaker of
petitioner also at his last known address on September 12, 1991 - the subsequent
notices given thereafter could no longer be ignored as they were sent at a time when
petitioner was already here in the Philippines, and at a place where said notices would
surely be called to petitioner's attention, and received by responsible persons of
sufficient age and discretion.
Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos
c/o the petitioner, at his office, House of Representatives, Batasan Pambansa, Q.C.
(Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum of
OSG).Moreover, a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to a
conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos Dean Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were
also served upon Mrs. Imelda Marcos, the petitioner and their counsel "De Borja,
Medialdea, Ata, Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June
10, 1993. Despite all of these Notices, petitioner never lifted a finger to protest the
assessments, (upon which the Levy and sale of properties were based), nor appealed
the same to the Court of Tax Appeals.
There being sufficient service of Notices to herein petitioner (and his mother) and it
appearing that petitioner continuously ignored said Notices despite several
opportunities given him to file a protest and to thereafter appeal to the Court of Tax
Appeals, - the tax assessments subject of this case, upon which the levy and sale of
properties were based, could no longer be contested (directly or indirectly) via this
instant petition for certiorari."
[20]

Petitioner argues that all the questioned Notices of Levy, however, must be nullified
for having been issued without validly serving copies thereof to the petitioner. As a
mandatory heir of the decedent, petitioner avers that he has an interest in the subject
estate, and notices of levy upon its properties should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent
estate tax, the delinquent taxpayer is the Estate of the decedent, and not necessarily,
and exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of
income tax delinquency of the late president and his spouse, petitioner is not the
taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax

delinquencies upon the petitioner is not required by law, as under Section 213 of the
NIRC, which pertinently states:
"xxx

...Levy shall be effected by writing upon said certificate a description of the property
upon which levy is made. At the same time, written notice of the levy shall be mailed
to or served upon the Register of Deeds of the province or city where the property is
located and upon the delinquent taxpayer, or if he be absent from the Philippines, to
his agent or the manager of the business in respect to which the liability arose, or if
there be none, to the occupant of the property in question.
xxx"
The foregoing notwithstanding, the record shows that notices of warrants of distraint
and levy of sale were furnished the counsel of petitioner on April 7, 1993, and June 10,
1993, and the petitioner himself on April 12, 1993 at his office at the Batasang
Pambansa. We cannot therefore, countenance petitioner's insistence that he was
denied due process. Where there was an opportunity to raise objections to government
action, and such opportunity was disregarded, for no justifiable reason, the party
claiming oppression then becomes the oppressor of the orderly functions of
government. He who comes to court must come with clean hands. Otherwise, he not
only taints his name, but ridicules the very structure of established authority.
[21]

IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The
Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in all
respects.
SO ORDERED.
Regalado, (Chairman), Romero, Puno, and Mendoza, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-49839-46

April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as appointed
and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H.
NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed
and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS
CATIIL in his capacity as City Assessor of Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board
of Assessment Appeals in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v.
Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29,
1976 decision of the Board of Tax Assessment Appeals in BTAA Cases Nos. 614, 614-A-J, 615,
615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros
Reyes v. City Assessor of Manila" upholding the classification and assessments made by the City
Assessor of Manila.
1

The facts of the case are as follows:

Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in
Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling
sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359
prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of lands
on which another's dwelling is located, where such rentals do not exceed three hundred pesos
(P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The said Act
also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity
thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease.
On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the
prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the
aforementioned provision of the Civil Code, excepting leases with a definite period. Consequently,
the Reyeses, petitioners herein, were precluded from raising the rentals and from ejecting the
tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the
subject properties based on the schedule of market values duly reviewed by the Secretary of
Finance. The revision, as expected, entailed an increase in the corresponding tax rates prompting
petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They
averred that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income
derived from their properties. They argued that the income approach should have been used in
determining the land values instead of the comparable sales approach which the City Assessor
adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the
assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete evidence
which could overcome the presumptive regularity of the classification and assessments
appear to be in accordance with the base schedule of market values and of the base

schedule of building unit values, as approved by the Secretary of Finance, the cases should
be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among
others, the summary of the yearly rentals to show the income derived from the properties.
Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the
different market values of the real property situated in the same vicinity where the subject properties
of petitioners are located. To better appreciate the locational and physical features of the land, the
Board of Hearing Commissioners conducted an ocular inspection with the presence of two
representatives of the City Assessor prior to the healing of the case. Neither the owners nor their
authorized representatives were present during the said ocular inspection despite proper notices
served them. It was found that certain parcels of land were below street level and were affected by
the tides (Rollo, pp. 24-25).
1wphi1

On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive
portion of which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots
covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is
affirmed.
For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD266, the appealed Decision is modified by allowing a 20% reduction in their respective
market values and applying therein the assessment level of 30% to arrive at the
corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES
APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS'
PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question.
Petitioners maintain that the "Income Approach" method would have been more realistic for in
disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties
affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new
assessed values at levels so high and successive that the resulting annual real estate taxes would
admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under
P.D. 20. Hence, petitioners protested against the levels of the values assigned to their properties as
revised and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional (Rollo, p. 10-A).

On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that
the income approach is used in determining land values in some vicinities, it maintains that when
income is affected by some sort of price control, the same is rejected in the consideration and study
of land values as in the case of properties affected by the Rent Control Law for they do not project
the true market value in the open market (Rollo, p. 21). Thus, respondents opted instead for the
"Comparable Sales Approach" on the ground that the value estimate of the properties predicated
upon prices paid in actual, market transactions would be a uniform and a more credible standards to
use especially in case of mass appraisal of properties (Ibid.). Otherwise stated, public respondents
would have this Court completely ignore the effects of the restrictions of P.D. No. 20 on the market
value of properties within its coverage. In any event, it is unquestionable that both the "Comparable
Sales Approach" and the "Income Approach" are generally acceptable methods of appraisal for
taxation purposes (The Law on Transfer and Business Taxation by Hector S. De Leon, 1988 Edition).
However, it is conceded that the propriety of one as against the other would of course depend on
several factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao
Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the assessors, in finding the value
of the property, have to consider all the circumstances and elements of value and must exercise a
prudent discretion in reaching conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only
be uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the
same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of
taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221,
Second Edition). Thus, the need to examine closely and determine the specific mandate of the
Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is
progressive when its rate goes up depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses of
the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it
were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power to
tax involves the power to destroy." The web or unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power to
destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984];
Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to
confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for purposes of
taxation but the government's act must not be prompted by a spirit of hostility, or at the very least
discrimination that finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different both in the privileges conferred and the liabilities imposed
(Ibid., p. 662).

Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first
Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes
is that the property must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be
equated with the market value of properties not so covered. The former has naturally a much lesser
market value in view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject
properties under the "comparable sales approach" were presented by the public respondents,
namely: (1) that the sale must represent a bonafide arm's length transaction between a willing seller
and a willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice that for properties covered by P.D. 20 especially
during the time in question, there were hardly any willing buyers. As a general rule, there were no
takers so that there can be no reasonable basis for the conclusion that these properties were
comparable with other residential properties not burdened by P.D. 20. Neither can the given
circumstances be nonchalantly dismissed by public respondents as imposed under distressed
conditions clearly implying that the same were merely temporary in character. At this point in time,
the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxations, which
is the promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue
Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle
of social justice should not now be penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount to
only P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public
respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment
Appeals of Manila and the City Assessor of Manila are ordered to make a new assessment by the
income approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71).
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.

SECOND DIVISION

[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, respondents.
DECISION
QUISUMBING, J.:

This petition for review assails the Resolution[1] of the Court of Appeals dated September 22,
1993, affirming the Decision[2] and Resolution[3] of the Court of Tax Appeals which denied the
claims of the petitioner for tax refund and tax credits, anddisposing 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, petitioners claim for refund/tax credit 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 PBComs 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 year-ended December 31, 1985, it declared a net loss of P25,317,228.00, thereby
showing no income tax liability. For the succeeding year, ending 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.
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 petitioners 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)

(P25,317,228.00)

(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=======
=======

*CTAs decision reflects PBComs 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 petitioners

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 CTAs 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 CTAs 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, applied retroactively,
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 PBComs 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 petitioners 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
Sections 85 and 86 of the National Internal Revenue Code provide:
xxxxxxxxx

The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos.

10-77 which provide:

xxxxxxxxx

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 be 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 within
the two-year period. As already stated, 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[10] petitioner 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 rule 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 the 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] andCommissioner of Internal Revenue vs. TMX Sales, Inc., et al..
[12]
Respondent 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 petitioners cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that,
contrary to the petitioners 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.
Section 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 proceeding shall be 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. (Italics 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. x x x 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 latter. x x x 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.
As aptly stated by respondent Court of Appeals:

It is likewise argued that the Commissioner of Internal Revenue, after promulgating

RMC No. 7-85, is estopped by the principle of non-retroactivity 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 the corresponding petition for 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 petitioners 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]
Article 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 a
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 nonretroactivity 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 CTAs decision denying its claim for refund of P 234,077.69 (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 (vis-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 controvert 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.
SO ORDERED.
Bellosillo, (Chairman), Puno, Mendoza, and Buena, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-22074

April 30, 1965

THE PHILIPPINE GUARANTY CO., INC., petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.
Josue H. Gustilo and Ramirez and Ortigas for petitioner.
Office of the Solicitor General and Attorney V.G. Saldajena for respondents.
BENGZON, J.P., J.:
The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance
contracts, on various dates, with foreign insurance companies not doing business in the Philippines
namely: Imperio Compaia de Seguros, La Union y El Fenix Espaol, Overseas Assurance Corp.,
Ltd., Socieded Anonima de Reaseguros Alianza, Tokio Marino & Fire Insurance Co., Ltd., Union
Assurance Society Ltd., Swiss Reinsurance Company and Tariff Reinsurance Limited. Philippine
Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a portion of the premiums on
insurance it has originally underwritten in the Philippines, in consideration for the assumption by the
latter of liability on an equivalent portion of the risks insured. Said reinsurrance contracts were
signed by Philippine Guaranty Co., Inc. in Manila and by the foreign reinsurers outside the
Philippines, except the contract with Swiss Reinsurance Company, which was signed by both parties
in Switzerland.
The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that
of Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was
required to keep a register in Manila where the risks ceded to the foreign reinsurers where entered,
and entry therein was binding upon the reinsurers. A proportionate amount of taxes on insurance
premiums not recovered from the original assured were to be paid for by the foreign reinsurers. The
foreign reinsurers further agreed, in consideration for managing or administering their affairs in the
Philippines, to compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the
reinsurance premiums. Conflicts and/or differences between the parties under the reinsurance
contracts were to be arbitrated in Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance
Company stipulated that their contract shall be construed by the laws of the Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign
reinsurers the following premiums:
1953 . . . . . . . . . . . . . . . . . . . . .

P842,466.71

1954 . . . . . . . . . . . . . . . . . . . . .

721,471.85

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it file its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them.
Consequently, per letter dated April 13, 1959, the Commissioner of Internal Revenue assessed
against Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums, thus:
1953
Gross premium per investigation . . . . . . . . . .

P768,580.00

Withholding tax due thereon at 24% . . . . . . . .

P184,459.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .

46,114.00

Compromise for non-filing of withholding

income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . .

100.00

P230,673.00
==========
1954

Gross premium per investigation . . . . . . . . . .

P780.880.68

Withholding tax due thereon at 24% . . . . . . . .

P184,411.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .

P184,411.00

Compromise for non-filing of withholding

income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . .

100.00

P234,364.00
==========

Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums
ceded to foreign reinsurers not doing business in the Philippines are not subject to withholding tax.
Its protest was denied and it appealed to the Court of Tax Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive portion:
IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine Guaranty Co., Inc.
is hereby ordered to pay to the Commissioner of Internal Revenue the respective sums of
P202,192.00 and P173,153.00 or the total sum of P375,345.00 as withholding income taxes
for the years 1953 and 1954, plus the statutory delinquency penalties thereon. With costs
against petitioner.
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner of Internal
Revenue's assessment for withholding tax on the reinsurance premiums ceded in 1953 and 1954 to
the foreign reinsurers.
Petitioner maintain that the reinsurance premiums in question did not constitute income from
sources within the Philippines because the foreign reinsurers did not engage in business in the
Philippines, nor did they have office here.

The reinsurance contracts, however, show that the transactions or activities that constituted the
undertaking to reinsure Philippine Guaranty Co., Inc. against loses arising from the original
insurances in the Philippines were performed in the Philippines. The liability of the foreign reinsurers
commenced simultaneously with the liability of Philippine Guaranty Co., Inc. under the original
insurances. Philippine Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign
reinsurers. Entries made in such register bound the foreign resinsurers, localizing in the Philippines
the actual cession of the risks and premiums and assumption of the reinsurance undertaking by the
foreign reinsurers. Taxes on premiums imposed by Section 259 of the Tax Code for the privilege of
doing insurance business in the Philippines were payable by the foreign reinsurers when the same
were not recoverable from the original assured. The foreign reinsurers paid Philippine Guaranty Co.,
Inc. an amount equivalent to 5% of the ceded premiums, in consideration for administration and
management by the latter of the affairs of the former in the Philippines in regard to their reinsurance
activities here. Disputes and differences between the parties were subject to arbitration in the City of
Manila. All the reinsurance contracts, except that with Swiss Reinsurance Company, were signed by
Philippine Guaranty Co., Inc. in the Philippines and later signed by the foreign reinsurers abroad.
Although the contract between Philippine Guaranty Co., Inc. and Swiss Reinsurance Company was
signed by both parties in Switzerland, the same specifically provided that its provision shall be
construed according to the laws of the Philippines, thereby manifesting a clear intention of the
parties to subject themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within
the Philippines. The word "sources" has been interpreted as the activity, property or service giving
rise to the income.1 The reinsurance premiums were income created from the undertaking of the
foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc., against liability for loss
under original insurances. Such undertaking, as explained above, took place in the Philippines.
These insurance premiums, therefore, came from sources within the Philippines and, hence, are
subject to corporate income tax.
The foreign insurers' place of business should not be confused with their place of
activity. Business should not be continuity and progression of transactions 2 while activity may consist
of only a single transaction. An activity may occur outside the place of business. Section 24 of the
Tax Code does not require a foreign corporation to engage in business in the Philippines in
subjecting its income to tax. It suffices that the activity creating the income is performed or done in
the Philippines. What is controlling, therefore, is not the place of business but the place ofactivity that
created an income.
Petitioner further contends that the reinsurance premiums are not income from sources within the
Philippines because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is
not an all-inclusive enumeration, for it merely directs that the kinds of income mentioned therein
should be treated as income from sources within the Philippines but it does not require that other
kinds of income should not be considered likewise.
1wph1.t

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a

necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to
resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve,
public improvement designed for the enjoyment of the citizenry and those which come within the
State's territory, and facilities and protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were afforded protection by the government
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such
reinsurance premiums and reinsurers should share the burden of maintaining the state.

Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of
Internal Revenue requiring no withholding of the tax due on the reinsurance premiums in question
relieved it of the duty to pay the corresponding withholding tax thereon. This defense of petitioner
may free if from the payment of surcharges or penalties imposed for failure to pay the corresponding
withholding tax, but it certainly would not exculpate if from liability to pay such withholding tax The
Government is not estopped from collecting taxes by the mistakes or errors of its agents. 3
In respect to the question of whether or not reinsurance premiums ceded to foreign reinsurers not
doing business in the Philippines are subject to withholding tax under Section 53 and 54 of the Tax
Code, suffice it to state that this question has already been answered in the affirmative in Alexander
Howden & Co., Ltd. vs. Collector of Internal Revenue, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be computed from the amount actually
remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not remit
any amount to its foreign insurers in 1953 and 1954, no withholding tax was due.
The pertinent section of the Tax Code States:
Sec. 54. Payment of corporation income tax at source. In the case of foreign corporations
subject to taxation under this Title not engaged in trade or business within the Philippines
and not having any office or place of business therein, there shall be deducted and withheld
at the source in the same manner and upon the same items as is provided in Section fiftythree a tax equal to twenty-four per centum thereof, and such tax shall be returned and paid
in the same manner and subject to the same conditions as provided in that section.
The applicable portion of Section 53 provides:
(b) Nonresident aliens. All persons, corporations and general copartnerships
(compaias colectivas), in what ever capacity acting, including lessees or mortgagors of real
or personal property, trustees acting in any trust capacity, executors, administrators,
receivers, conservators, fiduciaries, employers, and all officers and employees of the
Government of the Philippines having the control, receipt, custody, disposal, or payment of
interest, dividends, rents, salaries, wages, premiums, annuities, compensation,
remunerations, emoluments, or other fixed or determinable annual or periodical gains,
profits, and income of any nonresident alien individual, not engaged in trade or business
within the Philippines and not having any office or place of business therein, shall (except in
the case provided for in subsection [a] of this section) deduct and withhold from such annual
or periodical gains, profits, and income a tax equal to twelve per
centum thereof: Provided That no deductions or withholding shall be required in the case of
dividends paid by a foreign corporation unless (1) such corporation is engaged in trade or
business within the Philippines or has an office or place of business therein, and (2) more
than eighty-five per centum of the gross income of such corporation for the three-year period
ending with the close of its taxable year preceding the declaration of such dividends (or for
such part of such period as the corporation has been in existence)was derived from sources
within the Philippines as determined under the provisions of section thirtyseven:Provided, further, That the Collector of Internal Revenue may authorize such tax to be
deducted and withheld from the interest upon any securities the owners of which are not
known to the withholding agent.
The above-quoted provisions allow no deduction from the income therein enumerated in determining
the amount to be withheld. According, in computing the withholding tax due on the reinsurance
premium in question, no deduction shall be recognized.

WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby
ordered to pay to the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00,
or a total amount of P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the
amount of P375,345.00 is not paid within 30 days from the date this judgement becomes final, there
shall be collected a surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month
from the date of delinquency to the date of payment, provided that the maximum amount that may
be collected as interest shall not exceed the amount corresponding to a period of three (3) years.
With costs againsts petitioner.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala,
JJ., concur.
Makalintal and Zaldivar, JJ., took no part.

[G.R. No. 125704. August 28, 1998]

PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, COURT OF APPEALS, and THE COURT
OF TAX APPEALS, respondents.
DECISION
ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals
promulgated on April 8, 1996 in CA-G.R. SP No. 36975 [1] affirming the Court of Tax
Appeals decision in CTA Case No. 4872 dated March 16, 1995 [2] ordering it to pay the
amount of P110,677,668.52 as excise tax liability for the period from the 2 nd quarter of
1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully
paid pursuant to Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to
settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd
quarter of 1992 in the total amount of P123,821,982.52 computed as follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL

EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

------------------- ----------------- ----------------- ---------------------

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88
43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13
90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52
========== ========== =========== ===========[3]
In a letter dated August 20, 1992, [4] Philex protested the demand for payment of the
tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it
paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus
interest. Therefore, these claims for tax credit/refund should be applied against the tax
liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines,
Inc.[5]
In reply, the BIR, in a letter dated September 7, 1992, [6] found no merit in Philexs
position. Since these pending claims have not yet been established or determined with
certainty, it follows that no legal compensation can take place. Hence, he BIR reiterated
its demand that Philex settle the amount plus interest within 30 days from the receipt of
the letter.
In view of the BIRs denial of the offsetting of Philexs claim for VAT input
credit/refund against its exercise tax obligation, Philex raised the issue to the Court of
Tax Appeals on November 6, 1992. [7] In the course of the proceedings, the BIR issued a
Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the
total tax liabilities of Philex of P123,821,982.52; effectively lowered the latters tax
obligation ofP110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the
remaining balance of P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and
demandable. Liquidated debts are those where the exact amount has already been

determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p.
259). In the instant case, the claims of the Petitioner for VAT refund is still pending
litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori,
the liquidated debt of the Petitioner to the government cannot, therefore, be set-off
against the unliquidated claim which Petitioner conceived to exist in its favor (see
Compaia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39
Phil. 34).[8]
Moreover, the Court of Tax Appeals ruled that taxes cannot be subject to set-off on
compensation since claim for taxes is not a debt or contract. [9] The dispositive portion of
the CTA decision[10] provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and
Petitioner is hereby ORDERED to PAY the Respondent the amount of P110,677,668.52
representing excise tax liability for the period from the 2 nd quarter of 1991 to the
2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid
pursuant to Section 248 and 249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals
docketed as CA-G.R. CV No. 36975. [11] Nonetheless, on April 8, 1996, the Court of
Appeals affirmed the Court of Tax Appeals observation.The pertinent portion of which
reads:[12]

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED

and the decision dated March 16, 1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a
Resolution dated July 11, 1996.[13]
However, a few days after the denial of its motion for reconsideration, Philex was
able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but
also for 1992 and 1994, computed as follows:[14]

Period Covered By Tax Credit Certificate Date Of Issue Amount

Claims For Vat Number
refund/credit
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the
same should, ipso jure, off-set its excise tax liabilities [15] since both had already become
due and demandable, as well as fully liquidated; [16]hence, legal compensation can
properly take place.
We see no merit in this contention.
In several instances prior to the instant case, we have already made the
pronouncement that taxes cannot be subject to compensation for the simple reason that
the government and the taxpayer are not creditors and debtors of each other. [17] There is
a material distinction between a tax and debt. Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in its sovereign capacity.
[18]
We find no cogent reason to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate Court, [19] we
categorically held that taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of

taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being
collected. The collection of tax cannot await the results of a lawsuit against the
government.
The ruling in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. v. Commission on Audit,[20] which reiterated that:

x x x a taxpayer may not offset taxes due from the claims that he may have
against the government. Taxes cannot be the subject of compensation
because the government and taxpayer are not mutually creditors and debtors
of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.

Further, Philexs reliance on our holding in Commissioner of Internal Revenue v.

Itogon-Suyoc Mines, Inc., wherein we ruled that a pending refund may be set off against
an existing tax liability even though the refund has not yet been approved by the
Commissioner,[21] is no longer without any support in statutory law.
It is important to note that the premise of our ruling in the aforementioned case was
anchored on Section 51(d) of the National Revenue Code of 1939. However, when the
National Internal Revenue Code of 1977 was enacted, the same provision upon which
the Itogon-Suyoc pronouncement was based was omitted.[22] Accordingly, the doctrine
enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philexs position, it asserts that the
imposition of surcharge and interest for the non-payment of the excise taxes within the
time prescribed was unjustified. Philex posits the theory that it had no obligation to pay
the excise liabilities within the prescribed period since, after all, it still has pending
claims for VAT input credit/refund with BIR.[23]
We fail to see the logic of Philexs claim for this is an outright disregard of the basic
principle in tax law that taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. [24] Evidently, to countenance Philexs whimsical
reason would render ineffective our tax collection system. Too simplistic, it finds no
support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the
ground that it has a pending tax claim for refund or credit against the government which
has not yet been granted. It must be noted that a distinguishing feature of a tax is that it
is compulsory rather than a matter of bargain. [25] Hence, a tax does not depend upon the
consent of the taxpayer.[26] If any payer can defer the payment of taxes by raising the
defense that it still has a pending claim for refund or credit, this would adversely affect
the government revenue system. A taxpayer cannot refuse to pay his taxes when they
fall due simply because he has a claim against the government or that the collection of
the tax is contingent on the result of the lawsuit it filed against the government.
[27]
Moreover, Philex's theory that would automatically apply its VAT input credit/refund
against its tax liabilities can easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers credit and offset their tax
liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with
the government is immaterial for the imposition of charges and penalties prescribed
under Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is
mandatory and the BIR is not vested with any authority to waive the collection thereof.

The same cannot be condoned for flimsy reasons, [29] similar to the one advanced by
Philex in justifying its non-payment of its tax liabilities.
[28]

Finally, Philex asserts that the BIR violated Section 106(e) [30] of the National Internal
Revenue Code of 1977, which requires the refund of input taxes within 60 days,
[31]
when it took five years for the latter to grant its tax claim for VAT input credit/refund. [32]
In this regard, we agree with Philex. While there is no dispute that a claimant
has the burden of proof to establish the factual basis of his or her claim for tax credit or
refund,[33] however, once the claimant has submitted all the required documents, it is the
function of the BIR to assess these documents with purposeful dispatch. After all, since
taxpayers owe honesty to government it is but just that government render fair service
to the taxpayers.[34]
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the
refund of these erroneously paid taxes was only granted in 1996. Obviously, had the
BIR been more diligent and judicious with their duty, it could have granted the refund
earlier. We need not remind the BIR that simple justice requires the speedy refund of
wrongly-held taxes.[35] Fair dealing and nothing less, is expected by the taxpayer from
the BIR in the latter's discharge of its function. As aptly held in Roxas v. Court of Tax Appeals:
[36]

"The power of taxation is sometimes called also the power to destroy.

Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collectot kill the 'hen that lays the golden egg.' And, in
the order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously."
Despite our concern with the lethargic manner by which the BIR handled Philex's
tax claim, it is a settled rule that in the performance of governmental function, the State
is not bound by the neglect of its agents and officers. Nowhere is this more true than in
the field of taxation.[37] Again, while we understand Philex's predicament, it must be
stressed that the same is not valid reason for the non- payment of its tax liabilities.
To be sure, this is not state that the taxpayer is devoid of remedy against public
servants or employees especially BIR examiners who, in investigating tax claims are
seen to drag their feet needlessly. First, if the BIR takes time in acting upon the
taxpayer's claims for refund, the latter can seek judicial remedy before the Court of Tax
Appeals in the manner prescribed by law.[38] Second, if the inaction can be characterized

as willful neglect of duty, then recourse under the Civil Code and the Tax Code can also
be availed of.
Article 27 of the Civil Code provides:

"Art. 27. Any person suffering material or moral loss because a public servant
or employee refuses or neglects, without just cause, to perform his official duty
may file an action for damages and other relief against the latter, without
prejudice to any disciplinary action that may be taken."
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997
states:
"xxx xxx xxx

(c) wilfully neglecting to give receipts, as by law required for any sum collected
in the performance of duty or wilfully neglecting to perform, any other duties
enjoined by law."
Simply put, both provisions abhor official inaction, willful neglect and unreasonable
delay in the performance of official duties.[39] In no uncertain terms must we stress that
every public employee or servant must strive to render service to the people with utmost
diligence and efficiency. Insolence and delay have no place in government service. The
BIR, being the government collecting arm, must and should do no less. It simply cannot
be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true
to its mission of hastening the country's development. We take judicial notice of the
taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to
prove its detractors wrong.
In sum, while we can never condone the BIR's apparent callousness in performing
its duties, still, the same cannot justify Philex's non-payment of its tax liabilities. The
adage "no one should take the law into his own hands" should have guided Philex's
action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED.
The assailed decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Kapunan and Purisima, JJ., concur.

SUPREME COURT
Manila
EN BANC
G.R. No. L-7859

December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio
Jayme Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres
and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the
taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to
the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market";
wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from
the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its preferential position in the United States market and
the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture
of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on
owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others
for a consideration, on lease or otherwise
a tax equivalent to the difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed value of such land.
According to section 6 of the law
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid

out only for any or all of the following purposes or to attain any or all of the following
objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of
the preferntial position of the Philippine sugar in the United States market, and ultimately to
insure its continued existence notwithstanding the loss of that market and the consequent
necessity of meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the component
elements thereof the mill, the landowner, the planter of the sugar cane, and the laborers in
the factory and in the field so that all might continue profitably to engage
therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the production
thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living and
working conditions: Provided, That the President of the Philippines may, until the adjourment
of the next regular session of the National Assembly, make the necessary disbursements
from the fund herein created (1) for the establishment and operation of sugar experiment
station or stations and the undertaking of researchers (a) to increase the recoveries of the
centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and
propagate higher yielding varieties of sugar cane more adaptable to different district
conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the
buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the
possibility of utilizing the other by-products of the industry, (f) to determine what crop or crops
are suitable for rotation and for the utilization of excess cane lands, and (g) on other
problems the solution of which would help rehabilitate and stabilize the industry, and (2) for
the improvement of living and working conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary agency or agencies to take charge of the
expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated,
and, likewise, authorizing the disbursement from the fund herein created of the necessary
amount or amounts needed for salaries, wages, travelling expenses, equipment, and other
sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40
paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950;
alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar
industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be
constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs
appealed the case directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory

purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of
our nation, sugar occupying a leading position among its export products; that it gives employment
to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of
the important sources of foreign exchange needed by our government, and is thus pivotal in the
plans of a regime committed to a policy of currency stability. Its promotion, protection and
advancement, therefore redounds greatly to the general welfare. Hence it was competent for the
legislature to find that the general welfare demanded that the sugar industry should be stabilized in
turn; and in the wide field of its police power, the lawmaking body could provide that the distribution
of benefits therefrom be readjusted among its components to enable it to resist the added strain of
the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson
vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida
The protection of a large industry constituting one of the great sources of the state's wealth
and therefore directly or indirectly affecting the welfare of so great a portion of the population
of the State is affected to such an extent by public interests as to be within the police power
of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of
public concern, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. Here, the legislative discretion must be
allowed fully play, subject only to the test of reasonableness; and it is not contended that the means
provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen
why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may
be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.
S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat.
316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be
benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to
tax that a state be free to select the subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class for taxation, or exemption infringe
no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed.
1245, citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is
that very enterprise that is being protected. It may be that other industries are also in need of similar
protection; that the legislature is not required by the Constitution to adhere to a policy of "all or
none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the

law presumably hits the evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;" and that "the legislative authority, exerted within its
proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel
Corp. 301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax
money to experimental stations to seek increase of efficiency in sugar production, utilization of byproducts and solution of allied problems, as well as to the improvements of living and working
conditions in sugar mills or plantations, without any part of such money being channeled directly to
private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs.
Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So ordered.
Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ.,
concur.

EN BANC
[G.R. No. L-12353. September 30, 1960.]
NORTH CAMARINES LUMBER Co., INC., Petitioner, v. COLLECTOR OF INTERNAL
REVENUE,Respondent.
Miguel V. San Jose and A. B. Christi for Petitioner.
Assistant Solicitor General Jose P. Alejandro and Atty. S. D. Paredes for Respondent.

SYLLABUS

1. COURT OF TAX APPEALS; PERIOD FOR FILING PETITION FOR REVIEW; DECISION OF COLLECTOR OF
INTERNAL REVENUES, WHAT CONSTITUTES. In computing the 30-day period fixed in Section 11 of
Republic Act No. 1125 within which a taxpayer may file with the Court of Tax Appeals his petition for review
of the decision of the Collector of Internal Revenue, the said collectors letter of demand, not the letter
denying the taxpayers request for reconsideration, should be considered.

DECISION

PARAS, J.:

This is an appeal from a resolution of the Court of Tax Appeals dismissing the petition for review filed by the
petitioner for lack of jurisdiction to try it on the merits, the same having been filed beyond the 30-day period

fixed in Section 11 of Republic Act No. 1125.

The petitioner, North Camarines Lumber Co., Inc., is a domestic corporation engaged in the lumber business.
On June 19, 1951 and July 31, 1951, it sold a total of 2,164,863 board feet of logs to the General Lumber
Co., Inc., with the agreement that the latter would assume responsibility for the payment of the sales tax
thereon in the amount of P7,768.51. After being consulted on the matter, the respondent Collector of
Internal Revenue, in his letters dated June 18, 1951 and August 6, 1951, advised the petitioner that he was
interposing no objection to the arrangement, provided the General Lumber Co., Inc., would file the
corresponding bonds to cover the sales tax liabilities.
The General Lumber Co., Inc., complied with the condition. In view, however, of its failure and that of the
surety to pay the tax liabilities, the respondent Collector, in his letter dated August 30, 1955, required the
petitioner to pay the total amount of P9,598.72 as sales tax and incidental penalties in the sale of logs to the
General Lumber Co., Inc. Although the date of receipt by petitioner of this letter does not appear in the
records, it may be presumed to be September 9, 1955, when the petitioner addressed a letter to the
respondent Collector, which was received on September 12, 1955, wherein the petitioner acknowledged
receipt of the letter of demand and at the same time requested for the reconsideration of the assessment.
This was denied by the respondent Collector in his letter of December 8, 1955, received by the petitioner on
January 5, 1956. The respondent Collector having denied the second request for reconsideration in his letter
dated January 30, 1956, which the petitioner received on February 16, 1956, the latter, on March 13, 1956,
filed a petition for review with the Court of Tax Appeals. The Court, after a preliminary hearing on
respondent Collectors motion to dismiss, ruled that, as the petition was filed beyond the 30-day period
prescribed by Section 11 of Republic Act No. 1125, it has no jurisdiction to try the same. Accordingly, the
case was dismissed.
In contending that the Court of Tax Appeals erred, the petitioner points out that Section 7, and not Section
11, of Republic Act No. 1125 confers and determines the jurisdiction of the respondent court, and that
Section 11 refers merely to the prescriptive period for filing appeals.
While the petitioner is correct as to the attribute of Section 7, it should be remembered that, for the
respondent court to have jurisdiction over any case, the party seeking redress must first invoke its exercise
in the manner and within the time prescribed by the law. Thus Section 7, which enumerates the specific
cases falling within the jurisdiction of the Court of Tax Appeals must be read together with Section 11, which
fixes the time for invoking said jurisdiction.
There is no question that petitioners case is covered by Section 7 and, therefore, comes within the
jurisdiction of the respondent court. But was said jurisdiction invoked by toe petitioner within the period
prescribed by Section 11?
The respondent court ruled that the time consumed by the petitioner in perfecting its appeal after deducting
the time during which the period for appeal was suspended by a pending request for reconsideration is as
follows:
chanrob1es virtual 1aw library

From September 9, 1955, presumed date of receipt of

decision, to September 12, 1955, the filing of request
for reconsideration 3 days
From January 5, 1956, presumed date of receipt
of denial of reconsideration, to January
9, 1956, the filing of the second request

for reconsideration 4 days

From February 16, 1956, receipt of denial of second
request for reconsideration, to March
13, 1956, the filing of petition for review 26 days
Total 33 days
As the petitioner had consumed thirty-three days, its appeal was clearly filed out of time. It is argued,
however, that in computing the 30-day period fixed in Section 11 of Republic Act No. 1125, the letter of the
respondent Collector dated January 30, 1956, denying the second request for reconsideration, should be
considered as the final decision contemplated in Section 7, and not the letter of demand dated August 30,
1955.
This contention is untenable. We cannot countenance the theory that would make the commencement of the
statutory 30-day period solely dependent on the will of the taxpayer and place the latter in a position to put
off indefinitely and at his convenience the finality of a tax assessment. Such an absurd procedure would be
detrimental to the interest of the Government, for "taxes are the lifeblood of the government, and their
prompt and certain availability an imperious need." (Bull v. U.S. 295, U. S. 247.) .
Wherefore, the resolution appealed from is affirmed, with costs. So ordered.
Bengzon, Padilla, Bautista Angelo, Labrador, Concepcin, Reyes, J. B. L., Barrera, Gutierrez David, Paredes,
and Dizon, JJ., concur.

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.
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 separatelyaddressed 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 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 antiTB 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 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 anti-TB 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 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 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 fivecentavo 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 anti-TB 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 semi-postal 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.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano, JJ., concur.
Zaldivar, J., is on leave.

Separate Opinions
FERNANDO, J., concurring:
I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635 as amended by
Republic Act No. 2631 and the majority opinion expounded with Justice Castro's usual vigor and
lucidity subject to one qualification. With all due recognition of its inherently persuasive character, it
would seem to me that the same result could be achieved if reliance be had on police power rather
than the attribute of taxation, as the constitutional basis for the challenged legislation.
1. For me, the state in question is an exercise of the regulatory power connected with the
performance of the public service. I refer of course to the government postal function, one of
respectable and ancient lineage. The United States Constitution of 1787 vests in the federal
government acting through Congress the power to establish post offices. 1 The first act providing for
the organization of government departments in the Philippines, approved Sept. 6, 1901, provided for
the Bureau of Post Offices in the Department of Commerce and Police. 2 Its creation is thus a
manifestation of one of the many services in which the government may engage for public
convenience and public interest. Such being the case, it seems that any legislation that in effect
would require increase cost of postage is well within the discretionary authority of the government.
It may not be acting in a proprietary capacity but in fixing the fees that it collects for the use of the
mails, the broad discretion that it enjoys is undeniable. In that sense, the principle announced
in Esteban v. Cabanatuan City,3 in an opinion by our Chief Justice, while not precisely controlling
furnishes for me more than ample support for the validity of the challenged legislation. Thus: "Certain
exactions, imposable under an authority other than police power, are not subject, however, to
qualification as to the amount chargeable, unless the Constitution or the pertinent laws provide
otherwise. For instance, the rates of taxes, whether national or municipal, need not be reasonable, in
the absence of such constitutional or statutory limitation. Similarly, when a municipal corporation
fixes the fees for the use of its properties, such as public markets, it does not wield the police power,
or even the power of taxation. Neither does it assert governmental authority. It exercises merely a
proprietary function. And, like any private owner, it is in the absence of the aforementioned
limitation, which does not exist in the Charter of Cabanatuan City (Republic Act No. 526) free to
charge such sums as it may deem best, regardless of the reasonableness of the amount fixed, for
the prospective lessees are free to enter into the corresponding contract of lease, if they are
agreeable to the terms thereof or, otherwise, not enter into such contract."
2. It would appear likewise that an expression of one's personal view both as to
the attitude and awareness that must be displayed by inferior tribunals when the "delicate and
awesome" power of passing on the validity of a statute would not be inappropriate. "The Constitution
is the supreme law, and statutes are written and enforced in submission to its commands." 4 It is
likewise common place in constitutional law that a party adversely affected could, again to quote
from Cardozo, "invoke, when constitutional immunities are threatened, the judgment of the courts." 5
Since the power of judicial review flows logically from the judicial function of ascertaining the facts
and applying the law and since obviously the Constitution is the highest law before which statutes
must bend, then inferior tribunals can, in the discharge of their judicial functions, nullify legislative
acts. As a matter of fact, in clear cases, such is not only their power but their duty. In the language of
the present Chief Justice: "In fact, whenever the conflicting claims of the parties to a litigation cannot
properly be settled without inquiring into the validity of an act of Congress or of either House thereof,
the courts have, not only jurisdiction to pass upon said issue but, also, theduty to do so, which
cannot be evaded without violating the fundamental law and paving the way to its eventual
destruction."6

Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals, must ever be kept in
mind. Thus: "It must be evident to any one that the power to declare a legislative enactment void is
one which the judge, conscious of the fallibility of the human judgment, will shrink from exercising in
any case where he can conscientiously and with due regard to duty and official oath decline the
responsibility."7
There must be a caveat however to the above Cooley pronouncement. Such should not be the case,
to paraphrase Freund, when the challenged legislation imperils freedom of the mind and of the
person, for given such an undesirable situation, "it is freedom that commands a momentum of
respect." Here then, fidelity to the great ideal of liberty enshrined in the Constitution may require the
judiciary to take an uncompromising and militant stand. As phrased by us in a recent decision, "if the
liberty involved were freedom of the mind or the person, the standard of its validity of governmental
acts is much more rigorous and exacting."8
So much for the appropriate judicial attitude. Now on the question of awareness of the controlling
constitutional doctrines.
There is nothing I can add to the enlightening discussion of the equal protection aspect as found in
the majority opinion. It may not be amiss to recall to mind, however, the language of Justice Laurel in
the leading case ofPeople v. Vera,9 to the effect that the basic individual right of equal protection "is a
restraint on all the three grand departments of our government and on the subordinate
instrumentalities and subdivisions thereof, and on many constitutional powers, like the police power,
taxation and eminent domain."10 Nonetheless, no jurist was more careful in avoiding the dire
consequences to what the legislative body might have deemed necessary to promote the ends of
public welfare if the equal protection guaranty were made to constitute an insurmountable obstacle.
A similar sense of realism was invariably displayed by Justice Frankfurter, as is quite evident from
the various citations from his pen found in the majority opinion. For him, it would be a misreading of
the equal protection clause to ignore actual conditions and settled practices. Not for him the at times
academic and sterile approach to constitutional problems of this sort. Thus: "It would be a narrow
conception of jurisprudence to confine the notion of 'laws' to what is found written on the statute
books, and to disregard the gloss which life has written upon it. Settled state practice cannot
supplant constitutional guaranties, but it can establish what is state law. The Equal Protection Clause
did not write an empty formalism into the Constitution. Deeply embedded traditional ways of carrying
out state policy, such as those of which petitioner complains, are often tougher and truer law than
the dead words of the written text."11 This too, from the same distinguished jurist: "The Constitution
does not require things which are different in fact or opinion to be treated in law as though they were
the same."12
Now, as to non-delegation. It is to be admitted that the problem of non-delegation of legislative
power at times occasions difficulties. Its strict view has been announced by Justice Laurel in the
aforecited case of People v. Verain this language. Thus: "In testing whether a statute constitutes an
undue delegation of legislative power or not, it is usual to inquire whether the statute was complete
in all its terms and provisions when it left the hands of the legislature so that nothing was left to the
judgment of any other appointee or delegate of the legislature. .... InUnited States v. Ang Tang Ho ...,
this court adhered to the foregoing rule; it held an act of the legislature void in so far as it undertook
to authorize the Governor-General, in his discretion, to issue a proclamation fixing the price of rice
and to make the sale of it in violation of the proclamation a crime." 13
Only recently, the present Chief Justice reaffirmed the above view in Pelaez v. Auditor
General,14 specially where the delegation deals not with an administrative function but one
essentially and eminently legislative in character. What could properly be stigmatized though to

quote Justice Cardozo, is delegation of authority that is "unconfined and vagrant, one not canalized
within banks which keep it from overflowing."15
This is not the situation as it presents itself to us. What was delegated was power not legislative in
character. Justice Laurel himself, in a later case, People v. Rosenthal,16 admitted that within certain
limits, there being a need for coping with the more intricate problems of society, the principle of
"subordinate legislation" has been accepted, not only in the United States and England, but in
practically all modern governments. This view was reiterated by him in a 1940 decision, Pangasinan
Transportation Co., Inc. v. Public Service Commission.17 Thus: "Accordingly, with the growing
complexity of modern life, the multiplication of the subjects of governmental regulation, and the
increased difficulty of administering the laws, there is a constantly growing tendency toward the
delegation of greater powers by the legislature, and toward the approval of the practice by the
courts."
In the light of the above views of eminent jurists, authoritative in character, of both the equal
protection clause and the non-delegation principle, it is apparent how far the lower court departed
from the path of constitutional orthodoxy in nullifying Republic Act No. 1635 as amended.
Fortunately, the matter has been set right with the reversal of its decision, the opinion of the Court,
manifesting its fealty to constitutional law precepts, which have been reiterated time and time again
and for the soundest of reasons

G.R. No. L-4817

May 26, 1954

SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.
REYES, J.:
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical
practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf
and in behalf of other professionals practising in the City of Manila who may desire to join it." Object
of the suit is the annulment of Ordinance No. 3398 of the City of Manila together with the provision of
the Manila charter authorizing it and the refund of taxes collected under the ordinance but paid under
protest.
The ordinance in question, which was approved by the municipal board of the City of Manila on July
25, 1950, imposes a municipal occupation tax on persons exercising various professions in the city
and penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by
imprisonment of not more than six months, or by both such fine and imprisonment in the discretion of
the court." Among the professions taxed were those to which plaintiffs belong. The ordinance was
enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila (as
amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various
professions above referred to.

Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same
under protest and then brought the present suit for the purpose already stated. The lower court
upheld the validity of the provision of law authorizing the enactment of the ordinance but declared
the ordinance itself illegal and void on the ground that the penalty there in provided for non-payment
of the tax was not legally authorized. From this decision both parties appealed to this Court, and the
only question they have presented for our determination is whether this ruling is correct or not, for
though the decision is silent on the refund of taxes paid plaintiffs make no assignment of error on
this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The last
paragraph (kk) of the very section that authorizes the enactment of this tax ordinance (section 18 of
the Manila Charter) in express terms also empowers the Municipal Board "to fix penalties for the
violation of ordinances which shall not exceed to(sic) two hundred pesos fine or six months"
imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement
below that the ordinance in question is illegal and void because it imposes a penalty not authorized
by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double
taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not that the
professions to which they respectively belong have been singled out for the imposition of this
municipal occupation tax; and in any event, the Legislature may, in its discretion, select what
occupations shall be taxed, and in the exercise of that discretion it may tax all, or it may select for
taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp. 33933395.) Plaintiffs' complaint is that while the law has authorized the City of Manila to impose the said
tax, it has withheld that authority from other chartered cities, not to mention municipalities. We do not
think it is for the courts to judge what particular cities or municipalities should be empowered to
impose occupation taxes in addition to those imposed by the National Government. That matter is
peculiarly within the domain of the political departments and the courts would do well not to
encroach upon it. Moreover, as the seat of the National Government and with a population and
volume of trade many times that of any other Philippine city or municipality, Manila, no doubt, offers
a more lucrative field for the practice of the professions, so that it is but fair that the professionals in
Manila be made to pay a higher occupation tax than their brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who
have no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs
make a distinction that is not found in the ordinance. The ordinance imposes the tax upon every
person "exercising" or "pursuing" in the City of Manila naturally any one of the occupations
named, but does not say that such person must have his office in Manila. What constitutes exercise
or pursuit of a profession in the city is a matter of judicial determination. The argument against
double taxation may not be invoked where one tax is imposed by the state and the other is imposed
by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am.
Jur., 341.)

In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance
No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the
provision of the Manila charter authorizing it. With costs against plaintiffs-appellants.
Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

Separate Opinions
PARAS, C.J., dissenting:
I am constrained to dissent from the decision of the majority upon the ground that the Municipal
Board of Manila cannot outlaw what Congress of the Philippines has already authorized. The
plaintiffs-appellants two lawyers, a physician, an accountant, a dentist and a pharmacist had
already paid the occupation tax under section 201 of the National Internal Revenue Code and are
thereby duly licensed to practice their respective professions throughout the Philippines; and yet
they had been required to pay another occupation tax under Ordinance No. 3398 for practising in the
City of Manila. This is a glaring example of contradiction the license granted by the National
Government is in effect withdrawn by the City in case of non-payment of the tax under the
ordinance. I fit be argued that the national occupation tax is collected to allow the professional
residing in Manila to pursue his calling in other places in the Philippines, it should then be exacted
only from professionals practising simultaneously in and outside of Manila. At any rate, we are
confronted with the following situation: Whereas the professionals elsewhere pay only one
occupation tax, in the City of Manila they have to pay two, although all are on equal footing insofar
as opportunities for earning money out of their pursuits are concerned. The statement that practice
in Manila is more lucrative than in the provinces, may be true perhaps with reference only to a
limited few, but certainly not to the general mass of practitioners in any field. Again, provincial
residents who have occasional or isolated practice in Manila may have to pay the city tax. This
obvious discrimination or lack of uniformity cannot be brushed aside or justified by any trite
pronouncement that double taxation is legitimate or that legislation may validly affect certain classes.
My position is that a professional who has paid the occupation tax under the National Internal
Revenue Code should be allowed to practice in Manila even without paying the similar tax imposed
by Ordinance No. 3398. The City cannot give what said professional already has. I would not say
that this Ordinance, enacted by the Municipal Board pursuant to paragraph 1 of section 18 of the
Revised Charter of Manila, as amended by Republic Act No. 409, empowering the Board to impose
a municipal occupation tax not to exceed P50 per annum, is invalid; but that only one tax, either
under the Internal Revenue Code or under Ordinance No. 3398, should be imposed upon a
practitioner in Manila.
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:

The petitioner invokes legal and equitable grounds to reverse the questioned decision of the
Intermediate Appellate Court, to set aside the auction sale of his property which took place on
December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public
auction to Ho Fernandez and ordered titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it
situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an
area of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739
(37795) of the Registry of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the
Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent
to the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5,
1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section
73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax
delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his
uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for
Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739
(37795) and the issuance in his name of a new certificate of title. Upon verification through his
lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the
City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated
at the back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his
complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the
amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new Transfer
Certificate of Title in favor of the defendant Ho Fernandez over the
parcel of land including the improvements thereon, subject to
whatever encumbrances appearing at the back of TCT No. 4739
(37795) and ordering the same TCT No. 4739 (37795) cancelled.

(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00

as attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN
NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX
DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS
INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS
ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED
THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO
SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS
ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF
P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO
SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY
WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE
THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that
his property was sold at public auction without notice to him and that the price paid for the property
was shockingly inadequate, amounting to fraud and deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his
petition upon himself. While we commiserate with him at the loss of his property, the law and the
facts militate against the grant of his petition. We are constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of his land was
expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as
of October 15, 1977.

There is no legal basis for the contention. By legal compensation, obligations of persons, who in
their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil
Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to
wit:
(1) that each one of the obligors be bound principally and that he be at the same time
a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled that there can be
no off-setting of taxes against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government owes him an amount equal to
or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit
against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal
Revenue Taxes can not be the subject of set-off or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off under the statutes of set-off, which are construed uniformly, in the light of
public policy, to exclude the remedy in an action or any indebtedness of the state or
municipality to one who is liable to the state or municipality for taxes. Neither are they
a proper subject of recoupment since they do not arise out of the contract or
transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of
public policy is well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The reason on which the general
rule is based, is that taxes are not in the nature of contracts between the party and
party but grow out of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of individual taxpayers is not
required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he
has a claim against the governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "...
internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer
are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a
"claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the petitioner. The tax was due to the city
government while the expropriation was effected by the national government. Moreover, the amount

of P4,116.00 paid by the national government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale at public auction of his remaining
property. Notice of the deposit dated September 28, 1977 was received by the petitioner on
September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00
deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw
P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public
auction.
Petitioner had one year within which to redeem his property although, as well be shown later, he
claimed that he pocketed the notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was made without complying with the
mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was
presented that the procedure outlined by law on sales of property for tax delinquency was
followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof
therefore rests upon him to show that plaintiff was duly and properly notified ... .(Petition for Review,
Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the
burden of proof to show that there was compliance with all the prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be established by
proof and thegeneral rule is that the purchaser of a tax title is bound to take upon
himself the burden of showing the regularity of all proceedings leading up to the
sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in depriving a
taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular
Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings
are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been
complied with, the petitioner can not, however, deny that he did receive the notice for the auction
sale. The records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not
properly notified of the auction sale. Surprisingly, however, he admitted in his
testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown
by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on
December 5, 1977 the date of the auction sale because he went to Iligan City. As
long as there was substantial compliance with the requirements of the notice, the
validity of the auction sale can not be assailed ... .

We quote the following testimony of the petitioner on cross-examination, to wit:

Q. My question to you is this letter marked as Exhibit I for Ho
Fernandez notified you that the property in question shall be sold at
public auction to the highest bidder on December 5, 1977 pursuant to
Sec. 74 of PD 464. Will you tell the Court whether you received the
original of this letter?
A. I just signed it because I was not able to read the same. It was just
sent by mail carrier.
Q. So you admit that you received the original of Exhibit I and you
signed upon receipt thereof but you did not read the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he
ignored such notice. By his very own admission that he received the notice, his now coming to court
assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy
of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance
Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de
Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not
material when the law gives the owner the right to redeem as when a sale is made at public auction,
upon the theory that the lesser the price, the easier it is for the owner to effect redemption."
In Velasquez v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the lands were sold
are unconscionable considering the wide divergence between their assessed values
and the amounts for which they had been actually sold. However, while in ordinary
sales for reasons of equity a transaction may be invalidated on the ground of
inadequacy of price, or when such inadequacy shocks one's conscience as to justify
the courts to interfere, such does not follow when the law gives to the owner the right
to redeem, as when a sale is made at public auction, upon the theory that the lesser
the price the easier it is for the owner to effect the redemption. And so it was aptly
said: "When there is the right to redeem, inadequacy of price should not be material,
because the judgment debtor may reacquire the property or also sell his right to
redeem and thus recover the loss he claims to have suffered by reason of the price
obtained at the auction sale."

The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et
al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for taxes, the
collection of taxes in this manner would be greatly embarrassed, if not rendered
altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is
stated as follows: "where land is sold for taxes, the inadequacy of the price given is
not a valid objection to the sale." This rule arises from necessity, for, if a fair price for
the land were essential to the sale, it would be useless to offer the property. Indeed,
it is notorious that the prices habitually paid by purchasers at tax sales are grossly
out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307,
73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P.
555):
Like most cases of this character there is here a certain element of hardship from
which we would be glad to relieve, but do so would unsettle long-established rules
and lead to uncertainty and difficulty in the collection of taxes which are the life blood
of the state. We are convinced that the present rules are just, and that they bring
hardship only to those who have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in
value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the
expropriation of adjoining areas, real estate values have gone up in the area. However, the price
quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the
foregoing reasons which answer the petitioner's claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no
strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14
years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale
without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the
expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for
the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on
November 3, 1978, during the period of redemption, regarding his tax delinquency. There is
furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez.
The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly
asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision
of the respondent court is affirmed.
SO ORDERED.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

G.R. No. L-18994

June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of
Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott
Price,respondents.
Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.
Benedicto and Martinez for respondents.
LABRADOR, J.:
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of
Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an
order in this Court directing the respondent court below to execute the judgment in favor of the
Government against the estate of Walter Scott Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January
30, 1960, this Court declared as final and executory the order for the payment by the estate of the
estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court
of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate
of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented
a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition
was, however, denied by the court which held that the execution is not justifiable as the Government
is indebted to the estate under administration in the amount of P262,200. The orders of the court
below dated August 20, 1960 and September 28, 1960, respectively, are as follows:
Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price,
Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo Castrillo
of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public
Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De Leon dated
December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo
dated August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an
extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the
payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K.
Price, as directed in the above note of the President. Considering these facts, the Court
orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of
Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order
of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the
amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this
estate, the balance to be paid by the Government to her without further delay. (Order of
August 20, 1960)

The Court has nothing further to add to its order dated August 20, 1960 and it orders that the
payment of the claim of the Collector of Internal Revenue be deferred until the Government
shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may
not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its
citizens-creditors before it can insist in the prompt payment of the latter's account to it,
specially taking into consideration that the amount due to the Government draws interests
while the credit due to the present state does not accrue any interest. (Order of September
28, 1960)
The petition to set aside the above orders of the court below and for the execution of the claim of the
Government against the estate must be denied for lack of merit. The ordinary procedure by which to
settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for
the claimant to present a claim before the probate court so that said court may order the
administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs.
Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:
. . . a writ of execution is not the proper procedure allowed by the Rules of Court for the
payment of debts and expenses of administration. The proper procedure is for the court to
order the sale of personal estate or the sale or mortgage of real property of the deceased
and all debts or expenses of administrator and with the written notice to all the heirs legatees
and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90,
section 2. And when sale or mortgage of real estate is to be made, the regulations contained
in Rule 90, section 7, should be complied with.
1wph1.t

Execution may issue only where the devisees, legatees or heirs have entered into
possession of their respective portions in the estate prior to settlement and payment of the
debts and expenses of administration and it is later ascertained that there are such debts
and expenses to be paid, in which case "the court having jurisdiction of the estate may, by
order for that purpose, after hearing, settle the amount of their several liabilities, and order
how much and in what manner each person shall contribute, and mayissue execution if
circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.)
And this is not the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle
the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of
the court and such jurisdiction continues until said properties have been distributed among the heirs
entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the
proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but
to ask the court for an order to require the administrator to pay the amount due from the estate and
required to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court having
jurisdiction of the estate had found that the claim of the estate against the Government has been
recognized and an amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have already

become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place
by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code,
and both debts are extinguished to the concurrent amount, thus:
ART. 1200. When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguished both debts to the concurrent amount,
eventhough the creditors and debtors are not aware of the compensation.
It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against
the estate of the deceased Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy.
The petition is, therefore, dismissed, without costs.
Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
Bengzon, C.J., took no part.
G.R. No. L-75697 June 18, 1987
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION,
CITY MAYOR and CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on
behalf of other videogram operators adversely affected. It assails the constitutionality of Presidential
Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to
regulate and supervise the videogram industry (hereinafter briefly referred to as the BOARD). The
Decree was promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days
after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential
Decree No. 1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed video-tape
cassette, ready for playback, regardless of length, an annual tax of five pesos;
Provided, That locally manufactured or imported blank video tapes shall be subject to
sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers,
Importers and Distributors Association of the Philippines, and Philippine Motion Pictures Producers
Association, hereinafter collectively referred to as the Intervenors, were permitted by the Court to
intervene in the case, over petitioner's opposition, upon the allegations that intervention was
necessary for the complete protection of their rights and that their "survival and very existence is
threatened by the unregulated proliferation of film piracy." The Intervenors were thereafter allowed to
file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms including,
among others, videotapes, discs, cassettes or any technical improvement or variation
thereof, have greatly prejudiced the operations of moviehouses and theaters, and
have caused a sharp decline in theatrical attendance by at least forty percent (40%)
and a tremendous drop in the collection of sales, contractor's specific, amusement
and other taxes, thereby resulting in substantial losses estimated at P450 Million
annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600 Million
per annum from rentals, sales and disposition of videograms, and such earnings
have not been subjected to tax, thereby depriving the Government of approximately
P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have also
affected the viability of the movie industry, particularly the more than 1,200 movie
houses and theaters throughout the country, and occasioned industry-wide
displacement and unemployment due to the shutdown of numerous moviehouses
and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the
Government to create an environment conducive to growth and development of all
business industries, including the movie industry which has an accumulated
investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments will not
only alleviate the dire financial condition of the movie industry upon which more than
75,000 families and 500,000 workers depend for their livelihood, but also provide an
additional source of revenue for the Government, and at the same time rationalize
the heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram features
constitutes a clear and present danger to the moral and spiritual well-being of the
youth, and impairs the mandate of the Constitution for the State to support the
rearing of the youth for civic efficiency and the development of moral character and
promote their physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures
to curb these blatant malpractices which have flaunted our censorship and copyright
laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral values of
the people and betraying the national economic recovery program, bold emergency
measures must be adopted with dispatch; ... (Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to
the local government is a RIDER and the same is not germane to the subject matter
thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of
trade in violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the vast
powers conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which it is
not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute wishes to accomplish. The
requirement is satisfied if all the parts of the statute are related, and are germane to the subject matter expressed in the title, or as long as

An act having a single general subject, indicated in

the title, may contain any number of provisions, no matter how diverse they may be, so long as they are
not inconsistent with or foreign to the general subject, and may be considered in furtherance of such
subject by providing for the method and means of carrying out the general object." 3 The rule also is that
the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple or
impede the power of legislation. 4 It should be given practical rather than technical construction. 5
they are not inconsistent with or foreign to the general subject and title.

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a
rider is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any
provision of law to the contrary, the province shall collect a tax of thirty percent (30%)
of the purchase price or rental rate, as the case may be, for every sale, lease or
disposition of a videogram containing a reproduction of any motion picture or

audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall
accrue to the province, and the other fifty percent (50%) shall acrrue to the
municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the
tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the DECREE, which is the regulation of the video industry
through the Videogram Regulatory Board as expressed in its title. The tax provision is not
inconsistent with, nor foreign to that general subject and title. As a tool for regulation 6 it is simply one
of the regulatory and control mechanisms scattered throughout the DECREE. The express purpose of the
DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore
uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles
explain the motives of the lawmaker in presenting the measure. The title of the DECREE, which is the
creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes
expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all those
objectives in the title or that the latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or even definitely deters the activities
taxed. 8 The power to impose taxes is one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. 9 In imposing a tax, the legislature acts upon its constituents.
This is, in general, a sufficient security against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by
the realization that earnings of videogram establishments of around P600 million per annum have
not been subjected to tax, thereby depriving the Government of an additional source of revenue. It is
an end-user tax, imposed on retailers for every videogram they make available for public viewing. It
is similar to the 30% amusement tax imposed or borne by the movie industry which the theaterowners pay to the government, but which is passed on to the entire cost of the admission ticket, thus
shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all
videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also
an objective of the DECREE to protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of taxation,
and it has been repeatedly held that "inequities which result from a singling out of

one particular class for taxation or exemption infringe no constitutional

limitation". 12 Taxation has been made the implement of the state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by
the former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in
the judgment of the President ... , there exists a grave emergency or a threat or imminence thereof,
or whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to
act adequately on any matter for any reason that in his judgment requires immediate action, he may,
in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which
shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the
people and betraying the national economic recovery program necessitated bold emergency
measures to be adopted with dispatch. Whatever the reasons "in the judgment" of the then
President, considering that the issue of the validity of the exercise of legislative power under the said
Amendment still pends resolution in several other cases, we reserve resolution of the question
raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of
legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the
direct assistance of other agencies and units of the government and deputize, for a fixed and limited
period, the heads or personnel of such agencies and units to perform enforcement functions for the
Board" is not a delegation of the power to legislate but merely a conferment of authority or discretion
as to its execution, enforcement, and implementation. "The true distinction is between the delegation
of power to make the law, which necessarily involves a discretion as to what it shall be, and
conferring authority or discretion as to its execution to be exercised under and in pursuance of the
law. The first cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very language
of the decree, the authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned
being "subject to the direction and control of the BOARD." That the grant of such authority might be the source of graft and corruption would
not stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in
law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other
categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or
different testimony than the law required at the time of the commission of the offense." It is
petitioner's position that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of forty-five
(45) days after the effectivity of this Decree within which to register with and secure a
permit from the BOARD to engage in the videogram business and to register with the
BOARD all their inventories of videograms, including videotapes, discs, cassettes or
other technical improvements or variations thereof, before they could be sold, leased,
or otherwise disposed of. Thereafter any videogram found in the possession of any
person engaged in the videogram business without the required proof of registration

by the BOARD, shall be prima facie evidence of violation of the Decree, whether the
possession of such videogram be for private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof of
registration of any videogram cannot be presented and thus partakes of the nature of an ex post
facto law.
The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et
al. 15
... it is now well settled that "there is no constitutional objection to the passage of a
law providing that the presumption of innocence may be overcome by a contrary
presumption founded upon the experience of human conduct, and enacting what
evidence shall be sufficient to overcome such presumption of innocence" (People vs.
Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that
when certain facts have been proved that they shall be prima facie evidence of the
existence of the guilt of the accused and shift the burden of proof provided there be a
rational connection between the facts proved and the ultimate facts presumed so that
the inference of the one from proof of the others is not unreasonable and arbitrary
because of lack of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational connection between
the fact proved, which is non-registration, and the ultimate fact presumed which is violation of the
DECREE, besides the fact that the prima facie presumption of violation of the DECREE attaches
only after a forty-five-day period counted from its effectivity and is, therefore, neither retrospective in
character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being eased
out of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation
was apparent. While the underlying objective of the DECREE is to protect the moribund movie
industry, there is no question that public welfare is at bottom of its enactment, considering "the unfair
competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought
about by the availability of unclassified and unreviewed video tapes containing pornographic films
and films with brutally violent sequences; and losses in government revenues due to the drop in
theatrical attendance, not to mention the fact that the activities of video establishments are virtually
untaxed since mere payment of Mayor's permit and municipal license fees are required to engage in
business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video
industry. On the contrary, video establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of
the DECREE. These considerations, however, are primarily and exclusively a matter of legislative
concern.

Only congressional power or competence, not the wisdom of the action taken, may
be the basis for declaring a statute invalid. This is as it ought to be. The principle of
separation of powers has in the main wisely allocated the respective authority of
each department and confined its jurisdiction to such a sphere. There would then be
intrusion not allowable under the Constitution if on a matter left to the discretion of a
coordinate branch, the judiciary would substitute its own. If there be adherence to the
rule of law, as there ought to be, the last offender should be courts of justice, to
which rightly litigants submit their controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions. The attack on the validity of the
challenged provision likewise insofar as there may be objections, even if valid and
cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged
statute. We find no clear violation of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.
Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla,
Bidin, Sarmiento and Cortes, JJ., concur.

G.R. No. L-24756

October 31, 1968

CITY OF BAGUIO, plaintiff-appellee,

vs.
FORTUNATO DE LEON, defendant-appellant.
The City Attorney for plaintiff-appellee.
Fortunato de Leon for and in his own behalf as defendant-appellant.
FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an ordinance 1 of the City of Baguio
imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio
is assailed by defendant-appellant Fortunato de Leon. He was held liable as a real estate dealer with
a property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to
pay under such ordinance the P50 annual fee. That is the principal question. In addition, there has
been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction of the City
Court of Baguio, where the suit originated, a complaint having been filed against him by the City
Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from

the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor
was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without the
consent of the Mayor, which for him was indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above ordinance as amended, valid and
subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate dealer.
Hence, this appeal. Assume the validity of such ordinance, and there would be no question about the
liability of defendant-appellant for the above license fee, it being shown in the partial stipulation of
facts, that he was "engaged in the rental of his property in Baguio" deriving income therefrom during
the period covered by the first quarter of 1958 to the fourth quarter of 1962.
The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending
the city charter of Baguio2 empowering it to fix the license fee and regulate "businesses, trades and
occupations as may be established or practiced in the City."
Unless it can be shown then that such a grant of authority is not broad enough to justify the
enactment of the ordinance now assailed, the decision appealed from must be affirmed. The task
confronting defendant-appellant, therefore, was far from easy. Why he failed is understandable,
considering that even a cursory reading of the above amendment readily discloses that the
enactment of the ordinance in question finds support in the power thus conferred.
Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of
Baguio,3 the effect of the amendatory section insofar as it would expand the previous power vested
by the city charter was clarified in these terms: "Appellants apparently have in mind section 2553,
paragraph (c) of the Revised Administrative Code, which empowers the City of Baguio merely to
impose a license fee for the purpose of rating the business that may be established in the city. The
power as thus conferred is indeed limited, as it does not include the power to levy a tax. But on July
15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its
power to license the power to tax and to regulate. And it is precisely having in view this amendment
that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the
amendment above adverted to empowers the city council not only to impose a license fee but also to
levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as
provided by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio,
therefore, has now the power to tax, to license and to regulate provided that the subjects affected be
one of those included in the charter. In this sense, the ordinance under consideration cannot be
considered ultra vires whether its purpose be to levy a tax or impose a license fee. The terminology
used is of no consequence."
It would be an undue and unwarranted emasculation of the above power thus granted if defendantappellant were to be sustained in his contention that no such statutory authority for the enactment of
the challenged ordinance could be discerned from the language used in the amendatory act. That is
about all that needs to be said in upholding the lower court, considering that the City of Baguio was
not devoid of authority in enacting this particular ordinance. As mentioned at the outset, however,
defendant-appellant likewise alleged procedural missteps and asserted that the challenged
ordinance suffered from certain constitutional infirmities. To such points raised by him, we shall now
turn.

1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in
the suit for the collection of the real estate dealer's fee from him in the amount of P300. He
contended before the lower court, and it is his contention now, that while the amount of P300 sought
was within the jurisdiction of the City Court of Baguio where this action originated, since the principal
issue was the legality and constitutionality of the challenged ordinance, it is not such City Court but
the Court of First Instance that has original jurisdiction.
There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently,
on September 7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v.
Sabillano.4 The plaintiff in that case filed a claim for the payment of his salary before the Justice of
the Peace Court of Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; the
defendant Mayor asserted that what was in issue was the enforcement of the decision of the
Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try the
case. The above plea was curtly dismissed by Us, as what was involved was "an ordinary money
claim" and therefore "within the original jurisdiction of the Justice of the Peace Court where it was
filed, considering the amount involved." Such is likewise the situation here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this license fee
corresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of
the amount involved. The thought that the municipal court lacked jurisdiction apparently was not
even in the minds of the parties and did not receive any consideration by this Court.
Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is
raised, it is the Court of First Instance that should have original jurisdiction on the matter. It does not
admit of doubt, however, that what confers jurisdiction is the amount set forth in the complaint. Here,
the sum sought to be recovered was clearly within the jurisdiction of the City Court of Baguio.
Nor could it be plausibly maintained that the validity of such ordinance being open to question as a
defense against its enforcement from one adversely affected, the matter should be elevated to the
Court of First Instance. For the City Court could rely on the presumption of the validity of such
ordinance,6 and the mere fact, however, that in the answer to such a complaint a constitutional
question was raised did not suffice to oust the City Court of its jurisdiction. The suit remains one for
collection, the lack of validity being only a defense to such an attempt at recovery. Since the City
Court is possessed of judicial power and it is likewise axiomatic that the judicial power embraces the
ascertainment of facts and the application of the law, the Constitution as the highest law superseding
any statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft of
competence to proceed on the matter. In the exercise of such delicate power, however, the
admonition of Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident to
any one that the power to declare a legislative enactment void is one which the judge, conscious of
the fallibility of the human judgment, will shrink from exercising in any case where he can
conscientiously and with due regard to duty and official oath decline the responsibility." 7 While it
remains undoubted that such a power to pass on the validity of an ordinance alleged to infringe
certain constitutional rights of a litigant exists, still it should be exercised with due care and
circumspection, considering not only the presumption of validity but also the relatively modest rank
of a city court in the judicial hierarchy.

2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample
statutory authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is
challenged because of the allegation that it imposed double taxation, which is repugnant to the due
process clause, and that it violated the requirement of uniformity. We do not view the matter thus.
As to why double taxation is not violative of due process, Justice Holmes made clear in this
language: "The objection to the taxation as double may be laid down on one side. ... The 14th
Amendment [the due process clause] no more forbids double taxation than it does doubling the
amount of a tax, short of confiscation or proceedings unconstitutional on other grounds." 8With that
decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup de grace to the bogey
of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though
that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridical
state. In a 1947 decision, however,9 we quoted with approval this excerpt from a leading American
decision:10 "Where, as here, Congress has clearly expressed its intention, the statute must be
sustained even though double taxation results."
At any rate, it has been expressly affirmed by us that such an "argument against double taxation
may not be invoked where one tax is imposed by the state and the other is imposed by the city ..., it
being widely recognized that there is nothing inherently obnoxious in the requirement that license
fees or taxes be exacted with respect to the same occupation, calling or activity by both the state
and the political subdivisions thereof."11
The above would clearly indicate how lacking in merit is this argument based on double taxation.
Now, as to the claim that there was a violation of the rule of uniformity established by the
constitution. According to the challenged ordinance, a real estate dealer who leases property worth
P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not over
P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the
above ordinance cannot be assailed as violative of the constitutional requirement of uniformity.
In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking for the Court, stated: "A tax is
considered uniform when it operates with the same force and effect in every place where the subject
may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso.13 Thus: "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation; ..." About two years later,
Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la
Fuente14 incorporated the above excerpt in his opinion and continued: "Taking everything into
account, the differentiation against which the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years
later, 15 is that the statute or ordinance in question "applies equally to all persons, firms and

corporations placed in similar situation." This Court is on record as accepting the view in a leading
American case16 that "inequalities which result from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation."17
It is thus apparent from the above that in much the same way that the plea of double taxation is
unavailing, the allegation that there was a violation of the principle of uniformity is inherently lacking
in persuasiveness. There is no need to pass upon the other allegations to assail the validity of the
above ordinance, it being maintained that the license fees therein imposed "is excessive,
unreasonable and oppressive" and that there is a failure to observe the mandate of equal protection.
A reading of the ordinance will readily disclose their inherent lack of plausibility.
3. That would dispose of all the errors assigned, except the last two, which would predicate a
grievance on the complaint having been started by the City Treasurer rather than the City Mayor of
Baguio. These alleged errors, as was the case with the others assigned, lack merit.
In much the same way that an act of a department head of the national government, performed
within the limits of his authority, is presumptively the act of the President unless reprobated or
disapproved,18 similarly the act of the City Treasurer, whose position is roughly analogous, may be
assumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This should
be the case considering that such city official is called upon to see to it that revenues due the City
are collected. When administrative steps are futile and unavailing, given the stubbornness and
obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be
resorted to by him. It would be a reflection on the state of the law if such fidelity to duty would be met
by condemnation rather than commendation.
So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes
to it from the functional and pragmatic test. If a city treasurer has to await the nod from the city
mayor before a municipal ordinance is enforced, then opportunity exists for favoritism and undue
discrimination to come into play. Whatever valid reason may exist as to why one taxpayer is to be
accorded a treatment denied another, the suspicion is unavoidable that such a manifestation of
official favor could have been induced by unnamed but not unknown consideration. It would not be
going too far to assert that even defendant-appellant would find no satisfaction in such a sad state of
affairs. The more desirable legal doctrine therefore, on the assumption that a choice exists, is one
that would do away with such temptation on the part of both taxpayer and public official alike.
WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against
defendant-appellant.
Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.
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.

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 noncompliance 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 postpublication 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.
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 particular prescription 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 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 revenueraising 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 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.
Castro, C.J., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur.
Teehankee, J., reserves his vote.
G.R. No. L-10405

December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitionerappellant,

vs.
THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondentsappellees.
Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.
Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.:
Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal,
dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued,
without costs.
On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this
action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An
Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a)
thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and
improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen.
Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)"; that, at the time of the
passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and
planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . .
Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw
Boulevard, not far away from the intersection between the latter and Highway 54), which projected
feeder roads "do not connect any government property or any important premises to the main
highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder
roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time

of the passage and approval of said Act, was a member of the Senate of the Philippines; that on
May, 1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering
to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the
offer was accepted by the council, subject to the condition "that the donor would submit a plan of the
said roads and agree to change the names of two of them"; that no deed of donation in favor of the
municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote
another letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum
of P85,000.00 appropriated therein for the construction of the projected feeder roads in question;
that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District
Engineer of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch
as the projected feeder roads in question were private property at the time of the passage and
approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the
construction, reconstruction, repair, extension and improvement of said projected feeder roads, was
illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress
because its members were made to believe that the projected feeder roads in question were "public
roads and not private streets of a private subdivision"'; that, "in order to give a semblance of legality,
when there is absolutely none, to the aforementioned appropriation", respondents Zulueta executed
on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of
donation copy of which is annexed to the petition of the four (4) parcels of land constituting
said projected feeder roads, in favor of the Government of the Republic of the Philippines; that said
alleged deed of donation was, on the same date, accepted by the then Executive Secretary; that
being subject to an onerous condition, said donation partook of the nature of a contract; that, such,
said donation violated the provision of our fundamental law prohibiting members of Congress from
being directly or indirectly financially interested in any contract with the Government, and, hence, is
unconstitutional, as well as null and voidab initio, for the construction of the projected feeder roads in
question with public funds would greatly enhance or increase the value of the aforementioned
subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his
subdivision streets or roads at his own expense"; that the construction of said projected feeder roads
was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the
court, the respondents would continue to execute, comply with, follow and implement the
aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not only
to the petitioner but to the Filipino nation."
Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and
void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional
and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and
Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta
from ordering or allowing the continuance of the above-mentioned feeder roads project, and from
making and securing any new and further releases on the aforementioned item of Republic Act No.
920, and the disbursing officers of the Department of Public Works and Highways from making any
further payments out of said funds provided for in Republic Act No. 920; and that pending final
hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties
respondent from making and securing any new and further releases on the aforesaid item of
Republic Act No. 920 and from making any further payments out of said illegally appropriated funds.

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to
sue", and that the petition did "not state a cause of action". In support to this motion, respondent
Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the
Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent
is " not aware of any law which makes illegal the appropriation of public funds for the improvements
of . . . private property"; and that, the constitutional provision invoked by petitioner is inapplicable to
the donation in question, the same being a pure act of liberality, not a contract. The other
respondents, in turn, maintained that petitioner could not assail the appropriation in question
because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is
necessarily involved" and petitioner "has not shown that he has a personal and substantial interest"
in said Act "and that its enforcement has caused or will cause him a direct injury."
Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated
October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor
of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite
personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that "the
legislature is without power appropriate public revenues for anything but a public purpose", that the
instructions and improvement of the feeder roads in question, if such roads where private property,
would not be a public purpose; that, being subject to the following condition:
The within donation is hereby made upon the condition that the Government of the Republic
of the Philippines will use the parcels of land hereby donated for street purposes only and for
no other purposes whatsoever; it being expressly understood that should the Government of
the Republic of the Philippines violate the condition hereby imposed upon it, the title to the
land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C.
ZULUETA. (Emphasis supplied.)
which is onerous, the donation in question is a contract; that said donation or contract is "absolutely
forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the
Philippines, declares in existence and void from the very beginning contracts "whose cause, objector
purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be
contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and
that, accordingly, the appropriation in question "should be upheld" and the case dismissed.
At the outset, it should be noted that we are concerned with a decision granting the aforementioned
motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of
fact made in the petition of appellant herein. According to said petition, respondent Zulueta is the
owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio
Subdivision, certain portions of which had been reserved for the projected feeder roads
aforementioned, which, admittedly, were private property of said respondent when Republic Act No.
920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and
improvement" of said roads, was passed by Congress, as well as when it was approved by the
President on June 20, 1953. The petition further alleges that the construction of said roads, to be
undertaken with the aforementioned appropriation of P85,000.00, would have the effect of relieving
respondent Zulueta of the burden of constructing his subdivision streets or roads at his own
expenses, 1and would "greatly enhance or increase the value of the subdivision" of said respondent.

The lower court held that under these circumstances, the appropriation in question was "clearly for a
private, not a public purpose."
Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However,
respondent Zulueta contended, in his motion to dismiss that:
A law passed by Congress and approved by the President can never be illegal because
Congress is the source of all laws . . . Aside from the fact that movant is not aware of any law
which makes illegal the appropriation of public funds for the improvement of what we, in the
meantime, may assume as private property . . . (Record on Appeal, p. 33.)
The first proposition must be rejected most emphatically, it being inconsistent with the nature of the
Government established under the Constitution of the Republic of the Philippines and the system of
checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this
Court invalidating legislative enactments deemed violative of the Constitution or organic laws. 3
As regards the legal feasibility of appropriating public funds for a public purpose, the principle
according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. . . . It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of the
interest to be affected nor the degree to which the general advantage of the community, and
thus the public welfare, may be ultimately benefited by their promotion. Incidental to the
public or to the state, which results from the promotion of private interest and the prosperity
of private enterprises or business, does not justify their aid by the use public money. (25
R.L.C. pp. 398-400; Emphasis supplied.)
The rule is set forth in Corpus Juris Secundum in the following language:
In accordance with the rule that the taxing power must be exercised for public purposes only,
discussedsupra sec. 14, money raised by taxation can be expended only for public purposes
and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)
Explaining the reason underlying said rule, Corpus Juris Secundum states:
Generally, under the express or implied provisions of the constitution, public funds may be
used only for public purpose. The right of the legislature to appropriate funds is correlative
with its right to tax, and, under constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to
another purpose, no appropriation of state funds can be made for other than for a public
purpose.
xxx

xxx

xxx

The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve the
public. (81 C.J.S. pp. 1147; emphasis supplied.)
Needless to say, this Court is fully in accord with the foregoing views which, apart from being
patently sound, are a necessary corollary to our democratic system of government, which, as such,
exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the
established jurisprudence in the United States, after whose constitutional system ours has been
patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional law.

lawphil.net

This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon
the ground that petitioner may not contest the legality of the donation above referred to because the
same does not affect him directly. This conclusion is, presumably, based upon the following
premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the
aforementioned appropriation; (2) that the latter may not be annulled without a previous declaration
of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil
Code is absolute, and admits of no exception. We do not agree with these premises.
The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter
consists of an amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the
projected feeder roads in question, the legality thereof depended upon whether said roads were
public or private property when the bill, which, latter on, became Republic Act 920, was passed by
Congress, or, when said bill was approved by the President and the disbursement of said sum
became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which
the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is
that said appropriation sought a private purpose, and hence, was null and void. 4 The donation to
the Government, over five (5) months after the approval and effectivity of said Act, made, according
to the petition, for the purpose of giving a "semblance of legality", or legalizing, the appropriation in
question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said
donation need not precede the declaration of unconstitutionality of said appropriation.
Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions.
For instance, the creditors of a party to an illegal contract may, under the conditions set forth in
Article 1177 of said Code, exercise the rights and actions of the latter, except only those which are
inherent in his person, including therefore, his right to the annulment of said contract, even though
such creditors are not affected by the same, except indirectly, in the manner indicated in said legal
provision.
Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a
direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the
instance of taxpayers, laws providing for the disbursement of public funds, 5upon the theory that "the
expenditure of public funds by an officer of the State for the purpose of administering
an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the

request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in the
United States is stated in the American Jurisprudence as follows:
In the determination of the degree of interest essential to give the requisite standing to attack
the constitutionality of a statute, the general rule is that not only persons individually affected,
but alsotaxpayers, have sufficient interest in preventing the illegal expenditure of moneys
raised by taxation and may therefore question the constitutionality of statutes requiring
expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)
However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon
(262 U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a
taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal
corporation to its government. Indeed, under the composite system of government existing in the
U.S., the states of the Union are integral part of the Federation from an international viewpoint, but,
each state enjoys internally a substantial measure of sovereignty, subject to the limitations imposed
by the Federal Constitution. In fact, the same was made by representatives ofeach state of the
Union, not of the people of the U.S., except insofar as the former represented the people of the
respective States, and the people of each State has, independently of that of the others, ratified said
Constitution. In other words, the Federal Constitution and the Federal statutes have become binding
upon the people of the U.S. in consequence of an act of, and, in this sense, through the respective
states of the Union of which they are citizens. The peculiar nature of the relation between said
people and the Federal Government of the U.S. is reflected in the election of its President, who is
chosen directly, not by the people of the U.S., but by electors chosen by each State, in such manner
as the legislature thereof may direct (Article II, section 2, of the Federal Constitution).
lawphi1.net

The relation between the people of the Philippines and its taxpayers, on the other hand, and the
Republic of the Philippines, on the other, is not identical to that obtaining between the people and
taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that
existing between the people and taxpayers of each state and the government thereof, except that
the authority of the Republic of the Philippines over the people of the Philippines is more fully
direct than that of the states of the Union, insofar as the simple and unitary type of our national
government is not subject to limitations analogous to those imposed by the Federal Constitution
upon the states of the Union, and those imposed upon the Federal Government in the interest of the
Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a
legislation appropriating local or state public funds which has been upheld by the Federal
Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) has greater application in the Philippines
than that adopted with respect to acts of Congress of the United States appropriating federal funds.
Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by
the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of
contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in
Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the
Government was not permitted to question the constitutionality of an appropriation for backpay of
members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and
Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action
of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the

same. Moreover, the reason that impelled this Court to take such position in said two (2) cases
the importance of the issues therein raised is present in the case at bar. Again, like the petitioners
in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of
Rizal, which he represents officially as its Provincial Governor, is our most populated political
subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the
Philippines.
Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify
petitioners action in contesting the appropriation and donation in question; that this action should not
have been dismissed by the lower court; and that the writ of preliminary injunction should have been
maintained.
Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the
lower court for further proceedings not inconsistent with this decision, with the costs of this instance
against respondent Jose C. Zulueta. It is so ordered.
Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David,
Paredes, and Dizon, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 141104 & 148763

June 8, 2007

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner
Atlas Consolidated Mining and Development Corporation (petitioner corporation) for the refund/credit
of the input Value Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales in
the taxable quarters of the years 1990 and 1992, the denial of which by the Court of Tax Appeals
(CTA), was affirmed by the Court of Appeals.
Petitioner corporation is engaged in the business of mining, production, and sale of various mineral
products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. It was
initially issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register
anew with the appropriate revenue district office (RDO) of the Bureau of Internal Revenue (BIR)
when it moved its principal place of business, and it was re-issued VAT Registration No. 32-0004622, dated 15 August 1990.1
G.R. No. 141104

Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992. 2 It alleged that it
likewise filed with the BIR the corresponding application for the refund/credit of its input VAT on its
purchases of capital goods and on its zero-rated sales in the amount of P26,030,460.00.3 When its
application for refund/credit remained unresolved by the BIR, petitioner corporation filed on 20 April
1994 its Petition for Review with the CTA, docketed as CTA Case No. 5102. Asserting that it was a
"zero-rated VAT person," it prayed that the CTA order herein respondent Commissioner of Internal
Revenue (respondent Commissioner) to refund/credit petitioner corporation with the amount
of P26,030,460.00, representing the input VAT it had paid for the first quarter of 1992. The
respondent Commissioner opposed and sought the dismissal of the petition for review of petitioner
corporation for failure to state a cause of action. After due trial, the CTA promulgated its Decision 4 on
24 November 1997 with the following disposition
WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the
ground of prescription, insufficiency of evidence and failure to comply with Section 230 of the
Tax Code, as amended. Accordingly, the petition at bar is hereby DISMISSED for lack of
merit.
The CTA denied the motion for reconsideration of petitioner corporation in a Resolution 5 dated 15
April 1998.
When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court,
in its Decision,6 dated 6 July 1999, dismissed the appeal of petitioner corporation, finding no
reversible error in the CTA Decision, dated 24 November 1997. The subsequent motion for
reconsideration of petitioner corporation was also denied by the Court of Appeals in its
Resolution,7 dated 14 December 1999.
Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, assigning the following errors committed by the Court of
Appeals
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE
REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF
INVESTMENTS (BOI)]-REGISTERED FIRM MUST CONSIST OF EXPORTS FOR ZERORATING TO APPLY.
II
THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO
SUBMIT SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT
INVOICES AND RECEIPTS IS NOT A FATAL DEFECT.
III
THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED
BEYOND THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED
WITHIN TWO (2) YEARS FROM THE FILING OF THE VAT RETURN.
IV

THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE REOPENING OF THE CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE.8
G.R. No. 148763
G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above,
except that it relates to the claims of petitioner corporation for refund/credit of input VAT on its
purchases of capital goods and on its zero-rated sales made in the last three taxable quarters of
1990.
Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth quarters of
1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It submitted separate
applications to the BIR for the refund/credit of the input VAT paid on its purchases of capital goods
and on its zero-rated sales, the details of which are presented as follows

Date of Application

Period Covered

Amount Applied For

21 August 1990

2nd Quarter, 1990

P 54,014,722.04

21 November 1990

3rd Quarter, 1990

75,304,774.77

19 February 1991

4th Quarter, 1990

43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with the
CTA the following petitions for review

Date Filed

Period Covered

CTA Case No.

20 July 1992

2nd Quarter, 1990

4831

9 October 1992

3rd Quarter, 1990

4859

14 January 1993

4th Quarter, 1990

4944

which were eventually consolidated. The respondent Commissioner contested the foregoing
Petitions and prayed for the dismissal thereof. The CTA ruled in favor of respondent Commissioner
and in its Decision,9 dated 30 October 1997, dismissed the Petitions mainly on the ground that the
prescriptive periods for filing the same had expired. In a Resolution, 10 dated 15 January 1998, the
CTA denied the motion for reconsideration of petitioner corporation since the latter presented no new
matter not already discussed in the court's prior Decision. In the same Resolution, the CTA also
denied the alternative prayer of petitioner corporation for a new trial since it did not fall under any of
the grounds cited under Section 1, Rule 37 of the Revised Rules of Court, and it was not supported
by affidavits of merits required by Section 2 of the same Rule.
Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-G.R.
SP No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision, 11 finding that
although petitioner corporation timely filed its Petitions for Review with the CTA, it still failed to
substantiate its claims for the refund/credit of its input VAT for the last three quarters of 1990. In its
Resolution,12 dated 27 June 2001, the appellate court denied the motion for reconsideration of
petitioner corporation, finding no cogent reason to reverse its previous Decision.
Aggrieved, petitioner corporation filed with this Court another Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising the following issues
A.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER'S CLAIM IS BARRED UNDER REVENUE REGULATIONS NOS. 2-88 AND 388 I.E., FOR FAILURE TO PTOVE [sic] THE 70% THRESHOLD FOR ZERO-RATING TO
APPLY AND FOR FAILURE TO ESTABLISH THE FACTUAL BASIS FOR THE INSTANT
CLAIM.
B.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO
BASIS TO GRANT PETITIONER'S MOTION FOR NEW TRIAL.
There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were
consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling of
this Court in these cases hinges on how it will resolve the following key issues: (1) prescription of the
claims of petitioner corporation for input VAT refund/credit; (2) validity and applicability of Revenue
Regulations No. 2-88 imposing upon petitioner corporation, as a requirement for the VAT zero-rating
of its sales, the burden of proving that the buyer companies were not just BOI-registered but also
exporting 70% of their total annual production; (3) sufficiency of evidence presented by petitioner
corporation to establish that it is indeed entitled to input VAT refund/credit; and (4) legal ground for
granting the motion of petitioner corporation for re-opening of its cases or holding of new trial before
the CTA so it could be given the opportunity to present the required evidence.
Prescription
The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated sales
made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977, as
amended, which provided that
SEC. 106. Refunds or tax credits of input tax. x x x.

(b) Zero-rated or effectively zero-rated sales. Any person, except those covered by
paragraph (a) above, whose sales are zero-rated may, within two years after the close of the
quarter when such sales were made, apply for the issuance of a tax credit certificate or
refund of the input taxes attributable to such sales to the extent that such input tax has not
been applied against output tax.
xxxx
(e) Period within which refund of input taxes may be made by the Commissioner. The
Commissioner shall refund input taxes within 60 days from the date the application for refund
was filed with him or his duly authorized representative. No refund of input taxes shall be
allowed unless the VAT-registered person files an application for refund within the period
prescribed in paragraphs (a), (b) and (c) as the case may be.
By a plain reading of the foregoing provision, the two-year prescriptive period for filing the application
for refund/credit of input VAT on zero-rated sales shall be determined from the close of the quarter
when such sales were made.
Petitioner contends, however, that the said two-year prescriptive period should be counted, not from
the close of the quarter when the zero-rated sales were made, but from the date of filing of the
quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with Section
110(b) of the Tax Code of 1977, as amended, quoted as follows
SEC. 110. Return and payment of value-added tax. x x x.
(b) Time for filing of return and payment of tax. The return shall be filed and the tax paid
within 20 days following the end of each quarter specifically prescribed for a VAT-registered
person under regulations to be promulgated by the Secretary of Finance: Provided,
however, That any person whose registration is cancelled in accordance with paragraph (e)
of Section 107 shall file a return within 20 days from the cancellation of such registration.
It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding for
recovery of corporate income tax erroneously or illegally paid under Section 230 13 of the Tax Code of
1977, as amended, was to be counted from the filing of the final adjustment return. This Court
already set out in ACCRA Investments Corporation v. Court of Appeals,14 the rationale for such a
rule, thus
Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch
as the respondent Commissioner by his own rules and regulations mandates that the
corporate taxpayer opting to ask for a refund must show in its final adjustment return the
income it received from all sources and the amount of withholding taxes remitted by its
withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final
adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April
10, 1989 in the case of Commissioner of Internal Revenue v. Asia Australia Express,
Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which to claim a
refund commences to run, at the earliest, on the date of the filing of the adjusted final tax
return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim
for refund.
Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the
respondent Commissioner who failed to take any action thereon and considering further that
the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to

reiterate its claim before the Court of Tax Appeals through a petition for review on April 13,
1984, the respondent appellate court manifestly committed a reversible error in affirming the
holding of the tax court that ACCRAIN's claim for refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive
period with respect to the petitioner corporation's claim for refund from the time it filed its final
adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it
made profits or incurred losses in its business operations. The "date of payment", therefore,
in ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final
adjustment return on April 15, 1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court further
expounded on the same matter
A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is
warranted under the circumstances to lay down a categorical pronouncement on the
question as to when the two-year prescriptive period in cases of quarterly corporate income
tax commences to run. A full-blown decision in this regard is rendered more imperative in the
light of the reversal by the Court of Tax Appeals in the instant case of its previous ruling in
the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted
in relation to the other provisions of the Tax Code in order to give effect the legislative intent
and to avoid an application of the law which may lead to inconvenience and absurdity. In the
case of People vs. Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive
a sensible construction, such as will give effect to the legislative intention and so as to avoid
an unjust or an absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER
FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity,
such interpretation as will avoid inconvenience and absurdity is to be adopted. Furthermore,
courts must give effect to the general legislative intent that can be discovered from or is
unraveled by the four corners of the statute, and in order to discover said intent, the whole
statute, and not only a particular provision thereof, should be considered. (Manila Lodge No.
761, et al. vs. Court of Appeals, et al. 73 SCRA 162 [1976) Every section, provision or clause
of the statute must be expounded by reference to each other in order to arrive at the effect
contemplated by the legislature. The intention of the legislator must be ascertained from the
whole text of the law and every part of the act is to be taken into view. (Chartered Bank vs.
Imperial, 48 Phil. 931 [1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz
Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not only Section 292
(now Section 230) of the National Internal Revenue Code but also the other provisions of the
Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86
(now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax
Payment and Section 321 (now Section 232) on keeping of books of accounts. All these
provisions of the Tax Code should be harmonized with each other.
xxxx
Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68)
and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be
considered mere installments of the annual tax due. These quarterly tax payments which are
computed based on the cumulative figures of gross receipts and deductions in order to arrive

at a net taxable income, should be treated as advances or portions of the annual income tax
due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87
(now Section 69) which provides for the filing of adjustment returns and final payment of
income tax. Consequently, the two-year prescriptive period provided in Section 292 (now
Section 230) of the Tax Code should be computed from the time of filing the Adjustment
Return or Annual Income Tax Return and final payment of income tax.
In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this
Court held that when a tax is paid in installments, the prescriptive period of two years
provided in Section 306 (Section 292) of the National Internal Revenue Code should be
counted from the date of the final payment. This ruling is reiterated in Commissioner of
Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that
where the tax account was paid on installment, the computation of the two-year prescriptive
period under Section 306 (Section 292) of the Tax Code, should be from the date of the last
installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the
two-year prescriptive period should be counted from the filing of the Adjustment Return on
April 15,1982, TMX Sales, Inc. is not yet barred by prescription.
The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive period
for claims for refund of illegally or erroneously collected income tax may also apply to the Petitions at
bar involving the same prescriptive period for claims for refund/credit of input VAT on zero-rated
sales.
It is true that unlike corporate income tax, which is reported and paid on installment every quarter,
but is eventually subjected to a final adjustment at the end of the taxable year, VAT is computed and
paid on a purely quarterly basis without need for a final adjustment at the end of the taxable year.
However, it is also equally true that until and unless the VAT-registered taxpayer prepares and
submits to the BIR its quarterly VAT return, there is no way of knowing with certainty just how much
input VAT16 the taxpayer may apply against its output VAT;17 how much output VAT it is due to pay for
the quarter or how much excess input VAT it may carry-over to the following quarter; or how much of
its input VAT it may claim as refund/credit. It should be recalled that not only may a VAT-registered
taxpayer directly apply against his output VAT due the input VAT it had paid on its importation or local
purchases of goods and services during the quarter; the taxpayer is also given the option to either
(1) carry over any excess input VAT to the succeeding quarters for application against its future
output VAT liabilities, or (2) file an application for refund or issuance of a tax credit certificate
covering the amount of such input VAT.18 Hence, even in the absence of a final adjustment return, the
determination of any output VAT payable necessarily requires that the VAT-registered taxpayer make
adjustments in its VAT return every quarter, taking into consideration the input VAT which are
creditable for the present quarter or had been carried over from the previous quarters.
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it
does have refundable or creditable input VAT, and the same has not been applied against its output
VAT liabilities information which are supposed to be reflected in the taxpayer's VAT returns. Thus,
an application for refund/credit must be accompanied by copies of the taxpayer's VAT return/s for the
taxable quarter/s concerned.
Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally
or erroneously collected, its refund/credit is a privilege extended to qualified and registered
taxpayers by the very VAT system adopted by the Legislature. Such input VAT, the same as any
illegally or erroneously collected national internal revenue tax, consists of monetary amounts which

are currently in the hands of the government but must rightfully be returned to the taxpayer.
Therefore, whether claiming refund/credit of illegally or erroneously collected national internal
revenue tax, or input VAT, the taxpayer must be given equal opportunity for filing and pursuing its
claim.
For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive
period for filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing of the
return and payment of the tax due which, according to the law then existing, should be made within
20 days from the end of each quarter. Having established thus, the relevant dates in the instant
cases are summarized and reproduced below

Period Covered

Date of
Filing(Return w/
BIR)

Date of
Filing(Application w/
BIR)

Date of Filing(Case
w/ CTA)

2nd Quarter, 1990

20 July 1990

21 August 1990

20 July 1992

3rd Quarter, 1990

18 October 1990

21 November 1990

9 October 1992

4th Quarter, 1990

20 January 1991

19 February 1991

14 January 1993

1st Quarter, 1992

20 April 1992

--

20 April 1994

The above table readily shows that the administrative and judicial claims of petitioner corporation for
refund of its input VAT on its zero-rated sales for the last three quarters of 1990 were all filed within
the prescriptive period.
However, the same cannot be said for the claim of petitioner corporation for refund of its input VAT
on its zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner
corporation filed in time its judicial claim with the CTA, there is no showing that it had previously filed
an administrative claim with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly
provided that no refund of input VAT shall be allowed unless the VAT-registered taxpayer filed an
application for refund with respondent Commissioner within the two-year prescriptive period. The
application of petitioner corporation for refund/credit of its input VAT for the first quarter of 1992 was
not only unsigned by its supposed authorized representative, Ma. Paz R. Semilla, Manager-Finance
and Treasury, but it was not dated, stamped, and initialed by the BIR official who purportedly
received the same. The CTA, in its Decision,19 dated 24 November 1997, in CTA Case No. 5102,
made the following observations

This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of
VAT Paid (BIR Form No. 2552) [Exhibit "B'] formally offered in evidence by the petitioner on
account of the fact that it does not bear the BIR stamp showing the date when such
application was filed together with the signature or initial of the receiving officer of
respondent's Bureau. Worse still, it does not show the date of application and the signature
of a certain Ma. Paz R. Semilla indicated in the form who appears to be petitioner's
authorized filer.
A review of the records reveal that the original of the aforecited application was lost during
the time petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994). Attempt
was made to prove that petitioner exerted efforts to recover the original copy, but to no avail.
Despite this, however, We observe that petitioner completely failed to establish the missing
dates and signatures abovementioned. On this score, said application has no probative
value in demonstrating the fact of its filing within two years after the [filing of the VAT return
for the quarter] when petitioner's sales of goods were made as prescribed under Section
106(b) of the Tax Code. We believe thus that petitioner failed to file an application for refund
in due form and within the legal period set by law at the administrative level. Hence, the case
at bar has failed to satisfy the requirement on the prior filing of an application for refund with
the respondent before the commencement of a judicial claim for refund, as prescribed under
Section 230 of the Tax Code. This fact constitutes another one of the many reasons for not
granting petitioner's judicial claim.
As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation
timely filed its administrative claim for refund of its input VAT for the first quarter of 1992, but also
whether petitioner corporation actually filed such administrative claim in the first place. For failing to
prove that it had earlier filed with the BIR an application for refund/credit of its input VAT for the first
quarter of 1992, within the period prescribed by law, then the case instituted by petitioner corporation
with the CTA for the refund/credit of the very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement
Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross
selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same provision
subjected the following sales made by VAT-registered persons to 0% VAT
(1) Export sales; and
(2) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zerorate.
"Export Sales" means the sale and shipment or exportation of goods from the Philippines to
a foreign country, irrespective of any shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of the goods so exported, or foreign
currency denominated sales. "Foreign currency denominated sales", means sales to
nonresidents of goods assembled or manufactured in the Philippines, for delivery to
residents in the Philippines and paid for in convertible foreign currency remitted through the
banking system in the Philippines.
These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for VAT
purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods and/or

services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of
goods or services related to such zero-rated sale shall be available as tax credit or refund. 20
Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the said
regulations imposed additional requirements, not found in the law itself, for the zero-rating of its
sales to Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc.
(PHILPHOS), both of which are registered not only with the BOI, but also with the then Export
Processing Zone Authority (EPZA).21
The contentious provisions of Revenue Regulations No. 2-88 read
SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered exporters. Sales of raw
materials to export-oriented BOI-registered enterprises whose export sales, under rules and
regulations of the Board of Investments, exceed seventy percent (70%) of total annual
production, shall be subject to zero-rate under the following conditions:
"(1) The seller shall file an application with the BIR, ATTN.: Division, applying for
zero-rating for each and every separate buyer, in accordance with Section 8(d) of
Revenue Regulations No. 5-87. The application should be accompanied with a
favorable recommendation from the Board of Investments."
"(2) The raw materials sold are to be used exclusively by the buyer in the
manufacture, processing or repacking of his own registered export product;
"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales
invoice. The exporter (buyer) can no longer claim from the Bureau of Internal
Revenue or any other government office tax credits on their zero-rated purchases;
(b) Sales of raw materials to foreign buyer. Sales of raw materials to a nonresident foreign
buyer for delivery to a resident local export-oriented BOI-registered enterprise to be used in
manufacturing, processing or repacking of the said buyer's goods and paid for in foreign
currency, inwardly remitted in accordance with Central Bank rules and regulations shall be
subject to zero-rate.
It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals, that
Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar; and to be entitled
to the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-registered
seller, must be able to prove not only that PASAR and PHILPHOS are BOI-registered corporations,
but also that more than 70% of the total annual production of these corporations are actually
exported. Revenue Regulations No. 2-88 merely echoed the requirement imposed by the BOI on
export-oriented corporations registered with it.
While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it finds
that its application must be limited and placed in the proper context. Note that Section 2 of Revenue
Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-oriented BOIregistered enterprises whose export sales, under BOI rules and regulations, should exceed seventy
percent (70%) of their total annual production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the
sales made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be emphasized
that PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with

the EPZA and located within an export-processing zone. Petitioner corporation does not claim that
its sales to PASAR and PHILPHOS are zero-rated on the basis that said sales were made to exportoriented BOI-registered corporations, but rather, on the basis that the sales were made to EPZAregistered enterprises operating within export processing zones. Although sales to export-oriented
BOI-registered enterprises and sales to EPZA-registered enterprises located within export
processing zones were both deemed export sales, which, under Section 100(a) of the Tax Code of
1977, as amended, shall be subject to 0% VAT distinction must be made between these two types of
sales because each may have different substantiation requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale and
shipment or exportation of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported, or foreign currency denominated sales." Executive Order No.
226, otherwise known as the Omnibus Investments Code of 1987 - which, in the years concerned
(i.e., 1990 and 1992), governed enterprises registered with both the BOI and EPZA, provided a more
comprehensive definition of export sales, as quoted below:
"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from
invoices, bills of lading, inward letters of credit, landing certificates, and other commercial
documents, of export products exported directly by a registered export producer or the net
selling price of export product sold by a registered export producer or to an export trader that
subsequently exports the same: Provided, That sales of export products to another producer
or to an export trader shall only be deemed export sales whenactually exported by the latter,
as evidenced by landing certificates of similar commercial documents: Provided, further,
That without actual exportation the following shall be considered constructively exportedfor
purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented
manufacturers; (2) sales to export processing zones; (3) sales to registered export traders
operating bonded trading warehouses supplying raw materials used in the manufacture of
export products under guidelines to be set by the Board in consultation with the Bureau of
Internal Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic
missions and other agencies and/or instrumentalities granted tax immunities, of locally
manufactured, assembled or repacked products whether paid for in foreign currency or not:
Provided, further, That export sales of registered export trader may include commission
income; and Provided, finally, That exportation of goods on consignment shall not be
deemed export sales until the export products consigned are in fact sold by the consignee.
Sales of locally manufactured or assembled goods for household and personal use to
Filipinos abroad and other non-residents of the Philippines as well as returning Overseas
Filipinos under the Internal Export Program of the government and paid for in convertible
foreign currency inwardly remitted through the Philippine banking systems shall also be
considered export sales. (Underscoring ours.)
The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the
sales of export products to another producer or to an export trader, provided that the export products
are actually exported. For purposes of VAT zero-rating, such producer or export trader must be
registered with the BOI and is required to actually export more than 70% of its annual production.
Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers
constructive exportation as export sales. Among other types of constructive exportation specifically
identified by the said provision are sales to export processing zones. Sales to export processing
zones are subjected to special tax treatment. Article 77 of the same Code establishes the tax
treatment of goods or merchandise brought into the export processing zones. Of particular relevance

herein is paragraph 2, which provides that "Merchandise purchased by a registered zone enterprise
from the customs territory and subsequently brought into the zone, shall be considered as export
sales and the exporter thereof shall be entitled to the benefits allowed by law for such transaction."
Such tax treatment of goods brought into the export processing zones are only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres.
According to the Destination Principle,22 goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine 23 mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside
the territorial border of the taxing authority. Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT, while those destined for use or consumption
within the Philippines shall be imposed with 10% VAT.24 Export processing zones25 are to be
managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes,
are effectively considered as foreign territory. For this reason, sales by persons from the Philippine
customs territory to those inside the export processing zones are already taxed as exports.
Plainly, sales to enterprises operating within the export processing zones are export sales, which,
under the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that petitioner
corporation is claiming refund/credit of the input VAT on its zero-rated sales to PASAR and
PHILPHOS.
The distinction made by this Court in the preceding paragraphs between the zero-rated sales to
export-oriented BOI-registered enterprises and zero-rated sales to EPZA-registered enterprises
operating within export processing zones is actually supported by subsequent development in tax
laws and regulations. In Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as
amended,26 the BIR defined with more precision what are zero-rated export sales
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported paid for in acceptable foreign
currency or its equivalent in goods or services, and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
Any enterprise whose export sales exceed 70% of the total annual production of the
preceding taxable year shall be considered an export-oriented enterprise upon accreditation
as such under the provisions of the Export Development Act (R.A. 7844) and its
implementing rules and regulations;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226,
otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g.

Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of
1992.
The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export sales, which
are subject to 0% VAT.
This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which
applied to zero-rated export sales to export-oriented BOI-registered enterprises, should not be
applied to the applications for refund/credit of input VAT filed by petitioner corporation since it based
its applications on the zero-rating of export sales to enterprises registered with the EPZA and located
within export processing zones.
Sufficiency of evidence
There can be no dispute that the taxpayer-claimant has the burden of proving the legal and factual
bases of its claim for tax credit or refund, but once it has submitted all the required documents, it is
the function of the BIR to assess these documents with purposeful dispatch. 28 It therefore falls upon
herein petitioner corporation to first establish that its sales qualify for VAT zero-rating under the
existing laws (legal basis), and then to present sufficient evidence that said sales were actually made
and resulted in refundable or creditable input VAT in the amount being claimed (factual basis).
It would initially appear that the applications for refund/credit filed by petitioner corporation cover only
input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more thorough
perusal of its applications, VAT returns, pleadings, and other records of these cases would reveal
that it is also claiming refund/credit of its input VAT on purchases of capital goods and sales of gold
to the Central Bank of the Philippines (CBP).
This Court finds that the claims for refund/credit of input VAT of petitioner corporation have sufficient
legal bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of the
Tax Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to enterprises
operating within export processing zones and registered with the EPZA, since such export sales
were deemed to be effectively zero-rated sales.29 The fact that PASAR and PHILPHOS, to whom
petitioner corporation sold its products, were operating inside an export processing zone and duly
registered with EPZA, was never raised as an issue herein. Moreover, the same fact was already
judicially recognized in the case Atlas Consolidated Mining & Development Corporation v.
Commissioner of Internal Revenue.30 Section 106(c) of the same Code likewise permitted a VATregistered taxpayer to apply for refund/credit of the input VAT paid on capital goods imported or
locally purchased to the extent that such input VAT has not been applied against its output VAT.
Meanwhile, the effective zero-rating of sales of gold to the CBP from 1989 to 1991 31 was already
affirmed by this Court in Commissioner of Internal Revenue v. Benguet Corporation,32 wherein it
ruled that
At the time when the subject transactions were consummated, the prevailing BIR regulations
relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. The
BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which
prescribed that gold sold to the Central Bank shall be considered export and therefore shall
be subject to the export and premium duties. In coming out with this interpretation, the BIR
also considered Sec. 169 of Central Bank Circular No. 960 which states that all sales of gold
to the Central Bank are considered constructive exports. x x x.

This Court now comes to the question of whether petitioner corporation has sufficiently established
the factual bases for its applications for refund/credit of input VAT. It is in this regard that petitioner
corporation has failed, both in the administrative and judicial level.
Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue
regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the
applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said
applications must have been in accordance with Revenue Regulations No. 3-88, amending Section
16 of Revenue Regulations No. 5-87, which provided as follows
SECTION 16. Refunds or tax credits of input tax.
xxxx
(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added Tax
Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city or
municipality where the principal place of business of the applicant is located or directly with
the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be
submitted together with the application. The original copy of the said invoice/receipt,
however, shall be presented for cancellation prior to the issuance of the Tax Credit Certificate
or refund. In addition, the following documents shall be attached whenever applicable:
xxxx
"3. Effectively zero-rated sale of goods and services.
"i) photo copy of approved application for zero-rate if filing for the first time.
"ii) sales invoice or receipt showing name of the person or entity to whom the
sale of goods or services were delivered, date of delivery, amount of
consideration, and description of goods or services delivered.
"iii) evidence of actual receipt of goods or services.
"4. Purchase of capital goods.
"i) original copy of invoice or receipt showing the date of purchase, purchase
price, amount of value-added tax paid and description of the capital
equipment locally purchased.
"ii) with respect to capital equipment imported, the photo copy of import entry
document for internal revenue tax purposes and the confirmation receipt
issued by the Bureau of Customs for the payment of the value-added tax.
"5. In applicable cases,
where the applicant's zero-rated transactions are regulated by certain government agencies,
a statement therefrom showing the amount and description of sale of goods and services,

name of persons or entities (except in case of exports) to whom the goods or services were
sold, and date of transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the
amount of the value-added tax (VAT) paid directly and entirely attributable to the zero-rated
transaction during the period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods
and services, and the VAT paid (inputs) on purchases of goods and services cannot be
directly attributed to any of the aforementioned transactions, the following formula shall be
used to determine the creditable or refundable input tax for zero-rated sale:
Amount of Zero-rated Sale
Total Sales
X
Total Amount of Input Taxes
=
Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by the
BIR, and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file
a Petition for Review before the CTA. If the taxpayer's claim is supported by voluminous documents,
such as receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be
governed by CTA Circular No. 1-95, as amended, reproduced in full below
In the interest of speedy administration of justice, the Court hereby promulgates the following
rules governing the presentation of voluminous documents and/or long accounts, such as
receipts, invoices and vouchers, as evidence to establish certain facts pursuant to Section
3(c), Rule 130 of the Rules of Court and the doctrine enunciated in Compania Maritima vs.
Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must, after
motion and approval by the Court, present:
(a) a Summary containing, among others, a chronological listing of the numbers,
dates and amounts covered by the invoices or receipts and the amount/s of tax paid;
and (b) a Certification of an independent Certified Public Accountant attesting to the
correctness of the contents of the summary after making an examination, evaluation
and audit of the voluminous receipts and invoices. The name of the accountant or
partner of the firm in charge must be stated in the motion so that he/she can be
commissioned by the Court to conduct the audit and, thereafter, testify in Court
relative to such summary and certification pursuant to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for
marking, identification and comparison with the originals thereof need not be done before the
Court or Clerk of Court anymore after the introduction of the summary and CPA certification.
It is enough that the receipts, invoices, vouchers or other documents covering the said
accounts or payments to be introduced in evidence must be pre-marked by the party
concerned and submitted to the Court in order to be made accessible to the adverse party
who desires to check and verify the correctness of the summary and CPA certification.
Likewise, the originals of the voluminous receipts, invoices or accounts must be ready for

verification and comparison in case doubt on the authenticity thereof is raised during the
hearing or resolution of the formal offer of evidence.
Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA when the
said Circular was issued, then petitioner corporation must have complied therewith during the course
of the trial of the said cases.
In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied the claim of
therein respondent, Manila Mining Corporation, for refund of the input VAT on its supposed zerorated sales of gold to the CBP because it was unable to substantiate its claim. In the same case, this
Court emphasized the importance of complying with the substantiation requirements for claiming
refund/credit of input VAT on zero-rated sales, to wit
For a judicial claim for refund to prosper, however, respondent must not only prove that it is a
VAT registered entity and that it filed its claims within the prescriptive period. It
must substantiate the input VAT paid by purchase invoices or official receipts.
This respondent failed to do.
Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the
requirements in claiming tax credits/refunds.
xxxx
Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed before
it are litigatedde novo, party litigants should prove every minute aspect of their cases. No
evidentiary value can be given the purchase invoices or receipts submitted to the BIR as the
rules on documentary evidence require that these documents must be formally offered
before the CTA.
This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output
tax but this does not ipso fact mean that [the seller] is entitled to the amount of refund
sought as it is required by law to present evidence showing the input taxes it paid
during the year in question. What is being claimed in the instant petition is the refund
of the input taxes paid by the herein petitioner on its purchase of goods and services.
Hence, it is necessary for the Petitioner to show proof that it had indeed paid the
input taxes during the year 1991. In the case at bar, Petitioner failed to discharge this
duty. It did not adduce in evidence the sales invoice, receipts or other documents
showing the input value added tax on the purchase of goods and services.
xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides
categorically that the Court of Tax Appeals shall be a court of record and as such it is
required to conduct a formal trial (trial de novo) where the parties must present their
evidence accordingly if they desire the Court to take such evidence into
consideration. (Emphasis and italics supplied)

A "sales or commercial invoice" is a written account of goods sold or services rendered

indicating the prices charged therefor or a list by whatever name it is known which is used in
the ordinary course of business evidencing sale and transfer or agreement to sell or transfer
goods and services.
A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or
other settlement between seller and buyer of goods, debtor or creditor, or person rendering
services and client or customer.
These sales invoices or receipts issued by the supplier are necessary to substantiate the
actual amount or quantity of goods sold and their selling price, and taken collectively are the
best means to prove the input VAT payments.36
Although the foregoing decision focused only on the proof required for the applicant for refund/credit
to establish the input VAT payments it had made on its purchases from suppliers, Revenue
Regulations No. 3-88 also required it to present evidence proving actual zero-rated VAT sales to
qualified buyers, such as (1) photocopy of the approved application for zero-rate if filing for the first
time; (2) sales invoice or receipt showing the name of the person or entity to whom the goods or
services were delivered, date of delivery, amount of consideration, and description of goods or
services delivered; and (3) the evidence of actual receipt of goods or services.
Also worth noting in the same decision is the weight given by this Court to the certification by the
independent certified public accountant (CPA), thus
Respondent contends, however, that the certification of the independent CPA attesting to the
correctness of the contents of the summary of suppliers' invoices or receipts which were
examined, evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as
amended by CTA Circular No. 10-97 should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97,
which either expressly or impliedly suggests that summaries and schedules of input VAT
payments, even if certified by an independent CPA, suffice as evidence of input VAT
payments.
xxxx
The circular, in the interest of speedy administration of justice, was promulgated to avoid the
time-consuming procedure of presenting, identifying and marking of documents before the
Court. It does not relieve respondent of its imperative task of pre-marking photocopies of
sales receipts and invoices andsubmitting the same to the court after the independent CPA
shall have examined and compared them with the originals. Without presenting these premarked documents as evidence from which the summary and schedules were based, the
court cannot verify the authenticity and veracity of the independent auditor's conclusions.
There is, moreover, a need to subject these invoices or receipts to examination by the CTA in
order to confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation,
No. 5-87, all purchases covered by invoices other than a VAT invoice shall not be entitled to
a refund of input VAT.
xxxx

While the CTA is not governed strictly by technical rules of evidence, as rules of procedure
are not ends in themselves but are primarily intended as tools in the administration of justice,
the presentation of the purchase receipts and/or invoices is not mere procedural technicality
which may be disregarded considering that it is the only means by which the CTA may
ascertain and verify the truth of the respondent's claims.
The records further show that respondent miserably failed to substantiate its claims for input
VAT refund for the first semester of 1991. Except for the summary and schedules of input
VAT payments prepared by respondent itself, no other evidence was adduced in support of
its claim.
As for respondent's claim for input VAT refund for the second semester of 1991, it employed
the services of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.)
executed a certification that:
We have examined the information shown below concerning the input tax payments
made by the Makati Office of Manila Mining Corporation for the period from July 1 to
December 31, 1991. Our examination included inspection of the pertinent suppliers'
invoices and official receipts and such other auditing procedures as we considered
necessary in the circumstances. x x x
As the certification merely stated that it used "auditing procedures considered necessary"
and not auditing procedures which are in accordance with generally accepted auditing
principles and standards, and that the examination was made on "input tax payments by the
Manila Mining Corporation," without specifying that the said input tax payments are
attributable to the sales of gold to the Central Bank, this Court cannot rely thereon and
regard it as sufficient proof of the respondent's input VAT payments for the second
semester.37
As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its zerorated sales in the first quarter of 1992, this Court already found that the petitioner corporation failed
to comply with Section 106(b) of the Tax Code of 1977, as amended, imposing the two-year
prescriptive period for the filing of the application for refund/credit thereof. This bars the grant of the
application for refund/credit, whether administratively or judicially, by express mandate of Section
106(e) of the same Code.
Granting arguendo that the application of petitioner corporation for the refund/credit of the input VAT
on its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner corporation
still failed to present together with its application the required supporting documents, whether before
the BIR or the CTA. As the Court of Appeals ruled
In actions involving claims for refund of taxes assessed and collected, the burden of proof
rests on the taxpayer. As clearly discussed in the CTA's decision, petitioner failed to
substantiate its claim for tax refunds. Thus:
"We note, however, that in the cases at bar, petitioner has relied totally on Revenue
Regulations No. 2-88 in determining compliance with the documentary requirements
for a successful refund or issuance of tax credit. Unmentioned is the applicable and
specific amendment later introduced by Revenue Regulations No. 3-88 dated April 7,
1988 (issued barely after two months from the promulgation of Revenue Regulations
No. 2-88 on February 15, 1988), which amended Section 16 of Revenue Regulations
No. 5-87 on refunds or tax credits of input tax. x x x.

xxxx
"A thorough examination of the evidence submitted by the petitioner before this
court reveals outright the failure to satisfy documentary requirements laid down
under the above-cited regulations. Specifically, petitioner was not able to present the
following documents, to wit:
"a) sales invoices or receipts;
"b) purchase invoices or receipts;
"c) evidence of actual receipt of goods;
"d) BOI statement showing the amount and description of sale of goods, etc.
"e) original or attested copies of invoice or receipt on capital equipment
locally purchased; and
"f) photocopy of import entry document and confirmation receipt on imported
capital equipment.
"There is the need to examine the sales invoices or receipts in order to ascertain the
actual amount or quantity of goods sold and their selling price. Without them, this
Court cannot verify the correctness of petitioner's claim inasmuch as the regulations
require that the input taxes being sought for refund should be limited to the portion
that is directly and entirely attributable to the particular zero-rated transaction. In this
instance, the best evidence of such transaction are the said sales invoices or
receipts.
"Also, even if sales invoices are produced, there is the further need to submit
evidence that such goods were actually received by the buyer, in this case, by CBP,
Philp[h]os and PASAR.
xxxx
"Lastly, this Court cannot determine whether there were actual local and imported
purchase of capital goods as well as domestic purchase of non-capital goods without
the required purchase invoice or receipt, as the case may be, and confirmation
receipts.
"There is, thus, the imperative need to submit before this Court the original or
attested photocopies of petitioner's invoices or receipts, confirmation receipts and
import entry documents in order that a full ascertainment of the claimed amount may
be achieved.
"Petitioner should have taken the foresight to introduce in evidence all of the missing
documentsabovementioned. Cases filed before this Court are litigated de novo. This
means that party litigants should endeavor to prove at the first instance every minute
aspect of their cases strictly in accordance with the Rules of Court, most especially
on documentary evidence." (pp. 37-42, Rollo)

Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the
sovereign authority, and should be construed in strictissimi juris against the person or entity
claiming the exemption. The taxpayer who claims for exemption must justify his claim by the
clearest grant of organic or statute law and should not be permitted to stand on vague
implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil. Tobacco Corp. v.
Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA 968; Asturias
Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light and Power Co.,
Inc. v. Commissioner of Customs, 44 SCRA 122).
There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "selfdestructive", as it finds comfort in the very SGV's stand, as follows:
"It is our understanding that the above procedure are sufficient for the purpose of the
Company. We make no presentation regarding the sufficiency of these procedures
for such purpose. We did not compare the total of the input tax claimed each quarter
against the pertinent VAT returns and books of accounts. The above procedures do
not constitute an audit made in accordance with generally accepted auditing
standards. Accordingly, we do not express an opinion on the company's claim for
input VAT refund or credit. Had we performed additional procedures, or had we made
an audit in accordance with generally accepted auditing standards, other matters
might have come to our attention that we would have accordingly reported on."
The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent
auditor. Indeed, SGV expressed that it "did not compare the total of the input tax claimed
each quarter against the VAT returns and books of accounts."38
Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation on
its zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court likewise
found that petitioner corporation failed to sufficiently establish its claims. Already disregarding the
declarations made by the Court of Appeals on its erroneous application of Revenue Regulations No.
2-88, quoted hereunder is the rest of the findings of the appellate court after evaluating the evidence
submitted in accordance with the requirements under Revenue Regulations No. 3-88
The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to
Sec. 245 of the National Internal Revenue Code, which recognized his power to "promulgate
all needful rules and regulations for the effective enforcement of the provisions of this Code."
Thus, it is incumbent upon a taxpayer intending to file a claim for refund of input VATs or the
issuance of a tax credit certificate with the BIR x x x to prove sales to such buyers as
required by Revenue Regulations No. 3-98. Logically, the same evidence should be
presented in support of an action to recover taxes which have been paid.
x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing
sales of gold, copper concentrates, and pyrite to the CBP, [PASAR], and [PHILPHOS],
respectively, and the dates and amounts of the same, nor any evidence of actual receipt by
the said buyers of the mineral products. It merely presented receipts of purchases from
suppliers on which input VATs were allegedly paid. Thus, the Court of Tax Appeals correctly
denied the claims for refund of input VATs or the issuance of tax credit certificates of
petitioner [corporation]. Significantly, in the resolution, dated 7 June 2000, this Court directed
the parties to file memoranda discussing, among others, the submission of proof for "its
[petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the
parties, including the petitioner, failed to address this issue, thereby necessitating the
affirmance of the ruling of the Court of Tax Appeals on this point.39

This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for wellsettled is the general rule that the jurisdiction of this Court in cases brought before it from the Court
of Appeals, by way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court, is limited to reviewing or revising errors of law; findings of fact of the latter are
conclusive.40 This Court is not a trier of facts. It is not its function to review, examine and evaluate or
weigh the probative value of the evidence presented. 41
The distinction between a question of law and a question of fact is clear-cut. It has been held that
"[t]here is a question of law in a given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the doubt or difference arises as to the
truth or falsehood of alleged facts."42
Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these
sales in the amount it had declared in its returns; whether all the input VAT subject of its applications
for refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied
the input VAT against its output VAT liabilities, are all questions of fact which could only be answered
after reviewing, examining, evaluating, or weighing the probative value of the evidence it presented,
and which this Court does not have the jurisdiction to do in the present Petitions for Review
on Certiorari under Rule 45 of the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into questions of fact
under particular circumstances,43 none of these exist in the instant cases. The Court of Appeals, in
both cases, found a dearth of evidence to support the claims for refund/credit of the input VAT of
petitioner corporation, and the records bear out this finding. Petitioner corporation itself cannot
dispute its non-compliance with the requirements set forth in Revenue Regulations No. 3-88 and
CTA Circular No. 1-95, as amended. It concentrated its arguments on its assertion that the
substantiation requirements under Revenue Regulations No. 2-88 should not have applied to it,
while being conspicuously silent on the evidentiary requirements mandated by other relevant
regulations.
Re-opening of cases/holding of new trial before the CTA
This Court now faces the final issue of whether the prayer of petitioner corporation for the re-opening
of its cases or holding of new trial before the CTA for the reception of additional evidence, may be
granted. Petitioner corporation prays that the Court exercise its discretion on the matter in its favor,
consistent with the policy that rules of procedure be liberally construed in pursuance of substantive
justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a judgment already rendered
in accordance with Section 1, Rule 37 of the revised Rules of Court, which provides
SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. Within
the period for taking an appeal, the aggrieved party may move the trial court to set aside the
judgment or final order and grant a new trial for one or more of the following causes
materially affecting the substantial rights of said party:
(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not
have guarded against and by reason of which such aggrieved party has probably been
impaired in his rights; or

(b) Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial, and which if presented would probably alter the result.
Within the same period, the aggrieved party may also move fore reconsideration upon the
grounds that the damages awarded are excessive, that the evidence is insufficient to justify
the decision or final order, or that the decision or final order is contrary to law.
In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its
cases and/or holding of new trial before the CTA by contending that the "[f]ailure of its counsel to
adduce the necessary evidence should be construed as excusable negligence or mistake which
should constitute basis for such re-opening of trial as for a new trial, as counsel was of the belief that
such evidence was rendered unnecessary by the presentation of unrebutted evidence indicating that
respondent [Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zerorated." 44 The CTA denied such motion on the ground that it was not accompanied by an affidavit of
merit as required by Section 2, Rule 37 of the revised Rules of Court. The Court of Appeals affirmed
the denial of the motion, but apart from this technical defect, it also found that there was no
justification to grant the same.
On the matter of the denial of the motion of the petitioner corporation for the re-opening of its cases
and/or holding of new trial based on the technicality that said motion was unaccompanied by an
affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which should
otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged and
incorporated in the motion itself; and this will be deemed a substantial compliance with the formal
requirements of the law, provided, of course, that the movant, or other individual with personal
knowledge of the facts, take oath as to the truth thereof, in effect converting the entire motion for
new trial into an affidavit.45 The motion of petitioner corporation was prepared and verified by its
counsel, and since the ground for the motion was premised on said counsel's excusable negligence
or mistake, then the obvious conclusion is that he had personal knowledge of the facts relating to
such negligence or mistake. Hence, it can be said that the motion of petitioner corporation for the reopening of its cases and/or holding of new trial was in substantial compliance with the formal
requirements of the revised Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation for the
re-opening of its cases and/or holding of new trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution,46 dated 20 July 1998, by the CTA
in another case, CTA Case No. 5296, involving the claim of petitioner corporation for refund/credit of
input VAT for the third quarter of 1993. The said Resolution allowed the re-opening of CTA Case No.
5296, earlier dismissed by the CTA, to give the petitioner corporation the opportunity to present the
missing export documents.
The rule that the grant or denial of motions for new trial rests on the discretion of the trial court, 47 may
likewise be extended to the CTA. When the denial of the motion rests upon the discretion of a lower
court, this Court will not interfere with its exercise, unless there is proof of grave abuse thereof. 48
That the CTA granted the motion for re-opening of one case for the presentation of additional
evidence and, yet, deny a similar motion in another case filed by the same party, does not
necessarily demonstrate grave abuse of discretion or arbitrariness on the part of the CTA. Although
the cases involve identical parties, the causes of action and the evidence to support the same can
very well be different. As can be gleaned from the Resolution, dated 20 July 1998, in CTA Case No.
5296, petitioner corporation was claiming refund/credit of the input VAT on its zero-rated sales,
consisting of actual export sales, to Mitsubishi Metal Corporation in Tokyo, Japan. The CTA took into

account the presentation by petitioner corporation of inward remittances of its export sales for the
quarter involved, its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual Report
showing its sales to the said foreign corporation, and its application for refund. In contrast, the
present Petitions involve the claims of petitioner corporation for refund/credit of the input VAT on
its purchases of capital goods and on its effectively zero-rated sales to CBP and EPZA-registered
enterprises PASAR and PHILPHOS for the second, third, and fourth quarters of 1990 and first
quarter of 1992. There being a difference as to the bases of the claims of petitioner corporation for
refund/credit of input VAT in CTA Case No. 5926 and in the Petitions at bar, then, there are resulting
variances as to the evidence required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by
petitioner corporation, emphasizes that the decision of the CTA to allow petitioner corporation to
present evidence "is applicable pro hac vice or in this occasion only as it is the finding of [the CTA]
that petitioner [corporation] has established a few of the aforementioned material points regarding
the possible existence of the export documents together with the prior and succeeding returns for
the quarters involved, x x x" [Emphasis supplied.] Therefore, the CTA, in the present cases, cannot
be bound by its ruling in CTA Case No. 5296, when these cases do not involve the exact same
circumstances that compelled it to grant the motion of petitioner corporation for re-opening of CTA
Case No. 5296.
Finally, assuming for the sake of argument that the non-presentation of the required documents was
due to the fault of the counsel of petitioner corporation, this Court finds that it does not constitute
excusable negligence or mistake which would warrant the re-opening of the cases and/or holding of
new trial.
Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and
generally imputable to the party because if it is imputable to the counsel, it is binding on the client. To
follow a contrary rule and allow a party to disown his counsel's conduct would render proceedings
indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What
the aggrieved litigant should do is seek administrative sanctions against the erring counsel and not
ask for the reversal of the court's ruling.49
As elucidated by this Court in another case,50 the general rule is that the client is bound by the action
of his counsel in the conduct of his case and he cannot therefore complain that the result of the
litigation might have been otherwise had his counsel proceeded differently. It has been held time and
again that blunders and mistakes made in the conduct of the proceedings in the trial court as a result
of the ignorance, inexperience or incompetence of counsel do not qualify as a ground for new trial. If
such were to be admitted as valid reasons for re-opening cases, there would never be an end to
litigation so long as a new counsel could be employed to allege and show that the prior counsel had
not been sufficiently diligent, experienced or learned.
Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence could
not have guarded against.51 Revenue Regulations No. 3-88, which was issued on 15 February 1988,
had been in effect more than two years prior to the filing by petitioner corporation of its earliest
application for refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No. 1-95
was issued only on 25 January 1995, after petitioner corporation had filed its Petitions before the
CTA, but still during the pendency of the cases of petitioner corporation before the tax court. The
counsel of petitioner corporation does not allege ignorance of the foregoing administrative regulation
and tax court circular, only that he no longer deemed it necessary to present the documents required
therein because of the presentation of alleged unrebutted evidence of the zero-rated sales of
petitioner corporation. It was a judgment call made by the counsel as to which evidence to present in
support of his client's cause, later proved to be unwise, but not necessarily negligent.

Neither is there any merit in the contention of petitioner corporation that the non-presentation of the
required documentary evidence was due to the excusable mistake of its counsel, a ground under
Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake," as it is
referred to in the said rule, must be a mistake of fact, not of law, which relates to the case. 52 In the
present case, the supposed mistake made by the counsel of petitioner corporation is one of law, for
it was grounded on his interpretation and evaluation that Revenue Regulations No. 3-88 and CTA
Circular No. 1-95, as amended, did not apply to his client's cases and that there was no need to
comply with the documentary requirements set forth therein. And although the counsel of petitioner
corporation advocated an erroneous legal position, the effects thereof, which did not amount to a
deprivation of his client's right to be heard, must bind petitioner corporation. The question is not
whether petitioner corporation succeeded in establishing its interests, but whether it had the
opportunity to present its side.53
Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on the
ground of mistake must show that ordinary prudence could not have guarded against it. A new trial is
not a refuge for the obstinate.54 Ordinary prudence in these cases would have dictated the
presentation of all available evidence that would have supported the claims for refund/credit of input
VAT of petitioner corporation. Without sound legal basis, counsel for petitioner corporation concluded
that Revenue Regulations No. 3-88, and later on, CTA Circular No. 1-95, as amended, did not apply
to its client's claims. The obstinacy of petitioner corporation and its counsel is demonstrated in their
failure, nay, refusal, to comply with the appropriate administrative regulations and tax court circular in
pursuing the claims for refund/credit, now subject of G.R. Nos. 141104 and 148763, even though
these were separately instituted in a span of more than two years. It is also evident in the failure of
petitioner corporation to address the issue and to present additional evidence despite being given
the opportunity to do so by the Court of Appeals. As pointed out by the appellate court, in its
Decision, dated 15 September 2000, in CA-G.R. SP No. 46718
x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file
memoranda discussing, among others, the submission of proof for "its [petitioner's] sales of
gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties, including the
petitioner, failed to address this issue, thereby necessitating the affirmance of the ruling of
the Court of Tax Appeals on this point.55
Summary
Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive
period for the filing of claims for refund/credit of input VAT must be counted from the date of filing of
the quarterly VAT return, and that sales to EPZA-registered enterprises operating within economic
processing zones were effectively zero-rated and were not covered by Revenue Regulations No. 288, it still denies the claims of petitioner corporation for refund of its input VAT on its purchases of
capital goods and effectively zero-rated sales during the second, third, and fourth quarters of 1990
and the first quarter of 1992, for not being established and substantiated by appropriate and
sufficient evidence. Petitioner corporation is also not entitled to the re-opening of its cases and/or
holding of new trial since the non-presentation of the required documentary evidence before the BIR
and the CTA by its counsel does not constitute excusable negligence or mistake as contemplated in
Section 1, Rule 37 of the revised Rules of Court.
WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the
Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP Nos.
47607 and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.
Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.

G.R. No. L-18125

May 31, 1963

BOARD OF ASSESSMENT APPEALS, PROVINCE OF LAGUNA, petitioner,

vs.
COURT OF TAX APPEALS and THE NATIONAL WATERWORKS AND SEWERAGE AUTHORITY
(NAWASA),respondents.
Gabriel V. Valero and Rodolfo F. de Gorostiza for petitioner.
Manuel B. Roo for respondent National Waterworks and Sewerage Authority.
CONCEPCION, J.:
This is a petition for review of a decision of the Court of Tax Appeals reversing a resolution or
decision of the Board of Assessment Appeals for the Province of Laguna.
The question involved in this case is whether the water pipes, reservoir, intake and buildings used by
herein respondent, National Waterworks and Sewerage Authority hereinafter referred to as
NAWASA in the operation of its waterworks system in the municipalities of Cabuyao, Sta. Rosa
and Bian, province of Laguna, are subject to real estate tax.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts.
1wph1.t

The parties have submitted in the Court of Tax Appeals a stipulation of facts. The pertinent parts
thereof are to the effect:
1. That the petitioner National Waterworks and Sewerage Authority (NWSA) 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:.
2. That, pursuant to the provisions of Republic Act No. 1383, petitioner NWSA took over all
the property of the former Metropolitan Water District and all the existing local governmentowned waterworks and sewerage systems all over the Philippines, including the CabuyaoSta. Rosa-Bian Waterworks System owned by the Province of Laguna (Section 8, Republic
Act No. 1283);
3. That the functions and activities of petitioner NWSA, as enumerated in Republic Act No.
1383, more particularly Section 2 thereof, are the same and identical with the functions of the
defunct Metropolitan Water District, particularly Section 2, Act 2832, is amended;
4. That petitioner National Waterworks and Sewerage Authority (NWSA) has no capital stock
divided into shares of stocks, no stockholders, and is not authorized by its Charter to
distribute dividends; and, on the other hand, whatever surplus funds it has realized, may and

will after meeting its yearly obligations, have been, are and may be, used for the
construction, expansion and improvement of its waterworks and sewer services;
5. That at the time that the Cabuyao-Sta. Rosa-Bian Waterworks System was taken over by
petitioner NWSA in 1956, the former was self-supporting and revenue-producing, but that all
its surplus income are not declared as profits as this surplus are or may be invested for the
expansion thereof;
6. That in the year 1956 the Provincial Assessor of Laguna assessed, for purposes of real
estate taxes, the property comprising the Cabuyao-Sta. Rosa-Bian Waterworks System and
described in Tax Declaration No. 5987 (Exh. "A-l") which, as stated in Paragraph 2 hereof,
herein petitioner NWSA had taken over;
7. That against the above-mentioned assessment made by the Provincial Assessor of
Laguna, petitioner NWSA protested, claiming that the property described under Tax
Declaration No. 5987 (Exh. "A-l") are exempted from the payment of real estate taxes in view
of the nature and kind of said property and functions and activities of petitioner, as provided
in Republic Act No. 1383;.
8. That the said protest of petitioner NWSA was overruled on appeal before the herein
respondent Board of Assessment Appeals, hence the present petition for review filed by
petitioner;
xxx

xxx

xxx"

After appropriate proceedings, the Court of Tax Appeals rendered the aforementioned decision
reversing the action taken by petitioner Board, which, accordingly, has brought the case to us for
review, under the provisions of Republic Act No. 1125, contending that the properties in question are
subject to real estate tax because: (1) although said properties belong to the Republic of the
Philippines, the same holds it, not in its governmental, political or sovereign capacity, but in a private,
proprietary or patrimonial character, which, allegedly, is not covered by the exemption contained in
section 3(a) of Republic Act No. 470; and 2) this exemption, even if applicable to patrimonial
property, must yield to the provisions of section 1 of Republic Act No. 104, under which all
corporations, agencies or instrumentalities owned or controlled by the Government are subject to
taxation, according to petitioner appellant.
Sections 2 and 3(a) of Commonwealth Act No. 470 provide:
SEC. 2. Incidence of real property tax. Except in chartered cities, there shall be levied,
assessed, and collected, an annual ad valorem tax on real property, including land, buildings,
machinery, and other improvements not hereinafter specifically exempted.
SEC. 3. Property exempt from tax. The exemptions shall be as follows:
(a) Property owned by . . . the Republic of the Philippines, any province, city, municipality or
municipal district. . . .

It is conceded, in the stipulation of facts, that the property involved in this case "is owned by the
Government of the Philippines". Hence, it belongs to the Republic of the Philippines and falls
squarely within the letter of the above provision. This notwithstanding, petitioner Board maintains
that respondent NAWASA is not entitled to the benefits of the exemption established in said section
3(a), inasmuch as, in the case of the City of Cebu vs. NAWASA, G. R. No. L-12892, decided on April
30, 1960, we ruled that the assets of the water system of the City of Cebu, which the NAWASA had
sought to take over, pursuant to the provisions of Republic Act No. 1383 as it did in the case at
bar, with respect to the Cabuyao-Sta. Rosa-Bian Waterworks System are patrimonial property of
said city, which held it in a proprietary character, not in its governmental capacity.
We did not declare, however, in the Cebu case that said assets were subject to taxation. In that case
we merely reiterated the doctrine, laid down in the case of City of Baguio vs. NAWASA, G. R. No. L12032, decided on August 31, 1959, that municipal corporations hold in their proprietary character,
the assets of their respective waterworks, which, accordingly, cannot be taken or appropriated by the
National Government and placed under the NAWASA without payment of just compensation. Neither
the Cebu case nor that of Baguio sustains the theory that said assets are taxable.
Upon the other hand, in exempting from taxation "property owned by the Republic of the Philippines,
any province, city, municipality or municipal district . . .," said section 3(a) of Republic Act No. 470
makes no distinction between property held in a sovereign, governmental or political capacity and
those possessed in a private, proprietary or patrimonial character. And where the law does not
distinguish neither may we, unless there are facts and circumstances clearly showing that the
lawmaker intended the contrary, but no such facts and circumstances have been brought to our
attention. Indeed, the noun "property" and the verb "owned" used in said section 3(a) strongly
suggest that the object of exemption is considered more from the view point of dominion, than from
that of domain. Moreover, taxes are financial burdens imposed for the purpose of raising revenues
with which to defray the cost of the operation of the Government, and a tax on property of the
Government, whether national or local, would merely have the effect of taking money from one
pocket to put it in another pocket (Cooley on Taxation, Sec. 621, 4th Edition.) Hence, it would not
serve, in the final analysis, the main purpose of taxation. What is more, it would tend to defeat it, on
account of the paper work, time and consequently, expenses it would entail. (The Law on Local
Taxation, by Justiniano Y. Castillo, p. 13.)
Section 1 of the Republic Act No. 101, upon which petitioner relies, reads:
. . . All corporations, agencies, or instrumentalities owned or controlled by the government
shall pay such duties, taxes, fees and other charges upon their transaction, business,
industries, sale, or income as are imposed by law upon individuals, associations or
corporations engaged in any taxable business, industry, or activity except on goods or
commodities imported or purchased and sold or distributed for relief purposes as may be
determined by the President of the Philippines.
This provision is inapplicable to the case at bar for it refers only to duties, taxes, fees and other
charges upon "transaction, business, industry, sale or income" and does not include taxes on
property like real estate tax.

WHEREFORE, the decision appealed from is hereby affirmed, without special pronouncement as to
costs. It is so ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala, and
Makalintal, JJ., concur.
Labrador, J., took no part.
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant
Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294,
which was certified to Us by the Court of Appeals on October 6, 1969, as involving only pure
questions of law, challenging the power of taxation delegated to municipalities under the Local
Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc.,
commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for
that court to declare Section 2 of Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and
27, series of 1962, of the municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state
that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the
production tax rates imposed therein are practically the same, and second, that on January 17,
1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager
of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the
provisions of said Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies
and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo
for every bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm,
company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of
the total number of bottles produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies
and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this
municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity." 4 For the purpose of computing the taxes due, the person, fun company, partnership,

corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the
total number of gallons produced or manufactured during the month. 5

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the
complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring
Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under
the oft the said Ordinances; and to pay the costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals,
which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as
amended.
There are three capital questions raised in this appeal:
1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory
and oppressive?
2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?
3. Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter
of right to every independent government, without being expressly conferred by the people. 6 It is a
power that is purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the theory of separation of
powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not
apply. Legislative powers may be delegated to local governments in respect of matters of local
concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative power to
create political corporations for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax. 9 Under the New Constitution, local governments are
granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5,
Article XI provides: "Each local government unit shall have the power to create its sources of revenue and
to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be said that Section
2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in
local governments the power of local taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense,
would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the
authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it is
said that the taxing power may be delegated to municipalities and the like, it is meant that there may
be delegated such measure of power to impose and collect taxes as the legislature may deem
expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy
the State has not deemed wise to tax for more general purposes. 10 This is not to say though that the
constitutional injunction against deprivation of property without due process of law may be passed over
under the guise of the taxing power, except when the taking of the property is in the lawful exercise of the
taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed;
(3) either the person or property taxed is within the jurisdiction of the government levying the tax; and (4)
in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are
provided. 11 Due process is usually violated where the tax imposed is for a private as distinguished from a
public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; and arbitrary

or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the due
process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury
rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or
the amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the
amount of the tax and the manner in which it shall be apportioned are generally not necessary to due
process of law. 12

There is no validity to the assertion that the delegated authority can be declared unconstitutional on
the theory of double taxation. It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may not be exercised. 13 The reason is
that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in
general, is not forbidden by our fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the United States and some states of the
Union. 14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the
same governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case where
one tax is imposed by the State and the other by the city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because
these two ordinances cover the same subject matter and impose practically the same tax rate. The
thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is
not so. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or
collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for
.every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered
that the producer or manufacturer could increase the volume contents of the bottle and still pay the
same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28,
1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No.
27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The
intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was
intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter,
even without words to that effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are
only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact
that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiffappellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission
shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even the
Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No.
27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with
the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or
a specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2,
Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which
are mentioned therein." As long as the text levied under the authority of a city or municipal ordinance
is not within the exceptions and limitations in the law, the same comes within the ambit of the
general rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non
excepti 19 The limitation applies, particularly, to the prohibition against municipalities and municipal
districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on
articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue
Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio
between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and
void for being outside the power of the municipality to enact. 20 But, the imposition of "a tax of one centavo
(P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or
manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or

other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on
the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is not set ratio between the volume of
sales and the amount of the tax. 21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified
articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and
cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel
oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. 22 Soft
drink is not one of those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all
softdrinks, produced or manufactured, or an equivalent of 1- centavos per case, 23 cannot be
considered unjust and unfair. 24 an increase in the tax alone would not support the claim that the tax is
oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining
the reates of imposable taxes. 25 This is in line with the constutional policy of according the widest
possible autonomy to local governments in matters of local taxation, an aspect that is given expression in
the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be
prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not
deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further
strengthen local autonomy were to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten
crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers,
producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54,
series of 1964, as amended by Ordinance No. 41, series of 1968, of defendant
Municipality, 29 appears not to affect the resolution of the validity of Ordinance No. 27. Municipalities are
empowered to impose, not only municipal license taxes upon persons engaged in any business or
occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question
(Ordinance No. 27) comes within the second power of a municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the
Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the
Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series,
is hereby declared of valid and legal effect. Costs against petitioner-appellant.
SO ORDERED.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma, Aquino and
Concepcion, Jr., JJ., concur.

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive
character. Insofar as it shows adherence to tried and tested concepts of the law of municipal
taxation, I am only in agreement. If I limit myself to concurrence in the result, it is primarily because
with the article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in
restating doctrines that arose from a different basic premise as to the scope of such power in
accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am
unable to share fully what for me are the nuances and implications that could arise from the
approach taken by my brethren. Likewise as to the constitutional aspect of the thorny question of
double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon. 1
1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to
create its own sources of revenue and to levy taxes subject to such limitations as may be provided
by law. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary
in character of the national government, was that while the President of the Philippines was vested with
the power of control over all executive departments, bureaus, or offices, he could only . It exercise
general supervision over all local governments as may be provided by law ... 3 As far as legislative power
over local government was concerned, no restriction whatsoever was placed on the Congress of the
Philippines. It would appear therefore that the extent of the taxing power was solely for the legislative
body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing
power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy
Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy
Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the
traditional concept in these words: "The rule is well-settled that municipal corporations, unlike sovereign
states, after clothed with no power of taxation; that its charter or a statute must clearly show an intent to
confer that power or the municipal corporation cannot assume and exercise it, and that any such power
granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality." 7
Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an
attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to
weakness of a claim "based merely by inferences, implications and deductions, [as they have no place in
the interpretation of the power to tax of a municipal corporation." 10 As the conclusion reached by the
Court finds support in such grant of the municipal taxing power, I concur in the result. 2. As to any
possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced by
this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is not violative of due process,
Justice Holmes made clear in this language: 'The objection to the taxation as double may be laid down on
one side. ... The 14th Amendment [the due process clause) no more forbids double taxation than it does
doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other grouse With
that decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup justice to the bogey of
double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in
the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a
1947 decision, however, we quoted with approval this excerpt from a leading American decision: 'Where,
as here, Congress has clearly expressed its intention, the statute must be sustained even though double
taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive
character. Insofar as it shows adherence to tried and tested concepts of the law of municipal
taxation, I am only in agreement. If I limit myself to concurrence in the result, it is primarily because
with the article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in
restating doctrines that arose from a different basic premise as to the scope of such power in
accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am
unable to share fully what for me are the nuances and implications that could arise from the
approach taken by my brethren. Likewise as to the constitutional aspect of the thorny question of
double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon. 1
1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to
create its own sources of revenue and to levy taxes subject to such limitations as may be provided
by law. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary
in character of the national government, was that while the President of the Philippines was vested with
the power of control over all executive departments, bureaus, or offices, he could only . It exercise
general supervision over all local governments as may be provided by law ... 3 As far as legislative power
over local government was concerned, no restriction whatsoever was placed on the Congress of the
Philippines. It would appear therefore that the extent of the taxing power was solely for the legislative
body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing
power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy
Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy
Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the
traditional concept in these words: "The rule is well-settled that municipal corporations, unlike sovereign
states, after clothed with no power of taxation; that its charter or a statute must clearly show an intent to
confer that power or the municipal corporation cannot assume and exercise it, and that any such power
granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality." 7
Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an
attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to
weakness of a claim "based merely by inferences, implications and deductions, [as they have no place in
the interpretation of the power to tax of a municipal corporation." 10 As the conclusion reached by the
Court finds support in such grant of the municipal taxing power, I concur in the result. 2. As to any
possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced by
this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is not violative of due process,
Justice Holmes made clear in this language: 'The objection to the taxation as double may be laid down on
one side. ... The 14th Amendment [the due process clause) no more forbids double taxation than it does
doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other grouse With
that decision rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup justice to the bogey of
double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in
the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a
1947 decision, however, we quoted with approval this excerpt from a leading American decision: 'Where,
as here, Congress has clearly expressed its intention, the statute must be sustained even though double
taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.
G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,

vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity
as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of
Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.
Nachura & Sarmiento for petitioner.
The Solicitor General for public respondents.

NARVASA, C.J.:
The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by Rule 65 of the Rules
of Court, 2 upon the following posited grounds, viz.: 3
1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution; 4
2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order
No. 137, for "being an undue and invalid delegation of legislative power . . to the Energy Regulatory Board;" 5
3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund, 6 because it contravenes 8, paragraph 2 (2) of
P. D. 1956, as amended; and
4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The
OPSF was designed to reimburse oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, 7 and
ordered released from the National Treasury to the Ministry of Energy. The same Executive Order also
authorized the investment of the fund in government securities, with the earnings from such placements
accruing to the fund.
President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by the Ministry of Finance.

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion; 8 that to abate the worsening deficit, "the Energy Regulatory
Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents Oscar
Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his
capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board "are poised to accept,
process and pay claims not authorized under P.D. 1956." 9

The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:
(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.
The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not channeled to another government
objective." 10 Petitioner further points out that since "a 'special fund' consists of monies collected through
the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the
special purpose/objective for which it was created." 11
He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI
of the Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government;
and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12
The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, and because they are, supposedly, taxes
levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a
portion thereof is taken from collections of ad valorem taxes and the increases thereon.
It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State. The Solicitor General observes that the "argument rests on the assumption that

the OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose." 13 The petitioner's perceptions are, in the Court's view, not quite correct.
To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding inValmonte v. Energy Regulatory Board, et al. 14
The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established
"for the purpose of minimizing the frequent price changes brought about by
exchange rate adjustment and/or changes in world market prices of crude oil and
imported petroleum products." 15 Under P.D. No. 1956, as amended by Executive Order
No. 137 dated 27 February 1987, this Trust Account may be funded from any of the
following sources:
a) Any increase in the tax collection from ad valorem tax or customs
duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board
of Energy;
b) Any increase in the tax collection as a result of the lifting of tax
exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy:
c) Any additional amount to be imposed on petroleum products to
augment the resources of the Fund through an appropriate Order that
may be issued by the Board of Energy requiring payment of persons
or companies engaged in the business of importing, manufacturing
and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs
paid by oil companies in the importation of crude oil and petroleum
products is less than the peso costs computed using the reference
foreign exchange rate as fixed by the Board of Energy.
xxx xxx xxx
The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude
oil and petroleum products from sources of supply to the Philippines may also vary
from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in
world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day or even only from week to week would result in a chaotic market

with unpredictable effects upon the country's economy in general. The OPSF was
established precisely to protect local consumers from the adverse consequences
that such frequent oil price adjustments may have upon the economy. Thus, the
OPSF serves as a pocket, as it were, into which a portion of the purchase price of oil
and petroleum products paid by consumers as well as some tax revenues are
inputted and from which amounts are drawn from time to time to reimburse oil
companies, when appropriate situations arise, for increases in, as well as
underrecovery of, costs of crude importation. The OPSF is thus a buffer mechanism
through which the domestic consumer prices of oil and petroleum products are
stabilized, instead of fluctuating every so often, and oil companies are allowed to
recover those portions of their costs which they would not otherwise recover given
the level of domestic prices existing at any given time.To the extent that some tax
revenues are also put into it, the OPSF is in effect a device through which the
domestic prices of petroleum products are subsidized in part. It appears to the Court
that the establishment and maintenance of the OPSF is well within that pervasive
and non-waivable power and responsibility of the government to secure the physical
and economic survival and well-being of the community, that comprehensive
sovereign authority we designate as the police power of the State. The stabilization,
and subsidy of domestic prices of petroleum products and fuel oil clearly critical in
importance considering, among other things, the continuing high level of dependence
of the country on imported crude oil are appropriately regarded as public
purposes.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court upheld the legality of
the sugar stabilization fees and explained their nature and character, viz.:
The stabilization fees collected are in the nature of a tax, which is within the power of
the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance if any, is to be

transferred to the general funds of the Government. That is the essence of the trust
intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). 17
The character of the Stabilization Fund as a special kind of fund is emphasized by the
fact that the funds are deposited in the Philippine National Bank and not in the Philippine
Treasury, moneys from which may be paid out only in pursuance of an appropriation
made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution,
Article VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to
the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without precedent.
With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides
a sufficient standard by which the authority must be exercised. In addition to the general policy of the
law to protect the local consumer by stabilizing and subsidizing domestic pump rates, 8(c) of P.D.
1956 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund.
What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what is
involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the ERB
to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked
that the overriding consideration is to enable the delegate to act with expediency in carrying out the
objectives of the law which are embraced by the police power of the State.
The interplay and constant fluctuation of the various factors involved in the determination of the price
of oil and petroleum products, and the frequently shifting need to either augment or exhaust the
Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by
the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or avoid
the undesirable consequences of such fluidity. As such, the standard as it is expressed, suffices to
guide the delegate in the exercise of the delegated power, taking account of the circumstances
under which it is to be exercised.
For a valid delegation of power, it is essential that the law delegating the power must be (1) complete
in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix a
standard limits of which
are sufficiently determinate or determinable to which the delegate must conform. 20
. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself

determines matters of principle and lays down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be
carried out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole. 21
It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law
intended was to permit the additional imposts for as long as there exists a need to protect the
general public and the petroleum industry from the adverse consequences of pump rate fluctuations.
"Where the standards set up for the guidance of an administrative officer and the action taken are in
fact recorded in the orders of such officer, so that Congress, the courts and the public are assured
that the orders in the judgment of such officer conform to the legislative standard, there is no failure
in the performance of the legislative functions." 22
This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may
be justified.
In relation to the third question respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of 8, paragraph 2
(2) of P.D. 1956, amended 23 the Court finds for the petitioner.
The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'" 24 and since these items are reimbursements for which the
OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million." 25 It is argued "that under the principle of ejusdem generis . . . the term 'other factors'
(as used in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result in the
reduction of domestic prices of petroleum products." 26
The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines
of the rule ofejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed upon
the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:
The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned." 28 A
reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy while
the second refers to reduction in internal ad valorem taxes. Therefore, subparagraph (iii)
cannot be limited by the enumeration in these subparagraphs. What should be
considered for purposes of determining the "other factors" in subparagraph (iii) is the first
sentence of paragraph (2) of the Section which explicitly allows the cost underrecovery
only if such were incurred as a result of the reduction of domestic prices of petroleum
products.
The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of domestic
prices of petroleum products. Under the same provision, however, the payment of inventory losses is
upheld as valid, being clearly a result of domestic price reduction, when oil companies incur a cost
underrecovery for yet unsold stocks of oil in inventory acquired at a higher price.
Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is
equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and
regulations as held inCaltex 29 and which have been pointed to by the Solicitor General. At any rate,
doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A. 6952,
establishing the Petroleum Price Standby Fund, 2 of which specifically authorizes the reimbursement of
"cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation."
Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort
to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the
so-called overpayment refunds. To be sure, the absence of any argument for or against the validity
of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.
Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement
of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.
SO ORDERED.

Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo,
Melo, Campos, Jr., and Quiason, JJ., concur.
Gutierrez, Jr., J., is on leave.
EN BANC
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.)
FRAN
CISCO
ARCA
Judge 1
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
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 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.
Barredo, Makasiar, Muoz Palma, Santos and Guerrero, JJ., concur.
Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result.
Concepcion, Jr., J., took no part.

Separate Opinions

TEEHANKEE, J., concurring:

I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment
declaring Ordinance No. 6537 of the City of Manila null and void for the reason that the employment
of aliens within the country is a matter of national policy and regulation, which properly pertain to the
national government officials and agencies concerned and not to local governments, such as the
City of Manila, which after all are mere creations of the national government.
The national policy on the matter has been determined in the statutes enacted by the legislature, viz,
the various Philippine nationalization laws which on the whole recognize the right of aliens to obtain
gainful employment in the country with the exception of certain specific fields and areas. Such
national policies may not be interfered with, thwarted or in any manner negated by any local
government or its officials since they are not separate from and independent of the national
government.
As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129:
"The City of Manila is a subordinate body to the Insular (National Government ...). When the Insular
(National) Government adopts a policy, a municipality is without legal authority to nullify and set at
naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised
within the limits of the organic laws, but they must be consistent with the general law and public
policy of the particular state ..." (I McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011).
With more reason are such national policies binding on local governments when they involve our
foreign relations with other countries and their nationals who have been lawfully admitted here, since
in such matters the views and decisions of the Chief of State and of the legislature must prevail over
those of subordinate and local governments and officials who have no authority whatever to take
official acts to the contrary.

Separate Opinions
TEEHANKEE, J., concurring:
I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment
declaring Ordinance No. 6537 of the City of Manila null and void for the reason that the employment
of aliens within the country is a matter of national policy and regulation, which properly pertain to the

national government officials and agencies concerned and not to local governments, such as the
City of Manila, which after all are mere creations of the national government.
The national policy on the matter has been determined in the statutes enacted by the legislature, viz,
the various Philippine nationalization laws which on the whole recognize the right of aliens to obtain
gainful employment in the country with the exception of certain specific fields and areas. Such
national policies may not be interfered with, thwarted or in any manner negated by any local
government or its officials since they are not separate from and independent of the national
government.
As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129:
"The City of Manila is a subordinate body to the Insular (National Government ...). When the Insular
(National) Government adopts a policy, a municipality is without legal authority to nullify and set at
naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised
within the limits of the organic laws, but they must be consistent with the general law and public
policy of the particular state ..." (I McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011).
With more reason are such national policies binding on local governments when they involve our
foreign relations with other countries and their nationals who have been lawfully admitted here, since
in such matters the views and decisions of the Chief of State and of the legislature must prevail over
those of subordinate and local governments and officials who have no authority whatever to take
official acts to the contrary.
G.R. No. L-34029

February 26, 1931

THE STANDARD OIL COMPANY OF NEW YORK, plaintiff-appellant,

vs.
JUAN POSADAS, Jr., Collector of Internal Revenue of the Philippine Islands, defendantappellee.
Ross, Lawrence and Selph for appellant.
Attorney-General Jaranilla for appellee.
DeWitt, Perkins and Brady as amici curiae.
MALCOLM, J.:
This test case presents for decision the question of whether sales of merchandise made in the
Philippines to the United States Army and the United States Navy are subject to the sales tax. In the
lower court, the demurrer to the complaint was sustained, and the plaintiff having elected not to
amend its complaint, judgement was rendered upon the subject matter involved in the pleadings,
adjudging that the plaintiff take nothing by the action and defendant recover costs.
The Standard Oil Company of New York is a foreign corporation duly authorized to do business in
the Philippines. During the period from October 1, 1929, to December 31, 1929, the Standard Oil
Company sold and delivered in the Philippines to the Quartermaster Department of the United
States Army, for the use of the Army, fuel oil and asphalt of the value of P6,832.84. The Collector of

Internal Revenue of the Philippine Government, acting under authority of section 1459 of the
Administrative Code and Act No. 3243 of the Philippine Legislature as ratified by the Congress of the
United States, demanded a tax of one and one-half per cent upon the value of the merchandise,
amounting to P102.49. During the identical period of time above-mentioned, the Standard Oil
Company likewise made delivery in the Philippines to the United States Navy, under a contract
executed in New York, United States, for the use of the Navy, of fuel oil of the value of P172,059.36,
which was paid in New York, and which contract provided that all internal revenue taxes and charges
under the laws of the Philippine Islands were to be assumed and paid by the United States Navy.
The Collector of Internal Revenue required payment of the sales tax upon the value of the fuel oil, in
the amount of P2,580.89. the Standard Oil Company paid the taxes assessed under protest and is
now suing to recover the corresponding refunds.
This court has recently decided the case entitled, Thirty First Infantry Post Exchange and First
Lieutenant David L. Hardee, Thirty-First Infantry, United States Army, plaintiffs, vs. Juan Posadas,
Jr., Collector of Internal Revenue, Philippine Islands, defendant ([1930], 54 Phil., 866). There it was
held that a tax may be levied by the Government of the Philippine Islands on sales made by
merchants to Post Exchanges of the United States Army in the Philippines. It was ruled that the Acts
of the Philippine Legislature imposing the sales tax, which have been confirmed by Acts of
Congress, form a part of the Philippine Organic Law. That same principle would again apply to the
facts before us. However, it was indicated that the waiver must be clear and that every wellgrounded doubt should be resolved in favor of the exemption, citing Austin vs. Aldermen of Boston
([1869], 7 Wall., 694). That principle would likewise govern here.
In the course of the decision in the Post Exchange case, the United States Army was mentioned,
and properly so, as an instrumentality of the United States Government. Regarding the correctness
of this proposition, there could, of course, be no real dispute. The United States Army and the United
States Navy derive their powers from the Constitution of the United States. The Congress of the
United States has created two agencies, or more correctly stated, three agencies to serve the United
States in the Philippine Islands. Two of these agencies are the United States Army and the United
States Navy, and the third is the Government of the Philippine Islands. The military establishment
and the civil government stand side by side but independent of each other in the Philippines. The tax
collected from the plaintiff by one of these agencies, the Philippine Government, is in reality a tax on
the United States Army and the United States Navy in other words, on the United States
Government for the consumer pays the tax as part of the purchase price. (Tan Te vs. Bell [1914],
27 Phil., 354; U. S. vs. Smith [1919], 39 Phil., 533.).
It would further appear perfectly clear that the principle which prohibits a State from taxing the
instrumentalities of the Federal Government applies with equal force to the Philippine Islands. At
least, that was our holding in the Post Exchange case. Nevertheless the Attorney-General persists in
assuming a difference in tax powers between the relations of the Philippine Government to the
National Government and of a State Government to the National Government. We are frank to say
that we are unable to see eye to eye with the Attorney-General. It would be absurd to think that a
derivative sovereignty like the Government of the Philippine Islands, could tax the instrumentalities
of the very Government which brought it into existence. If a sovereign State of the American Union
cannot abridge or restrict the activities of the United States Government, much less can a creature of
that Government, as the Philippine Government is, do so. (Note the well-considered opinion of

Attorney-General Wickersham of June 8, 1912, appearing in 29 Opinions, Attorneys-General, United

States, 442.)
The case before us is readily distinguishable on the facts from the Post Exchange case. The theory
of the Post Exchange case was that a tax on sales, which ultimately passed on to the consumers,
individuals in the Army, was not a tax on the United States Government or with the operations of the
United States Army to such an extent or in such a manner as to render the tax illegal. There is no
such condition in this case. The goods which were claimed to be subject to tax are for the use of the
United States itself in its own operations in the Philippines.
The case at bar is more nearly analogous to the case of Panhandle Oil Co. vs. Knox ([1928], 277 U.
S., 218), than was the Post Exchange case. The Panhandle Oil case and the case at bar differ in
that in the Panhandle Oil case, the United States Supreme Court dealt with a State law that had
never been ratified by Congress, whereas there is now to be applied an Act of the Philippine
Legislature which had been ratified by Congress. On the other hand, the Panhandle Oil case at bar
are similar in that both concern privilege taxes the amount of which is measured by the amount of
the sale; in that in both cases the sales were made to instrumentalities of the Federal Government;
and in that in both cases, the party to suit was the merchant and not the United States Government
or an agency within the United States Army like a Post Exchange. Inasmuch, however, as the
distinction between a State law and an Act of a territorial legislature is no distinction at all, and
inasmuch as the ratification by Congress failed to grant any express waiver of the exemption in favor
of the United States Government, it would require more than ordinary ingenuity to avoid the
consequences of the decision of the United States Supreme Court in the Panhandle Oil Case.
Not long since, the District of Columbia endeavored to recover taxes on gasoline imported into the
District of Columbia by the American Oil Company, under a contract with the Secretary of the
Treasury, for use by the executive departments and governmental agencies. In both the Supreme
Court of the District of Columbia and the Court of Appeals, the seller was held not liable for the tax.
In the opinion of the appellate court, it was said: "While for convenience, the tax is levied upon the
importer, it is apparent that the tax is really to be paid by the consumer. . . . To sustain the contention
of appellant, it must clearly appear that the United States intended to tax itself. See Dollar Savings
Bank vs. United States, 19 Wall., 227; 22 L. ed., 80." (District of Columbia vs. American Oil Co.
[1930], 39 Fed. 2nd., 510.).
The Asiatic Petroleum Company began suit in the Court of Claims against the United States for the
recovery of more than $100,000 due on the purchase price of fuel oil sold by the company for the
use of the Navy. The defendant admitted the claim but interposed a counterclaim for the same
amount, alleged to be due and owing to the Philippine Government as customs duties on oil under
this contract. In the Philippines the Tariff Act in force was the Act of Congress of August 5, 1909,
which was silent on the question. It was the holding of the Court of Claims that this Act of Congress
did not require the United States to pay duty on oil owned by it and imported into the Philippine
Islands for use in the Military or Naval Establishments. The court said: "The purpose of the statute
providing for customs duties on importations into the Philippine Islands was to provide revenue for
the use of the Philippine Government, for the protection, and partial support of which the United
States held itself responsible. It is inconceivable that Congress in the enactment of the said statute
should have intended that the United States would be required to pay duty on its own oil imported

into the Philippine Islands, for its own use, in supplying its Navy vessels used in the protection of the
Philippine Government, as well as for the maintenance of its own Military and Naval Establishments
in the national defense." (Asiatic Petroleum Co. vs. U. S. [1928],65 Ct. of Cl. Rep., 100.).
We sustain the first, second, third, and fifth errors assigned, going to the proposition that the lower
court erred in not deciding that sales made in the Philippines to the United States Army and the
United States Navy are made to instrumentalities of the United States Government, and, therefore,
are not subject to tax by the Philippine Government. This holding makes unnecessary any reference
to the fourth error assigned, relating to the additional question having to do with the contract with the
United States Navy, and to the point that this question was not mentioned in the protest filed with the
Bureau of Internal Revenue and so may not be raised on appeal. It is sufficient to state that, in our
opinion, the assessment and collection by the Philippine Government of the tax on sales of
merchandise made in the Philippines to the United States Army and the United States Navy is illegal.
Judgment reversed, and the record ordered returned to the court of origin for further proceedings,
without express finding as to costs in either instance.
Avancea, C.J., Johnson, Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.