Commissioner Of Customs v.

Campos Rueda & CTA

of due process to which all governmental action should

conform to impress upon it the stamp of validity.

Facts: Campos Rueda imported 46 cartons or 27,000 pieces

of Tungsol flashers. Before the goods arrived at the port of
Manila, Campos Rueda filed with the Collector of Customs of
Manila a request for value information for the declaration of
the imported flashers under Tariff Heading No. 85.09 of the
Tariff and Customs Code at 30% ad valorem duty, for
classification purpose. The Customs appraiser however, reclassified the goods under Tariff Heading No. 85.19 of the
Tariff and Customs Code at 50% ad valorem. When the
goods arrived at the port of Manila, Campos Rueda
immediately filed a Customs Import Entry and Internal
Revenue Declaration under Tariff Heading No. 85.19 of the
Tariff and Customs Code at 50% ad valorem but, under
protest and paid duties and taxes on the goods, also under
protest. It then filed a timely protest against the reclassification resulting in the payment of additional customs
duty and advance sales tax and prayed for the refund of the
said. Comm. of Customs and CIR dismissed Ruedas protest
but the CTA claimed that it was entitled to refund.

PBCOM v. CIR
Facts: PBCOM filed for tax refund and tax credit. Pending
the investigation of the claim, it filed a case with the CTA.
However, the claim was denied for being filed beyond the
prescriptive period of 2 years stated in the law. PBCOM
relied on the RMC 7-85 issued by the BIR extending the
prescriptive period to 10 years.

Held: For the taxpayer. Campos Rueda should pay 30% ad

valorem taxes only. While it is true that appraisers of the
Bureau of Customs are given ample leeway in determining
the correct customs duties under Sec. 1405 of the TCC, Sec.
201 of the same Code, which prescribes the criteria for the
determination of the dutiable values of imported articles,
has not been complied with. What is more, administrative
proceedings are not exempt from the operation of due
process requirements one of which is that a finding by an
administrative tribunal should be supported by substantial
evidence presented at the hearing or at least contained in
the records or disclosed to the parties affected. In this case
the Alert Notices on which the Commissioner based its reappraisal were not disclosed during the proceedings before
the Bureau of Customs nor presented in evidence before the
CTA. The re-appraisal made by the Commissioner, therefore,
can be faulted with arbitrariness in disregard of the standard

Sison v. Ancheta
Facts: BP 135 was enacted which imposed higher tax rates
on taxable net income (income derived from the practice of
profession or from business) than on taxable compensation
income (fixed income). Sison, as a taxpayer, filed the instant
case, alleging that the tax statute was in violation of due
process.

Held: For CIR. RMC is invalid contrary to statute. A mere BIR

ruling cannot supersede legislation by Congress. Moreover,
the Court held that no right was vested coming from a
memorandum/ruling that stems from a wrongful
interpretation of the law. 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.

Held: For Ancheta. Tax statute valid. BP 135, Sec. 1 does

not violate due process. For a tax statute to violate the due
process clause, it should be so arbitrary that it finds no
support in the Constitution. It should be (1) beyond the
jurisdiction of the state, (2) not for public purpose, or (3) in
case of a retroactive statute, must be harsh and
unreasonable. None of these attributes are present in the
case at bar.

Ormoc Sugar Co. v. Treasurer of Ormoc City

Facts: Ormoc Sugar Company (OSC) was the only sugar
central when the Municipal Board of Ormoc City passed
Ordinance No. 4 which imposed municipal tax on any and all
productions of centrifugal sugar milled at the OSC. OSC paid
under protest but challenged the ordinances
constitutionality on the grounds that it is violative of equal
protection clause.
The SC ruled that Ordinance No. 4 infringed the equal
protection clause because the requirements of a valid
classification were not upheld as it taxes only centrifugal
sugar produced and exported by OSC and none other.
Held: For Ormoc. The equal protection clause applies only
to persons or things identically situated and does not bar a
reasonable classification of the subject of legislation. A
classification is reasonable where (1) it is based on
substantial distinctions which make real differences; (2)
these are germane to the purpose of the law; (3) the
classification applies not only to present conditions but also
to future conditions which are substantially identical to
those of the present; (4) the classification applies only to
those who belong to the same class. The taxing ordinance
should not be singular and exclusive as to exclude any
subsequently established sugar central, of the same class as
plaintiff, for the coverage of the tax. Although it is true that
OSC was the only sugar central at the time the ordinance
was appassed, the ordinance still, to be reasonable,s hould
be applicale to future conditions as well because even if
later a similar company is set up, it cannot be subject to the
tax because the ordinance expressly points only to OSC as
the entity to be levied upon.
Villegas v. Hsui Chiong Tsai Pao
Facts: The Municipal Board of Manila passed Ordinance
6537, which prohibits aliens from being employed or to
engage in any occupation or business, whether permanent,
temporary or casual, without first securing an employment

permit from the Mayor of Manila and paying a P50 permit

fee. Respondent Hiu, employed in Manila, filed a petition to
declare the Ordinance null and void being discriminatory
and arbitrary, as there was no distinction or criteria among
aliens in imposing the permit fee. The SC affirmed the CFI
and declared the Ordinance null and void. The requirement
of a fee made it a revenue measure.
Held: For Hsui Chiong Tsai Pao. The Ordinance is void.
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 (i.e. the ordinance must set a valid
standard). The Ordinance 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 same ordinance. It thus violates the due process and
equal protection clauses of the Constitution.
Shell Co. v. Vano
Facts: The Municipal Council of Cordova, Cebu adopted
three tax ordinances which impose annual taxes on
occupation of installation manager, on local deposits of
combustible and inflammable materials, and on tin can
factories. Shell filed the suit for the refund, arguing that the
ordinances are void.
Held: For Vano. The Court also ruled that the ordinances are
not violative of the equal protection clause. The contention
that the ordinance is discriminatory and hostile because
there is no other person in the locality who exercises such
"designation" or occupation is also without merit, because
the fact that there is no other person in the locality who
exercises such a "designation" or calling does not make the
ordinance discriminatory and hostile, inasmuch as it is and
will be applicable to any person or firm who exercises such
calling or occupation named or designated as "installation
manager."

Tiu v. CA
Facts: Petitioners assail E.O. 97-A, which defined the area of
the Subic Special Economic Zone subject to tax exemptions
granted by RA 7227 for being violative of the equal
protection clause. According to them, the entire City of
Olongapo, the Municipality of Subic and the area formerly
occupied by the base should be included and not just the
fenced in former Subic Naval base.
Held: For CA. The fundamental right of equal protection of
the laws is not absolute, but is subject to reasonable
classification. Classification, to be valid, must (1) rest on
substantial distinctions, (2) be germane to the purpose of
the law, (3) not be limited to existing conditions only, and
(4) apply equally to all members of the same class. The
Court held that there was valid classification and distinction
between the secured area and the residential zone outside
the secured area. It is this specific area which the
government intends to transform and develop from its
status quo ante as an abandoned naval facility into a selfsustaining industrial and commercial zone, particularly for
big foreign and local investors to use as operational bases
for their businesses and industries. The Court also held that
the classification was germane to the purpose of the law,
which is to convert military reservations into other
productive uses. The tax exemption was granted to attract
investors into the area. There is no reason why the tax
exemption should also apply to the area outside the Subic
Special Economic Zone.
Tan v. Del Rosario
Facts: Petitioners, as taxpayers, filed special civil actions for
prohibition challenging the constitutionality of RA 7946
(SNIT), and the validity of Sec 6, Revenue Regulations No.
2-93. The Court held that: (1) RA 7946 is constitutional. It
retained the net income taxation scheme. Uniformity of
taxation allows for classification such as individuals and
corporations.

Held: For Del Rosario. Uniformity of taxation, like the

concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are
to be treated alike both in privileges and liabilities.
Uniformity does not forfend classification. The legislative
intent to increasingly shift the income tax system towards
the schedular approach in the income taxation of individual
taxpayers and to maintain the present treatment on global
corporations is valid.
Phil Rural Electric v. Secretary
Facts: Various electric cooperatives organized under P.D.
269 seek to annul sections 193 and 234 of the LGC for
violating the Equal Protection clause of the Constitution.
Electric cooperatives enjoyed tax incentives under P.D.
269. The LGC provisions took away the electric
cooperatives tax incentives, but, at the same time, gave tax
incentives to cooperatives under R.A. No. 6938the
Cooperative Code of the Philippines. After enumerating the
elements of a valid classification and applying the same to
the case, the Court held that there are substantial
differences between electric cooperatives under P.D. 269 as
opposed to cooperatives under R.A. 6983 to justify a
different tax treatment between them.
Held: For Secretary. A classification, to be reasonable, must
(1) rest on substantial distinctions; (2) be germane to the
purposes of the law; (3) not be limited to existing conditions
only; and (4) apply equally to all members of the same
class. There are substantial distinctions on two points:
namely, on the (1) capital contributed by the membersthe
Cooperative Code requires, inter alia, that the members of
the cooperatives are required to make equitable
contributions to the capital. Nowhere in P.D. No. 269, as
amended, does it require cooperatives to make equitable
contributions to capital. and (2) extent of government
control over cooperativesCooperatives under R.A. No.
6938 are envisioned to be self-sufficient and independent
organizations with minimal government intervention or
regulation. The extent of government control over electric

cooperatives covered by P.D. No. 269, as amended, is

stricter and is largely a function of the role of the NEA as a
primary source of funds of these electric cooperatives. The
classification is also germane to the purpose of the law. The
obvious intention of the law is to broaden the tax base of
local government units to assure them of substantial
sources of revenue.
Pepsi-Cola v. Butuan City
Facts: The city council of Butuan made Ordinance No. 110
which imposes on taxes on bottles of liquors and soft drinks.
The petitioner challenged the validity of the Ordinance.
Held: For Pepsi-Cola. The Court held that the Ordinance No.
110 for being invalid for being unjust and discriminatory. The
classification made in the existence of this authority, to be
valid, must, be reasonable and this requirement is not
deemed satisfied unless:
(1) It is based upon substantial distinctions which make
real differences;
(2) These are germane to the purpose of the legislation
or ordinance;
(3) The classification applies not only to the present
conditions, but also, to future conditions substantially
identical to those of the present; and
(4) The classification applies equally all those who belong
to the same class.
These conditions are not fully met by the ordinance in
question. Indeed, if its purpose were merely to levy a burden
upon the sale of soft drinks or carbonated beverages, there
is no reason why sales thereof by sealers other than agents
or consignees of producers or merchants established outside
the City of Butuan should be exempt from the tax.
Manila Race Horse v. Dela Fuente
Facts: Manila Race Horse Trainers assail the Manila
Ordinance No. 3065 for being unconstitutional as it only
taxes boarding stables for race horses.

Held: For Dela Fuente. There is equality and uniformity in

taxation if all articles or kinds of property of the same class
are taxed at the same rate. Applying this criterion to the
present case, there would be discrimination if some
boarding stables of the same class used for the same
number of horses were not taxed or were made to pay less
or more than others. Also, the fact that some places of
amusement are not taxed while others, such as
cinematographs, theaters, vaudeville companies, theatrical
shows, and boxing exhibitions and other kinds of
amusements or places of amusement are taxed, is not
argument at all against the equality and uniformity of tax
imposition.
Sison v. Ancheta
Facts: BP 135 was enacted which imposed higher tax rates
on taxable net income (income derived from the practice of
profession or from business) than on taxable compensation
income (fixed income). Sison, as a taxpayer, filed the instant
case, alleging that the tax statute was in violation the
uniformity in taxation.
Held: For Ancheta. BP 135, Sec. 1 does not violate the
concept of uniformity in taxation. There is uniformity
when the tax operates with the same force and effect
in every place where the subject may be found.
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. Where there is
classification or differentiation based on the practical
dictates of justice and equity, as in this case, it is not
discriminatory and is therefore uniform. The discernible
basis of classification between taxable compensation
income and taxable net income is the susceptibility of the
income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing
a set of reduced tax rates to be applied to all of them. As
there is practically no overhead expense, these taxpayers
who are recipients of compensation income are not entitled
to make deductions for income tax purposes because they

are in the same situation more or less, hence the lower

rates. On the other hand, in the case of professionals in the
practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce
their income.
Tolentino v. Secretary of Finance
Facts: Petitioners filed various suits for certiorari and
prohibition challenging the constitutionality of RA7716 as it
is violative of uniformity of taxation. Republic Act No. 7716
was enacted seeking to widen the tax base of the existing
Value Added Tax (VAT). VAT is levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of service. It is equivalent to 10% of the gross
selling price or gross value in money of goods or properties
sold, bartered or exchanged or of the gross receipts from the
sale or exchange of services.
Held: Equality and uniformity of taxation means that
all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has
the authority to make reasonable and natural classifications
for purposes of taxation. To satisfy this requirement it is
enough that the statute or ordinance applies equally to all
persons, forms and corporations placed in similar situation.
VAT is imposed only on sales of goods or services by persons
engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt
from the tax are sales of farm and marine products, so that
the costs of basic food and other necessities, spared as they
are from the incidence of the VAT, are expected to be
relatively lower and within the reach of the general public.
CIR v. Lingayen Gulf Electric Co.
Facts: RA 3843 was passed granting to Lingayen a
legislative franchise for the operation of the electric light,
heat and power system and requiring it to pay only a tax

equal to 2% of its gross receipts in lieu of any and all taxes

and/or licenses of any kind, nature or description levied,
established or collected by any authority whatsoever,
municipal, provincial or national, now or in the future. The
BIR assessed Lingayen with deficiency taxes, applying Sec.
259 of the NIRC, which prescribes a rate of 5% on gross
receipts.
Held: For Lingayin. The Court ruled that RA 3843 should be
applied, instead of the NIRC. Charters or special laws
granted and enacted by the Legislature are in the nature of
private contracts. They do not constitute a part of the
machinery of the general government. They are usually
adopted after careful consideration of the private rights in
relation with resultant benefits to the State in passing a
special charter the attention of the Legislature is directed to
the facts and circumstances which the act or charter is
intended to meet. The Legislature considers and makes
provision for all the circumstances of a particular case.
Misamis Oriental v. CEPALCO
Facts: The franchise of CEPALCO expressly exempts it from
payment of all taxes and assessments of whatever
authority except the 3% tax on its gross earnings. The
Province of Misamis Oriental, pursuant to PD 231, enacted a
Provincial Revenue Ordinance imposing a franchise tax
within its territorial jurisdiction. Although it claimed that it
was exempted from paying such by its charter, CEPALCO
paid under protest, because the provincial fiscal upheld the
legality of the ordinance.
Held: For CEPALCO. As a charter is in the nature of a private
contract, the imposition of another franchise tax on the
corporation by the local authority would constitute an
impairment of the contract between the government and
the corporation. There is no provision in PD 231 expressly or
impliedly amending or repealing Sec. 3 of RA 6020. Thus,
the exemption still applies to CEPALCO.
Phil Rural Electric v. Secretary

Facts: Petitioners contend that they are exempt from

payment of local taxes, including payment of real property
tax pursuant to the provisions of P.D. No. 269, as amended,
and a provision in the loan agreements. But they allege that
their tax exemptions have been invalidly withdrawn by the
passage of the LGC.
Held: For Secretary. The Court ruled that there was no
impairment of contracts as a plain reading of the provision
readily shows that it does not grant any tax exemption in
favor of the borrower or the beneficiary either on the
proceeds of the loan itself or the properties acquired
through the said loan.
Lladoc v. CIR
Facts: The Parish of Victorias in Negros Occidental, through
Fr. Ruiz, received a donation of P10,000 in cash from M.B.
Estate, Inc. for the construction of a new church. CIR issued
an assessment for donees gift tax against the Parish of
Victorias, of which Fr. Lladoc was the priest. Fr. Lladoc
protested the assessment and requested the withdrawal
thereof but CIR denied this.
Held: For CIR. Section 22 (3), Art. VI of the Constitution of
the Philippines, exempts from taxation cemeteries, churches
and parsonages or convents, appurtenant thereto, and all
lands, buildings, and improvements used exclusively for
religious purposes. However, the phrase exempt from
taxation in the said provision should not be interpreted to
mean exemption from all kinds of taxes. The exemption is
only from the payment of taxes assessed on such properties
enumerated, as property taxes, as contra distinguished from
excise taxes. Fr. Lladoc is not personally liable for the said
gift tax. The Head of the Diocese (Bishop of Bacolod), herein
substitute petitioner, is the one liable to pay the said gift
tax.
Province of Abra v. Hernando

Facts: The Roman Catholic Bishop of Banguet filed an

action for declaratory relief in the RTC praying that it be
declared exempted from a real estate tax to which the
Province of Abra filed a motion to dismiss. In its petition for
declaratory relief, private respondents, after mentioning
certain parcels of land owned by it, are that they are used
"actually, directly and exclusively" as sources of support of
the parish priest and his helpers and also of private
respondent Bishop. The RTC made a summary judgment
granting such exemption
Held: For Province. The present Constitution added
"charitable institutions, mosques, and non-profit cemeteries"
and required that for the exemption of "lands, buildings, and
improvements," they should not only be "exclusively" but
also "actually and "directly" used for religious or charitable
purposes.
The Constitution is worded differently. The change should
not be ignored. It must be duly taken into consideration.
Reliance on past decisions would have sufficed were the
words "actually" as well as "directly" not added. There must
be proof therefore of the actual and direct use of the
lands, buildings, and improvements for religious or
charitable purposes to be exempt from taxation. Province of
Abra is fully justified in invoking the protection of procedural
due process. Proof is necessary to demonstrate that there is
compliance with the constitutional provision that allows an
exemption - it should be through a proper judicial
proceeding.
Abra Valley College v. Aquino
Facts: Petitioner filed a complaint to annul and declare void
the Notice of Seizure and Notice of Sale of its lot and
building for non-payment of real estate taxes and penalties.
Petitioner contends that the lots are used exclusively for
educational purposes, and thus exempt from tax.

Held: For Abra. The exemption in favor of property used

exclusively for charitable or educational purposes is 'not
limited to property actually indispensable' therefor, but
extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes. The
Court ruled that the first floor which was being leased to
Northern Marketing Association is subject to tax since it is
being used for commercial purposes, but the second floor
which was being used for residential purposes by the school
Director and his family was not. Thus, it modified the tax
assessment into half.
CIR v. CA
Facts: YMCAs income from leasing portions of its premises
and collecting parking fees from non-members was
assessed by the CIR for income tax. YMCA claimed
exemptions from this tax under the NIRC, the constitutional
exemption granted to charitable institutions, and the
constitutional exemption granted to non-stock, non-profit
educational institutions. The Court held that YMCA was not
entitled to any exemptions for payment of tax on said
income. First, the NIRC exemption did not apply to income
derived from property. Second, the constitutional exemption
granted to charitable institutions covers only property taxes.
Third, the constitutional exemption granted to non-stock,
non-profit educational institutions could not be claimed by
YMCA as it is not an educational institution.
Held: For CIR. What is exempted is not the institution itself;
those exempted from real estate taxes are lands, buildings
and improvements actually, directly and exclusively used for
religious, charitable or educational purposes. YMCA is
exempt from the payment of property tax, but not income
tax on the rentals from its property. The bare allegation
alone that it is a non-stock, non-profit educational institution
is insufficient to justify its exemption from the payment of
income tax. Moreover, YMCA is not an educational
institution. The term educational institution, when used in
laws granting tax exemptions, refers to a school seminary,

college or educational establishment. YMCA cannot be

deemed one of the educational institutions covered by the
constitutional provision under consideration.
DLSU v. CIR
Facts: Based on Letter of Authority No. 2749, DLSU was
assessed of deficiency income tax, VAT, and DST for fiscal
years 2001 to 2003, totaling P17.3 million. DLSU protested
this assessment. DLSU argues that the tax assessment
against it is invalid for having been based on a void letter of
authority. SC held that the LOA, in including unverified prior
years in its coverage, violated Revenue Memorandum
Order No. 43-90. The deficiency assessment against
petitioner for income tax, VAT and DST for taxable years
2001 and 2002 is null and void.
Held: For DLSU. Requirements for an educational institution
to be entitled to the exemption under Section 4(3), Article
XIV of the Constitution: (1) it falls under the classification of
non-stock, non-profit educational institution; and (2) the
income it seeks to be exempted from taxation is used
actually, directly, and exclusively for educational purposes.
Rental income from the sports complex and La Casita which
were transmitted and used for the payment of the PTC loan
on the PE-Sports Complex, were used actually, directly and
exclusively for educational purposes. Rental income from
the sports complex and La Casita which were transmitted
and used for the payment of the PTC loan on the PE-Sports
Complex, were used actually, directly and exclusively for
educational purposes.
American Bible Society v. Manila
Facts: American Bible Society is a religious missionary
corporation which sells bibles and other religious
publications. The City Treasurer of Manila informed American
Bible Society to obtain a Mayors permit and to pay fees in
accordance with Ordinance No. 3000 and Ordinance No.
2529. American Bibile Society paid the assessed amounts

under protest and subsequently filed a complaint assailing

the validity of the municipal ordinances.
Held: For American Bible Society. The constitutional
guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to
disseminate religious information. Any restraints of such
right can only be justified like other restraints of freedom of
expression on the grounds that there is a clear and present
danger of any substantive evil which the State has the right
to prevent. The Court held that Ordinance No. 2529 cannot
be applied to American Bible Society because it would
impair its free exercise and enjoyment of its religious
profession and worship as well as rights of dissemination of
religious beliefs.
Luzon Stevedoring Co v. Trinidad
Facts: The Internal Revenue Collector is authorized by Act
No. 2711 to collect percentage tax from the gross receipts of
contractors. Thus, the CIR collected money from LSC who
then paid under protest, it filed a suit claiming that it was
not a contractor.
Held: For Luzon Stevedoring. Revenue laws imposing taxes
on business must be strictly construed in favor of a citizen.
From the foregoing, it appears that the word contractor
has a limited and restricted meaning: that he renders the
service in the course of an independent occupation,
representing the will of his employer only to the result of his
work, not to the means by which it is accomplished. LSC is
not a contractor under the contemplation of the Act,
therefore the tax paid by it was illegally collected and should
be repaid.
Umali v. Estanislao
Facts: RA 7167 (amending the NIRC) adjusted the basic and
additional exemptions allowable to individuals for income
tax purposes to the poverty threshold level. Act was signed

and approved by the President on 19 December 1991 and

published on 14 January 1992 in "Malaya" a newspaper of
general circulation. On 26 December 1991, the CIR
promulgated Revenue Regulations No. 1-92 stating that the
regulations shall take effect on compensation income from
January 1, 1992. Petitioners filed a petition for mandamus to
compel the CIR to implement RA 7167 in regard to income
earned or received in 1991, and prohibition to enjoin the CIR
from implementing the revenue regulation.
Held: For Umali. Court ruled that although the law took
effect on January 30 1992, the law applies to compensation
income earned or received on or from 1991. In arriving to
this conclusion, the Court looked into the laws house bill to
ascertain the intent of the legislature. A tax statute must be
applicable and operative only upon becoming a law. Tax laws
are given retroactive effect only if there is a clear legislative
intent in that regard.
CIR v. Solidbank
Facts: Solidbank filed its Quarterly Percentage Tax Returns.
It alleged that the total included P350M representing gross
receipts from passive income which was already subjected
to 20% final withholding tax. The CTA held (Asianban v. CIR)
that the 20% FWT should not form part of its taxable gross
receipts for the purpose of computing the tax. Solidbank
then filed with the BIR a letter-request for the refund or tax
credit.
Held: For Solidbank. In a withholding tax system, the payee
is the taxpayer, the person on whom the tax is imposed. The
payor, a separate entity, acts as no more than an agent of
the govt for the collection of tax in order to ensure its
payment. There is constructive receipt of such income and is
included as part of the tax base.
CIR v. La Tondena
Facts: La Tondea, a duly licensed rectifier, has been
purchasing the alcohol used in the manufacture of its

products, and has been removing this alcohol from the

centrals to its distillery under joint bonds, without
prepayment of specific taxes, with the express permission
and approval of the petitioner CIR.
In the process of manufacturing the Manila Rum, losses
through evaporation had in the past had given the
respondent allowance of not exceeding 7% for said losses.
Petitioner wrote a demand letter to respondent for the
payment of specific taxes. Respondent protested and CIR
refused to reconsider the assessment
Held: For La Tondena. The clause that says the tax shall
attach to this substance as soon as it is in existence as
such was eliminated and then restored. The inference,
therefore, is clear that from January 1, 1951, when RA592,
took effect, until August 23, 1956, when R.A1608 became a
law, the tax on alcohol did not attach as soon as it was in
existence as such, but on the finished product. And this
must be so, otherwise a great injustice would be caused
upon a duly licensed rectifier, who, like the respondent
herein, will be made to pay the specific tax on the alcohol
lost thru evaporation, from which no one has been
benefited, based on the provision of laws then extant, of
doubtful application.In every case of doubt, tax statutes are
construed most strongly against the government and in
favor of the citizens, because burdens are not to be imposed
beyond what the statutes expressly and clearly import.
Serafica v. Treasurer of Ormoc
Facts: Serafica assails the validity of the tax ordinance
passed by the city of Ormoc. His lumber business is going to
be affected by the said ordinance. One of the issues being
that the public was not heard and given a chance to air its
views.
Held: For Treasurer. The Court held that the Provincial
Circular No. 24 of the Dept. of Finance says that in the
enactment of tax ordinanceswhere practicable, public
hearings be held wherein the views of the public may be

heard. This is a mere suggestion, compliance with which is

not obligatory, so that failure to act in accordance therewith
cannot and does not affect the validity of the tax ordinance.
Vda. Hijos de Pedro Roxas v. Rafferty
Facts: The heirs or Roxas sought to recover realty tax that
they paid under protest regarding their property in Escolta.
The tax collector of Manila (Rafferty) assessed the building
for taxation even before the building was completely
constructed. A Manila Charter provision provides that tax is
to be assessed on completed improvements, with prior
notice to the taxpayer. Rafferty did not observe this.
Held: For Rafferty. The Court ordered for the recovery of
taxes with interest saying that the provision requiring tax
assessment on completed improvements, plus the requisite
prior notice therefor, is mandatory, noncompliance with
which amounts to lack of due process. It is a general rule
that provisions of a statute relating to the assessment of
taxes which are intended for the security of the citizen, or to
insure the equality of taxation, or certainty as to the nature
and amount of each person's tax, are mandatory; but those
designed merely for the information or direction of officers,
or to secure methodical and systematic modes of
proceedings, are merely directory.
Pecson v. CA
Facts: Pecson built an apartment complex on a parcel of
land that he owns wherein he failed to pay realty taxes.
Because of this, his land was sold in a public auction to
spouses Nuguid. He moved to set aside the auction but was
denied.
Held: For CA. The Court upheld the validity of the public
auction. Notices of the sale of the public auction may be
sent to the delinquent taxpayer, either (i) at the address as
shown in the tax rolls or property tax record cards of the
municipality or city where the property is located or (ii) at

his residence, if known to such treasurer or barrio captain. In

this case he was sent proper notice. And had he informed
the Office of the Treasurer the improvements he built for tax
purposes, they could have been informed of his new
address.
CIR v. Telefunken
Facts: Being a pioneer industry registered under the
Exports Incentives Act, Telefunken claims it is exempt from
payment of contractors tax. CIR says it had no exemption
because it must also be registered under the Investments
Incentives Act to mean it was exempt from contractors tax.
Held: For Telefunken. The Court held that Telefunken is
exempted from paying the contractors tax since there is no
distinction between being registered under the Investment
Act and the Exports Incentive Act. A comparison of the prior
and new provisions of the Tax Code reveals that both
provisions specifically mention pioneer industries as
exempt from payment of the contractor's tax. In fact, the
wording of the relevant part at both provisions are the same.
Clearly, Telefunken falls under the category of "pioneer
industries" contemplated and should be entitled to the
exemption provided for.
Under Sec. 246 of the National Internal Revenue Code,
rulings of the BIR may not be given retroactive effect, if the
same is prejudicial to the taxpayer.
CIR v. Lhuillier
Facts: CIR issued Revenue Memorandum Order (RMO) No.
15-91 imposing a 5% lending investors tax on pawnshops.
Since pawnshops are considered as lending investors, they
also become subject to documentary stamp taxes. BIR sent
an Assessment Notice against Lhuillier demanding payment
of deficiency percentage.
Lhuillier filed an administrative protest with the Office of the
Revenue Regional Director contending that neither the Tax
Code nor the VAT Law expressly imposes 5% percentage tax

on the gross income of pawnshops; that pawnshops are

different from lending investors, which are subject to the 5%
percentage tax under the specific provision of the Tax Code;
that RMO No. 15-91 is not implementing any provision of the
Internal Revenue laws but is a new and additional tax
measure on pawnshops, which only Congress could enact.
BIR issued Warrant of Distraint and/or Levy against Lhuilliers
property for the enforcement and payment of the assessed
percentage tax.
Held: For Lhuiller. The Court held that Lhuillier is not liable
to pay the deficiency taxes as it was not intended by law to
be subjected to it. When an administrative rule is merely
interpretative in nature, its applicability needs nothing
further than its bare issuance, for it gives no real
consequence more than what the law itself has prescribed.
CIR v. Benguet Corporation
Facts: Benguet Corporation sold gold to Central Bank which
then resulted in input VAT incurred in relation to the subject
sales of gold. This was done pursuant to its zero-related
status and several issuances of the BIR. Then, it filed
applications for tax refunds or tax credits. BIR denied this
because VAT Ruling 008-92 can be applied retroactively
since it does not prejudice Benguet Corp.
Held: SC held that it cannot be applied retroactively and
ruled for the Benguet Corporation since said company
should not be faulted for relying on the BIRs interpretation
of the said laws and regulations. While it is true that
government is not estopped from collecting taxes which
remain unpaid on account of the errors or mistakes of its
agents and/or officials and there could be no vested right
arising from an erroneous interpretation of law, these
principles must give way to exceptions based on and in
keeping with the interest of justice and fairplay.
Milton Greenfield v. Bibiano Meer

Facts: Greenfield was initially engaged in the embroidery

business who then also engaged in selling mining stocks and
securities even though he was not a dealer in securities. He
filed is tax return and declared a net loss of P67k from his
stock transactions. Meer (CIR) assessed plaintiffs ITR did
not deduct the losses because they were losses of capital
assets and not those incurred in trade and business.
Greenfield demanded a refund and claimed that personal
and additional exemptions should be deducted from the net
income insteadas in the old tax laws.
Held: For Greenfield. The Court dismissed his first cause of
action but granted him a refund because the CIR should
have deducted the exemptions from the net income.
"Exception is an immunity or privilege; it is freedom from a
charge or burden to which others are subjected." (Florar vs.
Sherifan,) If the amounts of personal and additional
exemptions fixed in section 23 are exempt from taxation,
they should not be included as part of the net income, which
is taxable. There is nothing in said section 23 to justify the
contention that the tax on personal exemptions (which are
exempt from taxation) should first be fixed, and then
deducted from the tax on the net income.
Basco v. PAGCOR
Facts: PD 1869 created the PAGCOR, which enabled the
government to regulate and centralize all games of chance
authorized by existing franchise or permitted by law. As
taxpayers and practicing lawyers, Basco et. al. filed this
petition seeking to annul said PD for being contrary to
morals, public, order, and public policy. They also allege that
it constitutes a waiver of the right of the City of Manila to
impose fees and taxes as the exemption clause violates the
principle of local autonomy.
Held: The Court held for the validity of PD 1869 saying that
first of all, the City of Manila, being a Municipal Corporation,
has no inherent right to impose taxes. Its taxing power is
granted by the legislature, and the legislature may revoke

such power or provide exemptions as it wishes. Moreover,

PAGCOR, given its regulatory powers, is an instrumentality
of the State and is therefore exempt from being taxed by
local governments.
Also, An instrumentality of the State is exempted from local
taxes. Otherwise, its operation might be burdened, impeded
or subjected to control by a mere Local Government. It will
allow mere creatures of the State to defeat National policies
thru extermination of what local authorities may perceive to
be undesirable activities or enterprise using the power to
tax as a tool for regulation.
CIR v. Botelho Shipping and General Shipping
Facts: CIR sold ships to the respondents. The Bureau of
Customs, because the compensating tax hasnt been paid
yet, placed the vessels under custody and did not give due
course to the application for its registration. Pursuant to RA
3079 (which exempts buyers of reparations goods acquired
from the Commission from liability for the compensating
tax) applied for the renovation of their utilization contracts
with the Commission in order to be exempted. CTA ruled
that the respondents are exempted from compensating tax.
Held: The SC ruled for the respondents and held that while
R.A. No. 3079 does not explicitly declare that those who
purchased reparations goods prior to June 17, 1961 are
exempt from the compensating tax, they may still enjoy
such exemption provided they comply with the proviso in
Sec. 20 of said Act, by applying for the renovation of their
respective utilization contracts, "in order to avail of any
provision of the Amendatory Act which is more favorable" to
the applicant.
There is no constitutional injunction against granting tax
exemptions to particular persons. It is not unusual to grant
legislative franchises to specific individuals or entities,
conferring tax exemptions thereto. What the fundamental
law forbids is the denial of equal protection, such as through
unreasonable discrimination or classification.

CIR v. CA, GCL Retirement Plan

Facts: GCL Retirement plan, an employees trust maintained
to provide retirement, pension, disability, etc. benefits to
employees was approved and qualified as exempt from
income tax by the CIR because of RA 4917. GCL made
investments where it earned interest income, and thus, the
CIR imposed a 15% FWT on the interest it earned from it.
GCL then filed a claim for a refund stating that the entity is
fully exempt from income tax as provided in RA 4917.
Held: SC ruled in favor of GCL since RA 4917. Sec. 1
provides that Any provision of law to the contrary
notwithstanding, the retirement benefits xxx shall be
exempt from all taxes xxx. A subsequent statute, general in
character as to its terms and application is not to be
construed as repealing a special or specific enactment,
unless the legislative purpose to do so is manifested. This is
so even if the provisions of the latter are sufficiently
comprehensive to include what was set forth in the special
act.
CIR v. Guerrero and CTA
Facts: CIR made an assessment against Guerrero regarding
his log dealership business for the years 1949 and 1950.
Guerrero refused to pay saying that apart from being a seller
of logs on commission basis (exempting him from the
payment of forest charges and surcharges), he was also
contending that fixed and percentage taxes and surcharges
were not taxes but fees.
Held: SC ruled for the CIR saying that Guerrero was not
exempt from paying the CIR's tax assessment, holding that:
(a) circumstances would show that he had obtained the logs
illegally; and (b) the collection of taxes in Sec. 315 of the
NIRC pertains to both taxes and fees.

No exemption shall be allowed against the internal revenue

taxes in any case. On this end, one of the civil remedies for
the collection of internal revenue taxes, fees, or charges,
and any increment thereto resulting from delinquency is by
distraint of goods, chattels, or effects, and other personal
property of whatever character.
Phil. Acetylene v. CIR
Facts: Philippine Acetylene Co. Inc. is engaged in the
manufacture and sale of oxygen and acetylene gases. It sold
its products to the National Power Corporation (Napocor), an
agency of the Philippine Government, and the Voice of
America (VOA), an agency of the United States Government.
When the commissioner assessed deficiency sales tax and
surcharges against the company, the company denied
liability for the payment of tax on the ground that both
Napocor and VOA are exempt from taxes. The SC held that
petitioner is liable for the tax.
Held: The expansive construction of the tax exemption is
void; and the sales to the VOA are subject to the payment of
percentage taxes under Section 186 of the Tax Code.
Therefore, tax exemption is strictly construed and
exemption will not be held to conferred unless the terms
under which it is granted clearly and distinctly show that
such was the intention
Sea Land Services v. CA
Facts: SEA-LAND, an American international shipping
company, entered into a contract with the US government to
transport military household goods and effects of US military
personnel assigned to the Subic Naval Base. SEA-LAND paid
its income tax but then filed a claim for a refund alleging
that the taxes it paid were a mistake because under the RPUS Military Base Agreement, it is exempt from the payment
of taxes.

Held: SC ruled against SEA-LAND saying that the business

conducted by SEA-LAND does not fall under the
construction, maintenance, operation and defense of the
bases. Laws granting exemption from tax are construed
strictissimi juris against the taxpayer and liberally in favor of
the taxing power. Taxation is the rule and exemption is the
exception. The law does not look with favor on tax
exemptions and that he who would seek to be thus
privileged must justify it by words too plain to be mistaken
and too categorical to be misinterpreted.
Davao Gulf v. CIR
Facts: Davao Gulf, a licensed forest concessionaire,
purchased various types of oils from different oil companies.
Said companies paid specific taxes imposed on the sail of
the products, and being included in the purchase price, said
taxes were eventually passed on to the user, Davao Gulf.
Davao Gulf claimed for a refund based on Insular v. CTA and
RA 1435. CTA only granted a partial refund as some claims
have already prescribed and some were not included in the
original claim for refund. With regard to other purchases,
CTA granted the partial refund but paid under RA 1435 and
not on the higher rates paid by petitioner under the NIRC.
Petitioner appealed, insisting that the basis for computing
the refund should be NIRC.
Held: For the Government. SC affirmed CA and CTA ruling. 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, petitioner's claim of refund
must expressly be granted in a statute stated in a language
too clear to be mistaken. According to an eminent authority
on taxation, "there is no tax exemption solely on the, ground
of equity.

PLDT v. Davao City

Facts: City of Davao withheld action PLDTs application for a
Mayors Permit pending PLDTs payment of the local
franchise tax. PLDT refuse to pay and sought a refund of the
franchise tax it paid before, insisting it was exempt from the
payment of franchise tax based on an opinion of the BLGF.
Davao City denied the protest and claim for tax refund of
petitioner.
Held: For the government Davao City. SC ruled for Davao
City; there is no tax exemption. LGC withdrew all tax
exemptions previously enjoyed by all persons and
authorized local government units to impose a tax on
businesses enjoying a franchise notwithstanding the grant of
tax exemption to them. After withdrawal, it did not become
exempt again by virtue of R.A. 7925.To begin with, tax
exemptions are highly disfavored. Asiatic Petroleum Co. v.
Llanes: . . . Exemptions from taxation are highly disfavored,
so much so that they may almost be said to be odious to the
law. He who claims an exemption must be able to point to
some positive provision of law creating the right. The
right of taxation is inherent in the State. It is a prerogative
essential to the perpetuity of the government; and he who
claims an exemption from the common burden must justify
his claim by the clearest grant of organic or statute law. The
tax exemption must be expressed in the statute in clear
language that leaves no doubt of the intention of the
legislature to grant such exemption. And, even if it is
granted, the exemption must be interpreted in strictissimi
juris against the taxpayer and liberally in favor of the taxing
authority
Surigao Consolidated v. CIR
Facts: After World War II, petitioner Surigao Consolidated
filed a statement of adjustment claiming for refund of
P17,051.14, an amount which it paid as ad valorem taxes
during the war. Petitioner argued that since Section 1(d) of
RA 81 condones the taxes due from taxpayers who failed to

pay their taxes during the war, it would be unfair to deny

this benefit to those taxpayers like petitioner who had been
prompt in paying theirs. The CIR and CTA denied the claim
for refund.
Held: For the government. SC affirmed CIR and CTAs denial
for refund. The condonation of a tax liability is equivalent
and is in the nature of a tax exemption. Being so, it should
be sustained only when expressed in explicit terms, and it
cannot be extended beyond the plain meaning of those
terms.
CIR v. CTA
Facts: ROH Auto Products applied for the tax amnesty
granted by EO 41 issued by the President of the Philippines
following the martial law period. Prior to the application, the
CIR already assessed ROH its tax liabilities. The CIR then
denied the application of ROH reasoning that the same was
not covered by the EO. ROH then elevated the case to the
CTA which ruled in favor of ROH. This was appealed to the
CA, however, the same was affirmed by the CA.
Held: For the taxpayer. The Court ruled that ROH was
covered by the tax amnesty as provided for in EO41. The
Court stated that since it was not included among the
exceptions, it should be construed to be included. By its
very nature, a tax amnesty, being a general pardon or
intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of evasion or
violation of a revenue or tax law, partakes of an absolute
forgiveness or waiver by the Government of its right to
collect what otherwise would be due it, and in this sense,
prejudicial thereto, particularly to give tax evaders, who
wish to relent and are willing to reform a chance to do so
and thereby become a part of the new society with a clean
slate. (Republic vs. Intermediate Appellate Court, citing
Commissioner of Internal Revenue vs. Botelho Shipping
Corp.)

Ormoc v. Ormoc City

Facts: Marubeni is a Japanese Corporation engaged in
construction business. CIR fund that it had undeclared
income from 2 contracts in the Philippines. CIR assessed
Marubeni for deficiency income, branch profit remittance,
contractors and commercial brokers taxes. On August 2,
1986, E.O. No. 41 which granted a tax amnesty on unpaid
income tax. On September 26, 1986, Marubeni filed 2
petitions before the CTA questioning the deficiency income,
branch profit remittance, contractors tax assessments, and
commercial brokers assessment. It then filed its amnesty tax
return and complied with E.O. No. 41s requirements. On
November 17, 1986, E.O. No. 64 expanded the scope and
coverage of E.O. No. 41 it included estate and donors tax,
and tax on business. Marubeni filed its supplementary tax
amnesty return to avail of the benefits of E.O. 64. CTA ruled
that since Marubeni properly availed of the tax amnesty
under both E.Os, CIR should desists because the said
deficiency taxes are deemed cancelled and withdrawn. CIR
now argues that Marubeni did not properly avail of the tax
amnesty because Section 4(b) of E.O. No. 41 provides that
The following tax payers may not avail themselves of the
amnesty those with income tax cases already filed in Court
as of the effectivity hereof.
Held: For the taxpayer and for the government. The SC
ruled that with respect to income taxes, Marubeni properly
availed of the tax amnesty because the point of reference is
the date of effectivity of E.O. No. 41. The filing of income tax
cases in court must have been made before and as of the
date of effectivity of E.O. No. 41. In this case, the 2 CTA
cases were filed last September while E.O. 41 took effect in
October.
HOWEVER, with respect to contractors tax assessment and
estate and donors tax and tax on business, Marubeni cannot
avail of the tax amnesty. E.O. No. 64 has no provision on
who cannot avail of the tax amnesty but it provides that
provisions of E.O. 41 which are not contradicting are
applicable also meaning Section 4(b) will also apply.

However, the application can only be prospective - the point

of reference now is the effectivity of E.O. 64. Hence, since
the CTA case was filed last September, while E.O. 64 took
effect last November, there was already a case filed , hence,
Marubeni cannot claim of the tax amnesty.
E.O. Nos. 41 and 64 are tax amnesty issuances. A tax
amnesty is a general pardon or intentional overlooking by
the State of its authority to impose penalties on persons
otherwise guilty of evasion or violation of a revenue or tax
law. It partakes of an absolute forgiveness or waiver by the
government of its right to collect what is due it and to give
tax evaders who wish to relent a chance to start with a clean
slate. A tax amnesty, much like a tax exemption, is never
favored nor presumed in law. If granted, the terms of the
amnesty, like that of a tax exemption, must be construed
strictly against the taxpayer and liberally in favor of the
taxing authority. For the right of taxation is inherent in
government. The State cannot strip itself of the most
essential power of taxation by doubtful words. He who
claims an exemption (or an amnesty) from the common
burden must justify his claim by the clearest grant of organic
or state law. It cannot be allowed to exist upon a vague
implication. If a doubt arises as to the intent of the
legislature, that doubt must be resolved in favor of the
state.
E. Rodriguez v. CIR
Facts: Pursuant to RA 333, the Republic of the Philippines
sued petitioner E. Rodriguez for the expropriation of 1.36M
sq. meters in the area delimited for the new capital city site.
CFI ruled in favor of the Republic and ordered it to pay
petitioner as just compensation. The parties later entered
into a compromise agreement, where it was stipulated that
petitioner would partly accept the payment/ compensation
in the form of government bonds. Petitioner assumed that
the income derived from such bonds were exempt from
taxation, and thus did not include it in his tax return. The
BIR thus assessed a deficiency tax against petitioner. The
latter refused to pay so the respondent collector filed an

action and sought collection of the tax. The CFI ruled against
the petitioner. The CTA affirmed this.
Held: For the government. The income derived from bonds
was taxable because income from the sale of the property is
a distinct taxable item from government bonds. It was also
the purpose of the law to induce landowners to accept
payment in bonds, as they would still be exempted from
documentary stamp tax and interest. Congress also did not
intend to provide a tax exemption as there was also no
express provision in RA 333 that provided such. It has been
the constant and uniform holding of this Court that
exemption from taxation is not favored and is never
presumed; in fact, if it is granted, the grant must be strictly
construed against the taxpayer. The law requires courts to
frown on alleged exemptions from taxation; hence, an
exempting provision in a legislative enactment should be
construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority (doctrines from US
jurisprudence found in last bullets).
Republic v. Comm. of Customs
Facts: Republic Flour Mills is engaged in manufacture of
wheat flour and produces pollard and bran in the process of
milling. It paid its wharfage dues under protest. It claims
that it should not, under its construction of the Tariff and
Customs Code, be liable for wharfage dues on its
exportation of bran and pollard as they are not "products of
the Philippines", coming as they did from wheat grain which
were imported from abroad, and being "merely parts of the
wheat grain milled to produce flour which had become
waste. CTA held that it is liable for the wharfage dues.
Held: For the government. The Court affirmed the ruling.
The language of Section 2802 appears to be quite explicit:
"There shall be levied, collected and paid on all articles
imported or brought into the Philippines, and on products of
the Philippines ... exported from the Philippines, a charge of
two pesos per gross metric ton as a fee for wharfage ...." In

its petition for review before respondent Court, Republic

Flour categorically asserted: "Petitioner is primarily engaged
in the manufacture of flour from wheat grain. In the process
of milling the wheat grain into flour, petitioner also produces
'bran' and 'pollard' which it exports abroad." The first and
fundamental duty of courts, in our judgment, is to apply the
law. Construction and interpretation come only after it has
been demonstrated that application is impossible or
inadequate without them. The law is clear; it must be
obeyed. It is as simple, as that. In statutory construction, the
search must be for a reasonable interpretation. The utmost
effort should be exerted lest the interpretation arrived at
does violence to the statutory language in its total context.
There is the fundamental postulate in statutory construction
requiring fidelity to the legislative purpose. What Congress
intended is not to be frustrates. Its objective must be carried
out.
Wonder Mechanical Engineering v. CTA
Facts: Wonder Mechanical Engineering Corp. was granted
tax exemption privilege under RA 35 in respect to the
manufacture of machines for making cigarette papers,
pails, washers, rivets, nails, candies, chairs, etc. The
company was given a Certificate of Tax Exemption on 7 July
1954, exemption it similarly as in RA 35 until 31 December
1958, with diminishing exemption until 20 June 1955. The
Commissioner assessed sales tax on gross sales of articles
manufactured by it, including steel chairs.
Held: For the taxpayer (on some exemptions). The Court
held that the company was granted tax exemption in the
manufacture and sale of machines for making cigarette
paper, pails, etc. but not for the manufacture and sale of
articles produced by those machines. The manufacture of
steel chairs, jeep parts, and other articles not constituting
machines for making certain products would not fall under
the classification of new and necessary industries
envisioned in RA 35 and 901 as to entitle the company to
tax exemption. Exemptions are highly disfavored in law and

he who claims tax exemption must be able to justify his

claim or right thereto by the clearest grant of organic or
statute law. Tax exemption must be clearly expressed and
cannot be established by implication
Luzon Stevedoring v. CTA
Facts: Luzon Stevedoring imported engine parts and other
equipment to repair and maintain its tugboats. The parts
were assessed with a compensating tax by the CIR. Luzon
Stevedoring paid the tax under protest but the CIR and CTA
granted him no refund. The CTA extracted the definition of
tugboat from various dictionaries. Aggrieved, Luzon
Stevedoring argues before the Supreme Court that his
tugboats are embraced under the term cargo vessels,
whose imported parts the Revenue Code exempts from
compensating tax He insists that in the eyes of the law, the
tugboat and a barge loaded with cargoes with the former
towing the latter for loading and unloading of a vessel in
part, constitute a single vessel. Therefore, Luzon
Stevedoring concludes, the engines, spare parts and
equipment imported by it and used in the repair and
maintenance of its tugboats are exempt from compensating
tax.
Held: For the government. The Court rejected Luzon
Stevedorings arguments, and it upheld the decision of the
CTA. The power of taxation is a high prerogative of
sovereignty, the relinquishment is never presumed and any
reduction or diminution thereof with respect to its mode or
its rate, must be strictly construed, and the same must be
coached in clear and unmistakable terms in order that it
may be applied. More specifically stated, the general rule is
that any claim for exemption from the tax statute should be
strictly construed against the taxpayer
Floro Cement v. Hon. Gorospe
Facts: The town of Lugait, Misamis Oriental sought to
collect taxes against Floro Cement, a cement manufacturer,

seller and exporter for taxes based on Ordinance No. 5. Floro

interposed 2 main defenses: first, that the power of LGUs to
tax mineral products was withdrawn by PD 463; and second,
that it was granted a tax exemption based on the same PD
463.
Held: For the government. Court ruled that since cement is
a manufactured product, and not a mineral product, the
power to tax such was not withdrawn by PD 463. Moreover,
it failed to definitively show its entitlement to a tax
exemption, the same being strictly construed against the
taxpayer. The power of taxation is a high prerogative of
sovereignty, the relinquishment is never presumed and any
reduction or diminution thereof with respect to its mode or
its rate, must be strictly construed, and the same must be
coached in clear and unmistakable terms in order that it
may be applied. More specifically stated, the general rule is
that any claim for exemption from the tax statute should be
strictly construed against the taxpayer He who claims an
exemption must be able to point out some provision of law
creating the right; it cannot be allowed to exist upon a mere
vague implication or inference. It must be shown indubitably
to exist, for every presumption is against it, and a wellfounded doubt is fatal to the claim.
CIR v. Carlos Ledesma
Facts: Respondents bought from their parents a parcel of
land in Negros Occidental known as Hacienda Fortuna, along
with its sugar quota. The parcel of land was divided into
three equal portions. Following their purchase, the
respondents took over the sugar cane farming and shared
equally the expenses of production, but got separate
quedans and Plantation Audits. They each included in their
individual income tax returns for the year 1949 their
respective net profits derived from their individual sugar
production. Subsequently, respondents organized
themselves into a general co-partnership under the firm
name Hacienda Fortuna for the production of sugar on the

whole parcel of land. The articles of general co-partnership

were registered well into the middle of the taxable year
1949. The petitioner CIR assessed the partnership with
corporate income tax for the year 1949, contending that the
tax law provision exempting partnerships from corporate
income tax can only be made applicable to respondents
after their registration of the articles of general copartnership. Hence, according to him, the profits netted by
the respondents prior to said registration are subject to
income tax, their case being that of an unregistered copartnership. The CTA, drawing from an administrative
interpretation of the BIR to the effect that the status of a
general partnership as a registered or unregistered general
co-partnership at the end of the taxable year determines its
liability or exemption from income tax for the entire taxable
year, ruled in favor of respondents.
Held: For the taxpayer. The Court affirmed the CTA decision.
The status-at-the-end-of-the-taxable-year rule Once a
partnership is registered during a taxable year that
partnership should be considered as registered partnership
exempt from the payment of corporate income tax during
that taxable year, and only the partners thereof should be
made to pay income tax on the profits of the partnership
that were divided among them. The policy of the law is to
encourage persons doing business under a partnership
agreement to have the partnership agreement, or the
articles of co-partnership, registered in the mercantile
registry, so that the public may know who the real partners
of the partnership are the capital stock of the partnership,
the interest or contribution of each partner in the capital
stock, the proportionate share of each, partner in the profits,
and the earnings or salaries of the partner or partners who
render service for the partnership.
Resins, Inc v. Auditor
Facts: Resins is seeking a refund from Central Bank on the
claim that it was exempt from the margin fee under RA 2609
for the importation of urea and formaldehyde, as separate

units, used for the production of synthetic glue of which it

was a manufacturer.
Held: For the government. SC agreed with the Auditor
General and the Central Bank that Resins is not exempt from
payment of the margin fee and likewise not entitled to
refund, because as previously held in the case of Casco
Philippine Chemical Co, Inc v. Gimenez, the Act provided
that urea and formaldehyde is different from urea
formaldehyde. As only urea formaldehyde is covered by the
margin fee exemption under the Act, Resins, as a
manufacturer of urea and formaldehyde, as separate units,
cannot claim such exemption.As a refund undoubtedly
partakes of a nature of an exemption, it cannot be allowed
unless granted in the most explicit and categorical
language.It has been the constant and uniform holding that
exemption from taxation is not favored and is never
presumed, so that if granted it must be strictly construed
against the taxpayer. Affirmatively put, the law frowns on
exemption from taxation, hence, an exempting provision
should be construed strictissimi juris.
CIR v. YMCA
Facts: Young Mens Christian Association of the Philippines
(YMCA) is a non-stock, non-profit institution, which conducts
various programs and activities that are beneficial to the
public, especially the young people, pursuant to its religious,
educational and charitable objectives. In 1980, YMCA
earned, among others, an income from leasing out a portion
of its premises to small shop owners, like restaurants and
canteen operators, and from parking fees collected from
non-members. On July 1984, the commissioner of internal
revenue (CIR) issued an assessment to private respondent,
in the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded
withholding taxes on rentals and professional fees and
deficiency withholding tax on wages. Both CTA and CA ruled
that it is reasonably necessary for YMCA to make the most
out of its existing facilities to earn some income; further

stating that the rental from small shops and parking fees do
not result in the loss of the exemption under Sec. 27 of the
Tax Code.
Held: For the government. A claim of statutory exemption
from taxation should be manifest. and unmistakable from
the language of the law on which it is based. In the instant
case, the exemption claimed by the YMCA is expressly
disallowed by the very wording of the last paragraph of then
Section 27 of the NIRC which mandates that the income of
exempt organizations (ie. YMCA) from any of their
properties, real or personal, be subject to the tax imposed
by the same Code. Because the last paragraph of said
section unequivocally subjects to tax the rent income of the
YMCA from its real property, the Court is duty-bound to
abide strictly by its literal meaning and to refrain from
resorting to any convoluted attempt at construction. It is
axiomatic that where the language of the law is clear and
unambiguous, its express terms must be applied.
Parenthetically, a consideration of the question of
construction must not even begin, particularly when such
question is on whether to apply a strict construction or a
liberal one on statutes that grant tax exemptions to
"religious, charitable and educational properties or
institutions."
Misamis Oriental v. DOF Secretary
Facts: RMC 49-91 was issued by the CIR reclassifying copra
from 103b to 103a. The reclassification had the effect of
denying to the petitioner the exemption it previously
enjoyed when copra was classified as an agricultural food
product under 103b of the NIRC. Petitioner assails this
circular under many grounds in a petition for prohibition.
Held: For the government. SC gave due credence to the
opinion of the CIR, in the absence of any showing that it is
plainly wrong, as it was made in the exercise of his power
under 245 of the NIRC. Thus the RMCs validity was upheld.

In interpreting 103(a) and (b) of the NIRC, the CIR gave it a

strict construction consistent with the rule that tax
exemptions must be strictly construed against the taxpayer
and liberally in favor of the state.Moreover, as the
government agency charged with the enforcement of the
law, the opinion of the Commissioner of Internal Revenue, in
the absence of any showing that it is plainly wrong, is
entitled to great weight. Indeed, the ruling was made by the
Commissioner of Internal Revenue in the exercise of his
power under 245 of the NIRC to make rulings or opinions
in connection with the implementation of the provisions of
internal revenue laws, including rulings on the classification
of articles for sales tax and similar purposes.
Nestle v. CA
Facts: Petitioner was assessed which it allegedly overpaid.
It filed a claim for refund, however the Collector failed to act
on this. He now contends that the fact overpayment was
established and resolved in a prior CTA case which ruled
that the Bureau of Customs used the wrong home
consumption value in assessing the tax.

Held: For the government. The Court disagreed with the

petitioner and ruled that based on the Tariff and Customs
Code, all claims for refund of customs duties, the Collector
to whom such customs duties are paid and upon receipt of
such claim is mandated to verify the same by the records of
his Office. Petitioners claim is thus not necessarily correct in
light of the Code.Customs duties is the name given to taxes
on the importation and exportation of commodities, the
tariff or tax assessed upon merchandise imported from, or
exported to, a foreign country. Any claim for refund of
customs duties, therefore, take the nature of tax exemptions
that must be construed strictissimi juris against the
claimants and liberally in favor of the taxing authority. This
power of taxation being a high prerogative of sovereignty,
its relinquishment is never presumed. Any reduction or
diminution thereof with respect to its mode or its rate must
be strictly construed, and the same must be couched in
clear and unmistakable terms in order that it may be
applied.