G.R. No. 209830. June 17, 2015.

MITSUBISHI MOTORS PHILIPPINES CORPORATION,

petitioner, vs. BUREAU OF CUSTOMS, respondent.
Remedial Law; Civil Procedure; Jurisdiction; It is axiomatic that jurisdiction over the
subject matter is the power to hear and determine the general class to which the proceedings
in question belong; it is conferred by law and not by the consent or acquiescence of any or
all of the parties or by erroneous belief of the court that it exists.—Jurisdiction is defined
as the power and authority of a court to hear, try, and decide a case. In order for the court
or an adjudicative body to have authority to dispose of the case on the merits, it must
acquire, among others, jurisdiction over the subject matter. It is axiomatic that
jurisdiction over the subject matter is the power to hear and determine the general class
to which the proceedings in question belong; it is conferred by law and not by the consent
or acquiescence of any or all of the parties or by erroneous belief of the court that it exists.
Thus, when a court has no jurisdiction over the subject matter, the only power it has is to
dismiss the action.
Taxation; Courts; Court of Tax Appeals; Jurisdiction; The Court of Tax Appeals (CTA)
has exclusive appellate jurisdiction over tax collection cases originally decided by the
Regional Trial Court (RTC).—The CTA has exclusive appellate jurisdictionover tax
collection cases originally decided by the RTC. In the instant case, the CA has no
jurisdiction over respondent’s appeal; hence, it cannot perform any action on the same
except to order its dismissal pursuant to Section 2, Rule 50 of the Rules of Court.
Therefore, the act of the CA in referring respondent’s wrongful appeal before it to the CTA
under the guise of furthering the interests of substantial justice is blatantly erroneous,
and thus, stands to be corrected. In Anderson v. Ho, 688 SCRA 8 (2013), the Court held
that the invocation of substantial justice is not a magic wand that would readily dispel
the application of procedural rules.
Remedial Law; Civil Procedure; Appeals; It is settled that the perfection of an appeal
in the manner and within the period set by law is not only mandatory, but jurisdictional
as well, and that failure to perfect an appeal within the period fixed by law renders the
judgment appealed from final and executory.—In view of respondent’s availment of a
wrong mode of appeal via notice of appeal stating that it was elevating the case to the CA
— instead of appealing by way of a petition for review to the CTA within thirty (30) days
from receipt of a copy of the RTC’s August 3, 2012 Order, as required by Section 11 of RA
1125, as amended by Section 9 of RA 9282 — the Court is constrained to deem the RTC’s
dismissal of respondent’s collection case against petitioner final and executory. It is
settled that the perfection of an appeal in the manner and within the period set by law is
not only mandatory, but jurisdictional as well, and that failure to perfect an appeal within
the period fixed by law renders the judgment appealed from final and executory.
PETITION for review on certiorari of the resolutions of the Court of Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo & Ongsiako for petitioner.
The Solicitor General for respondent.
PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Resolutions dated June
7, 20132 and November 4, 20133 of the Court of Appeals (CA) in C.A.-G.R. CV No.
99594, which referred the records of the instant case to the Court of Tax Appeals
(CTA) for proper disposition of the appeal taken by respondent Bureau of Customs
(respondent).
 The Facts

The instant case arose from a collection suit4 for unpaid taxes and customs
duties in the aggregate amount of P46,844,385.00 filed by respondent against
petitioner Mitsubishi Motors Philippines Corporation (petitioner) before the
Regional Trial Court of Manila, Branch 17 (RTC), docketed as Civil Case No. 02-
103763 (collection case).
Respondent alleged that from 1997 to 1998, petitioner was able to secure tax
credit certificates (TCCs) from various transportation companies; after which, it
made several importations and utilized said TCCs for the payment of various
customs duties and taxes in the aggregate amount of P46,844,385.00. 5 Believing
the authenticity of the TCCs, respondent allowed petitioner to use the same for
the settlement of such customs duties and taxes. However, a post-audit
investigation of the Department of Finance revealed that the TCCs were
fraudulently secured with the use of fake commercial and bank documents, and
thus, respondent deemed that petitioner never settled its taxes and customs duties
pertaining to the aforesaid importations.6 Thereafter, respondent demanded that
petitioner pay its unsettled tax and customs duties, but to no avail. Hence, it was
constrained to file the instant complaint.7
In its defense,8 petitioner maintained, inter alia, that it acquired the TCCs from
their original holders in good faith and that they were authentic, and thus, their
remittance to respondent should be considered as proper settlement of the taxes
and customs duties it incurred in connection with the aforementioned
importations.9
Initially, the RTC dismissed10 the collection case due to the continuous absences
of respondent’s counsel during trial.11 On appeal to the CA,12 and eventually the
Court,13the said case was reinstated and trial on the merits continued before the
RTC.14
After respondent’s presentation of evidence, petitioner filed a Demurrer to
Plaintiff’s Evidence15 on February 10, 2012, essentially contending that
respondent failed to prove by clear and convincing evidence that the TCCs were
fraudulently procured,16 and thus, prayed for the dismissal of the complaint.17 In
turn, respondent filed an Opposition18 dated March 7, 2012 refuting petitioner’s
contentions.

The RTC’s Ruling

In an Order19 dated April 10, 2012, the RTC granted petitioner’s Demurrer to
Plaintiff’s Evidence, and accordingly, dismissed respondent’s collection case on the
ground of insufficiency of evidence.20 It found that respondent had not shown any
proof or substantial evidence of fraud or conspiracy on the part of petitioner in the
procurement of the TCCs.21 In this connection, the RTC opined that fraud is never
presumed and must be established by clear and convincing evidence, which
petitioner failed to do, thus, necessitating the dismissal of the complaint.22
Respondent moved for reconsideration,23 which was, however, denied in an
Order24 dated August 3, 2012. Dissatisfied, it appealed25 to the CA.

The CA’s Ruling

 In a Resolution26 dated June 7, 2013, the CA referred the records of the
collection case to the CTA for proper disposition of the appeal taken by respondent.
While the CA admitted that it had no jurisdiction to take cognizance of
respondent’s appeal, as jurisdiction is properly lodged with the CTA, it
nevertheless opted to relax procedural rules in not dismissing the appeal
outright.27 Instead, the CA deemed it appropriate to simply refer the matter to the
CTA, considering that the government stands to lose the amount of
P46,844,385.00 in taxes and customs duties which can then be used for various
public works and projects.28
Aggrieved, petitioner filed a motion for reconsideration29on June 23, 2013,
arguing that since the CA does not have jurisdiction over respondent’s appeal, it
cannot perform any action on it except to order its dismissal.30 The said motion
was, however, denied in a Resolution31 dated November 4, 2013, hence, this
petition.

The Issue Before the Court

The core issue for the Court’s resolution is whether or not the CA correctly
referred the records of the collection case to the CTA for proper disposition of the
appeal taken by respondent.

The Court’s Ruling

The petition is meritorious.

Jurisdiction is defined as the power and authority of a court to hear, try, and
decide a case.32 In order for the court or an adjudicative body to have authority to
dispose of the case on the merits, it must acquire, among others, jurisdiction over
the subject matter.33 It is axiomatic that jurisdiction over the subject matter is the
power to hear and determine the general class to which the proceedings in
question belong; it is conferred by law and not by the consent or acquiescence of
any or all of the parties or by erroneous belief of the court that it exists. 34 Thus,
when a court has no jurisdiction over the subject matter, the only power it has is
to dismiss the action.35
Guided by the foregoing considerations and as will be explained hereunder, the
Court finds that the CA erred in referring the records of the collection case to the
CTA for proper disposition of the appeal taken by respondent.
Section 7 of Republic Act No. (RA) 1125,36 as amended by RA 9282,37 reads:
Sec. 7. Jurisdiction.—The CTA shall exercise:
xxxx
c. Jurisdiction over tax collection cases as herein provided:
xxxx
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them in their respective territorial
jurisdiction.
xxxx
 Similarly, Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeals,
as amended,38 states:

Sec. 3. Cases within the jurisdiction of the Court in Divisions.—The Court in

Divisions shall exercise:
xxxx
c. Exclusive jurisdiction over tax collections cases, to wit:
xxxx
2. Appellate jurisdiction over appeals from the judgments, resolutions or orders of the
Regional Trial Courts in tax collection cases originally decided by them within their
respective territorial jurisdiction.

Verily, the foregoing provisions explicitly provide that the CTA has exclusive
appellate jurisdiction over tax collection cases originally decided by the RTC.
In the instant case, the CA has no jurisdiction over respondent’s appeal; hence,
it cannot perform any action on the same except to order its dismissal pursuant to
Section 2, Rule 5039 of the Rules of Court. Therefore, the act of the CA in referring
respondent’s wrongful appeal before it to the CTA under the guise of furthering
the interests of substantial justice is blatantly erroneous, and thus, stands to be
corrected. In Anderson v. Ho,40 the Court held that the invocation of substantial
justice is not a magic wand that would readily dispel the application of procedural
rules,41 viz.:
x x x procedural rules are designed to facilitate the adjudication of cases. Courts and
litigants alike are enjoined to abide strictly by the rules. While in certain instances,
we allow a relaxation in the application of the rules, we never intend to forge a
weapon for erring litigants to violate the rules with impunity. The liberal
interpretation and application of rules apply only in proper cases of
demonstrable merit and under justifiable causes and circumstances. While it is
true that litigation is not a game of technicalities, it is equally true that every
case must be prosecuted in accordance with the prescribed procedure to ensure
an orderly and speedy administration of justice. Party-litigants and their counsels
are well advised to abide by rather than flaunt, procedural rules for these rules illumine
the path of the law and rationalize the pursuit of justice.42 (Emphasis and underscoring
supplied)

Finally, in view of respondent’s availment of a wrong mode of appeal via notice

of appeal stating that it was elevating the case to the CA — instead of appealing
by way of a petition for review to the CTA within thirty (30) days from receipt of a
copy of the RTC’s August 3, 2012 Order, as required by Section 11 of RA 1125, as
amended by Section 9 of RA 928243 —the Court is constrained to deem the RTC’s
dismissal of respondent’s collection case against petitioner final and executory. It
is settled that the perfection of an appeal in the manner and within the period set
by law is not only mandatory, but jurisdictional as well, and that failure to perfect
an appeal within the period fixed by law renders the judgment appealed from final
and executory.44 The Court’s pronouncement in Team Pacific Corporation v.
Daza45 is instructive on this matter, to wit:46
Although appeal is an essential part of our judicial process, it has been held, time and
again, that the right thereto is not a natural right or a part of due process but is merely a
statutory privilege. Thus, the perfection of an appeal in the manner and within the period
prescribed by law is not only mandatory but also jurisdictional and failure of a party to
conform to the rules regarding appeal will render the judgment final and executory. Once
a decision attains finality, it becomes the law of the case irrespective of whether the
decision is erroneous or not and no court — not even the Supreme Court — has the power
to revise, review, change or alter the same. The basic rule of finality of judgment is
grounded on the fundamental principle of public policy and sound practice that, at the
risk of occasional error, the judgment of courts and the award of quasi-judicial agencies
must become final at some definite date fixed by law.
WHEREFORE, the petition is GRANTED.Accordingly, the Resolutions dated
June 7, 2013 and November 4, 2013 of the Court of Appeals (CA) in C.A.-G.R. CV
No. 99594 are hereby REVERSED and SET ASIDE.Accordingly, a new one is
entered DISMISSING the appeal of respondent Bureau of Customs to the Court
of Appeals.
SO ORDERED.
Sereno (CJ., Chairperson), Leonardo-De Castro, Bersamin and Perez, JJ.,
concur.
Petition granted, resolutions reversed and set aside.
Notes.—The Court of Tax Appeals (CTA), sitting as Division, has jurisdiction
to review by appeal the decisions, rulings and resolutions of the Regional Trial
Court (RTC) over local tax cases, which includes real property taxes. (National
Power Corporation vs. Municipal Government of Navotas, 741 SCRA 505 [2014])
To proceed heedlessly with tax collection without first establishing a valid
assessment is evidently violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present their case and adduce
supporting evidence. (Commissioner of Internal Revenue vs. BASF Coating + Inks
Phils., Inc., 743 SCRA 113 [2014])
——o0o——
 G.R. No. 181756. June 15, 2015.*

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA),

petitioner, vs. CITY OF LAPU-LAPU and ELENA T. PACALDO, respondents.
Taxation; Real Property Taxes; Tax Exemption; Mactan-Cebu International Airport
Authority (MCIAA) is an instrumentality of the government; thus, its properties actually,
solely and exclusively used for public purposes, consisting of the airport terminal building,
airfield, runway, taxiway and the lots on which they are situated, are not subject to real
property tax and respondent City is not justified in collecting taxes from petitioner over
said properties.—The petition has merit. The petitioner is an instrumentality of the
government; thus, its properties actually, solely and exclusively used for public purposes,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on which
they are situated, are not subject to real property tax and respondent City is not justified
in collecting taxes from petitioner over said properties.
Same; Same; Same; In 2006, the Supreme Court (SC) En Banc decided a case that in
effect reversed the 1996 Mactan ruling.—While it is true, as respondents allege, that the
1996 MCIAAcase was cited in a long line of cases, still, in 2006, the Court En Banc decided
a case that in effect reversed the 1996 Mactanruling. The 2006 MIAA case had, since the
promulgation of the questioned Decision and Resolution, reached finality and had in fact
been either affirmed or cited in numerous cases by the Court. The decision became final
and executory on November 3, 2006. Furthermore, the 2006 MIAA case was decided by
the Court En Banc while the 1996 MCIAA case was decided by a Division. Hence, the
1996 MCIAA case should be read in light of the subsequent and unequivocal ruling in the
2006 MIAA case.
Same; Same; Same; The Supreme Court (SC) in the 2006 MIAA case cited Section
234(a) of the Local Government Code (LGC) and held that said provision exempts from
real estate tax any “[r]ealproperty owned by the Republic of the Philippines.”—The Court
held that MIAA is “merely holding title to the Airport Lands and Buildings in trust for
the Republic. [Under] Section 48, Chapter 12, Book I of the Administrative Code [which]
allows instrumentalities like MIAA to hold title to real properties owned by the Republic.”
The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code and
held that said provision exempts from real estate tax any “[r]eal property owned by the
Republic of the Philippines.” The Court emphasized, however, that “portions of the Airport
Lands and Buildings that MIAA leases to private entities are not exempt from real estate
tax.” The Court further held: This exemption should be read in relation with Section
133(o) of the same Code, which prohibits local governments from imposing “[t]axes, fees
or charges of any kind on the National Government, its agencies and instrumentalities
x x x.” The real properties owned by the Republic are titled either in the name of the
Republic itself or in the name of agencies or instrumentalities of the National
Government. The Administrative Code allows real property owned by the Republic to be
titled in the name of agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when title of the real property
is transferred to an agency or instrumentality even as the Republic remains the owner of
the real property. Such arrangement does not result in the loss of the tax exemption.
Section 234(a) of the Local Government Code states that real property owned by the
Republic loses its tax exemption only if the “beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.” MIAA, as a government instrumentality,
is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if
we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands
and Buildings, such fact does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities
are not exempt from real estate tax. For example, the land area occupied by hangars that
MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has
granted the beneficial use of such land area for a consideration to a taxable person and
therefore such land area is subject to real estate tax.
Government Service Insurance System; In Government Service Insurance System v.
City Treasurer and City Assessor of the City of Manila, 609 SCRA 330 (2009), the Supreme
Court (SC) found that the Government Service Insurance System (GSIS) was also a
government instrumentality and not a government-owned or -controlled
corporations (GOCC), applying the 2006 MIAA case even though the GSIS was not among
those specifically mentioned by the Court as similarly situated as Manila International
Airport Authority (MIAA).—In Government Service Insurance System v. City Treasurer
and City Assessor of the City of Manila, 609 SCRA 330 (2009), the Court found that the
GSIS was also a government instrumentality and not a GOCC, applying the
2006 MIAA case even though the GSIS was not among those specifically mentioned by the
Court as similarly situated as MIAA.
Taxation; Real Property Taxes; Tax Exemption; Petitioner Mactan-Cebu International
Airport Authority (MCIAA), with its many similarities to the Manila International Airport
Authority (MIAA), should be classified as a government instrumentality, as its properties
are being used for public purposes, and should be exempt from real estate taxes.—All the
more do we find that petitioner MCIAA, with its many similarities to the MIAA, should
be classified as a government instrumentality, as its properties are being used for public
purposes, and should be exempt from real estate taxes. This is not to derogate in any way
the delegated authority of local government units to collect realty taxes, but to uphold the
fundamental doctrines of uniformity in taxation and equal protection of the laws, by
applying all the jurisprudence that have exempted from said taxes similar authorities,
agencies, and instrumentalities, whether covered by the 2006 MIAA ruling or not. To
reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-
stock corporation, which is a necessary condition before an agency or instrumentality is
deemed a government-owned or -controlled corporation. Like MIAA, petitioner MCIAA
has capital under its charter but it is not divided into shares of stock. It also has no
stockholders or voting shares.
Same; Same; Same; Public Dominion; Like in Manila International Airport Authority
(MIAA), the airport lands and buildings of Mactan-Cebu International Airport Authority
(MCIAA) are properties of public dominion because they are intended for public use. As
properties of public dominion, they indisputably belong to the State or the Republic of the
Philippines, and are outside the commerce of man.—Like in MIAA, the airport lands and
buildings of MCIAA are properties of public dominion because they are intended for public
use. As properties of public dominion, they indisputably belong to the State or the
Republic of the Philippines, and are outside the commerce of man. This, unless petitioner
leases its real property to a taxable person, the specific property leased becomes subject
to real property tax; in which case, only those portions of petitioner’s properties which are
leased to taxable persons like private parties are subject to real property tax by the City
of Lapu-Lapu.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals (Cebu City).
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Office of the City Attorney for respondents.
LEONARDO-DE CASTRO, J.:
 This is a clear opportunity for this Court to clarify the effects of our two previous
decisions, issued a decade apart, on the power of local government units to collect
real property taxes from airport authorities located within their area, and the
nature or the juridical personality of said airport authorities.
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules
of Civil Procedure seeking to reverse and set aside the October 8,
2007 Decision1 of the Court of Appeals (Cebu City) in C.A.-G.R. S.P. No.
01360 and the February 12, 2008 Resolution2 denying petitioner’s motion for
reconsideration.

The Facts

Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created

by Congress on July 31, 1990 under Republic Act No. 69583 to “undertake the
economical, efficient and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the Lahug Airport in
Cebu City x x x and such other airports as may be established in the Province of
Cebu.” It is represented in this case by the Office of the Solicitor General.
Respondent City of Lapu-Lapu is a local government unit and political
subdivision, created and existing under its own charter with capacity to sue and
be sued. Respondent Elena T. Pacaldo was impleaded in her capacity as the City
Treasurer of respondent City.
Upon its creation, petitioner enjoyed exemption from realty taxes under the
following provision of Republic Act No. 6958:
Section 14. Tax Exemptions.—The Authority shall be exempt from realty taxes
imposed by the National Government or any of its political subdivisions, agencies and
instrumentalities: Provided, That no tax exemption herein granted shall extend to any
subsidiary which may be organized by the Authority.

On September 11, 1996, however, this Court rendered a decision in Mactan-

Cebu International Airport Authority v. Marcos4 (the 1996 MCIAA case) declaring
that upon the effectivity of Republic Act No. 7160 (The Local Government Code of
1991), petitioner was no longer exempt from real estate taxes. The Court held:
Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity
of the LGC, exemptions from payment of real property taxes granted to natural or
juridical persons, including government-owned or -controlled corporations, except as
provided in the said section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax granted it in Section
14 of its Charter, R.A. No. 6958, has been withdrawn. x x x.

On January 7, 1997, respondent City issued to petitioner a Statement of Real

Estate Tax assessing the lots comprising the Mactan International Airport in the
amount of P162,058,959.52. Petitioner complained that there were discrepancies
in said Statement of Real Estate Tax as follows:
(a) [T]he statement included lots and buildings not found in the inventory of
petitioner’s real properties;
(b) [S]ome of the lots were covered by two separate tax declarations which resulted
in double assessment;
(c) [There were] double entries pertaining to the same lots; and
 (d) [T]he statement included lots utilized exclusively for governmental purposes.5

Respondent City amended its billing and sent a new Statement of Real Estate
Tax to petitioner in the amount of P151,376,134.66. Petitioner averred that this
amount covered real estate taxes on the lots utilized solely and exclusively for
public or governmental purposes such as the airfield, runway and taxiway, and
the lots on which they are situated.6
Petitioner paid respondent City the amount of four million pesos
(P4,000,000.00) monthly, which was later increased to six million pesos
(P6,000,000.00) monthly. As of December 2003, petitioner had paid respondent
City a total of P275,728,313.36.7
Upon request of petitioner’s General Manager, the Secretary of the Department
of Justice (DOJ) issued Opinion No. 50, Series of 1998,8 and we quote the pertinent
portions of said Opinion below:
You further state that among the real properties deemed transferred to MCIAA are
the airfield, runway, taxiway and the lots on which the runway and taxiway are situated,
the tax declarations of which were transferred in the name of the MCIAA. In 1997, the
City of Lapu-Lapu imposed real estate taxes on these properties invoking the provisions
of the Local Government Code.
It is your view that these properties are not subject to real property tax because they
are exclusively used for airport purposes. You said that the runway and taxiway are not
only used by the commercial airlines but also by the Philippine Air Force and other
government agencies. As such and in conjunction with the above interpretation of Section
15 of R.A. No. 6958, you believe that these properties are considered owned by the
Republic of the Philippines. Hence, this request for opinion.
The query is resolved in the affirmative. The properties used for airport
purposes (i.e., airfield, runway, taxiway and the lots on which the runway and
taxiway are situated) are owned by the Republic of the Philippines.
xxxx
Under the Law on Public Corporations, the legislature has complete control over the
property which a municipal corporation has acquired in its public or governmental
capacity and which is devoted to public or governmental use. The municipality in dealing
with said property is subject to such restrictions and limitations as the legislature may
impose. On the other hand, property which a municipal corporation acquired in its private
or proprietary capacity, is held by it in the same character as a private individual. Hence,
the legislature in dealing with such property, is subject to the constitutional restrictions
concerning property (Martin, Public Corporations [1997], p. 30; see also Province of
Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]). The same may be said of
properties transferred to the MCIAA and used for airport purposes, such as those involved
herein. Since such properties are of public dominion, they are deemed held by the MCIAA
in trust for the Government and can be alienated only as may be provided by law.
Based on the foregoing, it is our considered opinion that the properties used
for airport purposes, such as the airfield, runway and taxiway and the lots on
which the runway and taxiway are located, are owned by the State or by the
Republic of the Philippines and are merely held in trust by the MCIAA,
notwithstanding that certificates of titles thereto may have been issued in the
name of the MCIAA. (Emphases added)

Based on the above DOJ Opinion, the Department of Finance issued a

2nd Indorsement to the City Treasurer of Lapu-Lapu dated August 3, 1998,9 which
reads:
 The distinction as to which among the MCIAA properties are still considered “owned
by the State or by the Republic of the Philippines,” such as the resolution in the above
cited DOJ Opinion No. 50, for purposes of real property tax exemption is hereby deemed
tenable considering that the subject “airfield, runway, taxiway and the lots on which the
runway and taxiway are situated” appears to be the subject of real property tax
assessment and collection of the city government of Lapu-Lapu, hence, the same are
definitely located within the jurisdiction of Lapu-Lapu City.
Moreover, then Undersecretary Antonio P. Belicena of the Department of
Finance, in his 1st Indorsement dated May 18, 1998, advanced that “this
Department (DOF) interposes no objection to the request of Mactan-Cebu
International Airport Authority for exemption from payment of real property
tax on the property used for airport purposes” mentioned above.
The City Assessor, therefore, is hereby instructed to transfer the assessment
of the subject airfield, runway, taxiway and the lots on which the runway and
taxiway are situated, from the “Taxable Roll” to the “Exempt Roll” of real
properties.
The City Treasurer thereat should be informed on the action taken for his immediate
appropriate action. (Emphases added)

Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of

Real Property Tax Balances up to the year 2002 reflecting the amount of
P246,395,477.20. Petitioner claimed that the statement again included the lots
utilized solely and exclusively for public purpose such as the airfield, runway, and
taxiway and the lots on which these are built. Respondent Pacaldo then issued
Notices of Levy on 18 sets of real properties of petitioner.10
Petitioner filed a petition for prohibition11 with the Regional Trial Court (RTC)
of Lapu-Lapu City with prayer for the issuance of a temporary restraining order
(TRO) and/or a writ of preliminary injunction, docketed as SCA No. 6056-L.
Branch 53 of RTC Lapu-Lapu City then issued a 72-hour TRO. The petition for
prohibition sought to enjoin respondent City from issuing a warrant of levy against
petitioner’s properties and from selling them at public auction for delinquency in
realty tax obligations. The petition likewise prayed for a declaration that the
airport terminal building, the airfield, runway, taxiway and the lots on which they
are situated are exempted from real estate taxes after due hearing. Petitioner
based its claim of exemption on DOJ Opinion No. 50.
The RTC issued an Order denying the motion for extension of the TRO. Thus,
on December 10, 2003, respondent City auctioned 27 of petitioner’s properties. As
there was no interested bidder who participated in the auction sale, respondent
City forfeited and purchased said properties. The corresponding Certificates of
Sale of Delinquent Property were issued to respondent City.12
Petitioner claimed before the RTC that it had discovered that respondent City
did not pass any ordinance authorizing the collection of real property tax, a tax for
the special education fund (SEF), and a penalty interest for its nonpayment.
Petitioner argued that without the corresponding tax ordinances, respondent City
could not impose and collect real property tax, an additional tax for the SEF, and
penalty interest from petitioner.13
The RTC issued an Order14 on December 28, 2004 granting petitioner’s
application for a writ of preliminary injunction. The pertinent portions of the
Order are quoted below:
 The supervening legal issue has rendered it imperative that the matter of the
consolidation of the ownership of the auctioned properties be placed on hold. Furthermore,
it is the view of the Court that great prejudice and damage will be suffered by petitioner
if it were to lose its dominion over these properties now when the most important legal
issue has still to be resolved by the Court. Besides, the respondents and the intervenor
have not sufficiently shown cause why petitioner’s application should not be granted.
WHEREFORE, the foregoing considered, petitioner’s application for a writ of
preliminary injunction is granted. Consequently, upon the approval of a bond in the
amount of one million pesos (P1,000,000.00), let a writ of preliminary injunction issue
enjoining the respondents, the intervenor, their agents or persons acting in [their] behalf,
to desist from consolidating and exercising ownership over the properties of the petitioner.

However, upon motion of respondents, the RTC lifted the writ of preliminary
injunction in an Order15 dated December 5, 2005. The RTC reasoned as follows:
The respondent City, in the course of the hearing of its motion, presented to this Court
a certified copy of its Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-
Lapu), Section 25 whereof authorized the collection of a rate of one and one-half (1 1/2)
[per centum] from owners, executors or administrators of any real estate lying within the
jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in the latest
revision.
Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160
(Local Government Code of 1991), to the mind of the Court this ordinance is still a valid
and effective ordinance in view of Sec. 529 of RA 7160 x x x [and the] Implementing Rules
and Regulations of RA 7160 x x x.
xxxx
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160,
though the 25% penalty collected is higher than the 2% interest allowed under Sec. 255
of the said law which provides:
In case of failure to pay the basic real property tax or any other tax levied under this
Title upon the expiration of the periods as provided in Section 250, or when due, as the
case may be, shall subject the taxpayer to the payment of interest at the rate of two
percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent
tax shall have been fully paid: Provided, however, That in no case shall the total interest
on the unpaid tax or portion thereof exceed thirty-six (36) months.
This difference does not however detract from the essential enforceability and
effectivity of Ordinance No. 44 pursuant to Section 529 of RA 7160 and Article 278 of the
Implementing Rules and Regulations. The outcome of this disparity is simply that
respondent City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent City [has] to recompute the petitioner’s tax liability.
It is also the Court’s perception that respondent City can still collect the additional 1%
tax on real property without an ordinance to this effect. It may be recalled that Republic
Act No. 5447 has created the Special Education Fund which is constituted from the
proceeds of the additional tax on real property imposed by the law. Respondent City has
collected this tax as mandated by this law without any ordinance for the purpose, as there
is no need for it. Even when RA 5447 was amended by PD 464 (Real Property Tax Code),
respondent City had continued to collect the tax, as it used to.
It is true that RA 7160 has repealed RA 5447, but what has been repealed are only
Section 3, a(3) and b(2) which concern the allocation of the additional tax, considering that
under RA 7160, the proceeds of the additional 1% tax on real property accrue exclusively
to the Special Education Fund. Nevertheless, RA 5447 has not been totally repealed; there
is only a partial repeal.
 It may be observed that there is no requirement in RA 7160 that an ordinance be
enacted to enable the collection of the additional 1% tax. This is so since RA 5447 is still
in force and effect, and the declared policy of the government in enacting the law, which
is to contribute to the financial support of the goals of education as provided in the
Constitution, necessitates the continued and uninterrupted collection of the tax.
Considering that this is a tax of far-reaching importance, to require the passage of an
ordinance in order that the tax may be collected would be to place the collection of the tax
at the option of the local legislature. This would run counter to the declared policy of the
government when the SEF was created and the tax imposed.
As regards the allegation of respondents that this Court has no jurisdiction to entertain
the instant petition, the Court deems it proper, at this stage of the proceedings, not to
treat this issue, as it involves facts which are yet to be established.
x x x [T]he Court’s issuance of a writ of preliminary injunction may appear to be a
futile gesture in the light of Section 263 of RA 7160. x x x.
xxxx
It would seem from the foregoing provisions, that once the taxpayer fails to redeem
within the one-year period, ownership fully vests on the local government unit concerned.
Thus, when in the present case petitioner failed to redeem the parcels of land acquired by
respondent City, the ownership thereof became fully vested on respondent City without
the latter having to perform any other acts to perfect its ownership. Corollary thereto,
ownership on the part of respondent City has become a fait accompli.
WHEREFORE, in the light of the foregoing considerations, respondents’ motion for
reconsideration is granted, and the order of this Court dated December 28, 2004 is hereby
reconsidered. Consequently, the writ of preliminary injunction issued by this Court is
hereby lifted.
Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals
(Cebu City), with urgent prayer for the issuance of a TRO and/or writ of
preliminary injunction, docketed as C.A.-G.R. S.P. No. 01360. The Court of
Appeals (Cebu City) issued a TRO17 on January 5, 2006 and shortly thereafter,
issued a writ of preliminary injunction18 on February 17, 2006.

Ruling of the Court of Appeals

The Court of Appeals (Cebu City) promulgated the questioned Decision on

October 8, 2007, holding that petitioner is a government-owned or -controlled
corporation and its properties are subject to realty tax. The dispositive portion of
the questioned Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:
a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the
lots on which they are situated NOT EXEMPT from the real estate tax imposed by the
respondent City of Lapu-Lapu;
b. We DECLARE the imposition and collection of the real estate tax, the additional
levy for the Special Education Fund and the penalty interest as VALID and LEGAL.
However, pursuant to Section 255 of the Local Government Code, respondent city can only
collect an interest of 2% per month on the unpaid tax which total interest shall, in no case,
exceed thirty-six (36) months;
c. We DECLARE the sale in public auction of the aforesaid properties and the
eventual forfeiture and purchase of the subject property by the respondent City of Lapu-
Lapu as NULL and VOID. However, petitioner MCIAA’s property is encumbered only by
a limited lien possessed by the respondent City of Lapu-Lapu in accord with Section 257
of the Local Government Code.19
 Petitioner filed a Motion for Partial Reconsideration20 of the questioned
Decision covering only the portion of said decision declaring that petitioner is a
GOCC and, therefore, not exempt from the realty tax and special education fund
imposed by respondent City. Petitioner cited Manila International Airport
Authority v. Court of Appeals21 (the 2006 MIAA case) involving the City of
Parañaque and the Manila International Airport Authority. Petitioner claimed
that it had been described by this Court as a government instrumentality, and
that it followed “as a logical consequence that petitioner is exempt from the taxing
powers of respondent City of Lapu-Lapu.”22 Petitioner alleged that the
1996 MCIAA case had been overturned by the Court in the 2006 MIAA case.
Petitioner thus prayed that it be declared exempt from paying the realty tax,
special education fund, and interest being collected by respondent City.
On February 12, 2008, the Court of Appeals denied petitioner’s motion for
partial reconsideration in the questioned Resolution.
The Court of Appeals followed and applied the precedent established in the
1996 MCIAA case and refused to apply the 2006 MIAA case. The Court of Appeals
wrote in the questioned Decision: “We find that our position is in line with the
coherent and cohesive interpretation of the relevant provisions of the Local
Government Code on local taxation enunciated in the [1996 MCIAA] case which to
our mind is more elegant and rational and provides intellectual clarity than the
one provided by the Supreme Court in the [2006] MIAA case.”23
In the questioned Decision, the Court of Appeals held that petitioner’s airport
terminal building, airfield, runway, taxiway, and the lots on which they are
situated are not exempt from real estate tax reasoning as follows:
Under the Local Government Code (LGC for brevity), enacted pursuant to the
constitutional mandate of local autonomy, all natural and juridical persons, including
government-owned or -controlled corporations (GOCCs), instrumentalities and agencies,
are no longer exempt from local taxes even if previously granted an exemption. The only
exemptions from local taxes are those specifically provided under the Code itself, or those
enacted through subsequent legislation.
Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides
for the exercise by local government units of their power to tax, the scope thereof or its
limitations, and the exemptions from local taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of local
government units. x x x.
xxxx
The above stated provision, however, qualified the exemption of the National
Government, its agencies and instrumentalities from local taxation with the phrase
“unless otherwise provided herein.”
Section 232 of the LGC provides for the power of the local government units (LGUs for
brevity) to levy real property tax. x x x. x x x x
Section 234 of the LGC provides for the exemptions from payment of real property
taxes and withdraws previous exemptions granted to natural and juridical persons,
including government-owned and -controlled corporations, except as provided therein.
x x x.
xxxx
Section 193 of the LGC is the general provision on withdrawal of tax exemption
privileges. x x x.24 (Citations omitted)
 The Court of Appeals went on to state that contrary to the ruling of the Supreme
Court in the 2006 MIAA case, it finds and rules that:
a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to
tax the National Government, its agencies and instrumentalities as the same is qualified
by Sections 193, 232 and 234 which “otherwise provided”; and
b) Petitioner MCIAA is a GOCC.25 (Emphasis ours)

The Court of Appeals ratiocinated in the following manner:

Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously
enjoyed by persons, whether natural or juridical, like the petitioner MCIAA, are deemed
withdrawn upon the effectivity of the Code. Further, the last paragraph of Section 234 of
the Code also unequivocally withdrew, upon the Code’s effectivity, exemptions from
payment of real property taxes previously granted to natural or juridical persons,
including government-owned or -controlled corporations, except as provided in the said
section. Petitioner MCIAA, undoubtedly a juridical person, it follows that its exemption
from such tax granted under Section 14 of R.A. 6958 has been withdrawn.
xxxx
From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC,
instrumentalities were generally exempt from all forms of local government taxation,
unless otherwise provided in the Code. On the other hand, Section 232 “otherwise
provided” insofar as it allowed local government units to levy an ad valorem real property
tax, irrespective of who owned the property. At the same time, the imposition of real
property taxes under Section 232 is, in turn, qualified by the phrase “not hereinafter
specifically exempted.” The exemptions from real property taxes are enumerated in
Section 234 of the Code which specifically states that only real properties owned by the
Republic of the Philippines or any of its political subdivisions are exempted from the
payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions
under Section 234 of the LGC.
Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national
government, its agencies and instrumentalities under Section 133 is qualified by Sections
232 and 234, and accordingly, the only relevant exemption now applicable to these bodies
is what is now provided under Section 234(a) of the Code. It may be noted that the express
withdrawal of previously granted exemptions to persons from the payment of real
property tax by the LGC does not even make any distinction as to whether the exempt
person is a governmental entity or not. As Sections 193 and 234 of the Code both state,
the withdrawal applies to “all persons, including GOCCs,” thus encompassing the two
classes of persons recognized under our laws, natural persons and juridical persons.
xxxx
The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has
already been lengthily but soundly, cogently and lucidly answered in the [1996 MCIAA]
case x x x.
Based on the foregoing, the claim of the majority of the Supreme Court in the
[2006 MIAA] case that MIAA (and also petitioner MCIAA) is not a government-owned or
-controlled corporation but an instrumentality based on Section 2(10) of the
Administrative Code of 1987 appears to be unsound. In the [2006 MIAA] case, the
majority justifies MIAA’s purported exemption on Section 133(o) of the Local Government
Code which places “agencies and instrumentalities: as generally exempt from the taxation
powers of the LGUs.” It further went on to hold that “By express mandate of the Local
Government Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA.” x x x.26 (Citations omitted)
 The Court of Appeals further cited Justice Tinga’s dissent in the
2006 MIAA case as well as provisions from petitioner MCIAA’s charter to show
that petitioner is a GOCC.27 The Court of Appeals wrote:
These cited provisions establish the fitness of the petitioner MCIAA to be the subject
of legal relations. Under its charter, it has the power to acquire, possess and incur
obligations. It also has the power to contract in its own name and to acquire title to
movable or immovable property. More importantly, it may likewise exercise powers of a
corporation under the Corporation Code. Moreover, based on its own allegation, it even
recognized itself as a GOCC when it alleged in its petition for prohibition filed before the
lower court that it “is a body corporate organized and existing under Republic Act No.
6958 x x x.”
We also find to be not meritorious the assertion of petitioner MCIAA that the
respondent city can no longer challenge the tax-exempt character of the properties since
it is estopped from doing so when respondent City of Lapu-Lapu, through its former
mayor, Ernest H. Weigel, Jr., had long ago conceded that petitioner’s properties are
exempt from real property tax.
It is not denied by the respondent city that it considered, through its former mayor,
Ernest H. Weigel, Jr., petitioner’s subject properties, specifically the runway and taxiway,
as exempt from taxes. However, as astutely pointed out by the respondent city it “can
never be in estoppel, particularly in matters involving taxes. It is a well-known rule that
erroneous application and enforcement of the law by public officers do not preclude
subsequent correct application of the statute, and that the Government is never estopped
by mistake or error on the part of its agents.”28 (Citations omitted)

The Court of Appeals established the following:

a) [R]espondent City was able to prove and establish that it has a valid and existing
ordinance for the imposition of realty tax against petitioner MCIAA;
b) [T]he imposition and collection of additional levy of 1% Special Education Fund
(SEF) is authorized by law, Republic Act No. 5447; and
c) [T]he collection of penalty interest for delinquent taxes is not only authorized by
law but is likewise [sanctioned] by respondent City’s ordinance.29

The Court of Appeals likewise held that respondent City has a valid and
existing local tax ordinance, Ordinance No. 44, or the Omnibus Tax Ordinance of
Lapu-Lapu City, which provided for the imposition of real property tax. The
relevant provision reads:
Chapter 5 – Tax on Real Property Ownership
Section 25. RATE OF TAX.—A rate of one and one-half (1 1/2) per centum shall be
collected from owners, executors or administrators of any real estate lying within the
territorial jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in
the latest revision.30

The Court of Appeals found that even if Ordinance No. 44 was enacted prior to
the effectivity of the LGC, it remained in force and effect, citing Section 529 of the
LGC and Article 278 of the LGC’s Implementing Rules and Regulations.31
As regards the Special Education Fund, the Court of Appeals held that
respondent City can still collect the additional 1% tax on real property even
without an ordinance to this effect, as this is authorized by Republic Act No. 5447,
as amended by Presidential Decree No. 464 (the Real Property Tax Code), which
does not require an enabling tax ordinance.
 The Court of Appeals affirmed the RTC’s ruling that Republic Act No. 5447 was
still in force and effect notwithstanding the passing of the LGC, as the latter only
partially repealed the former law. What Section 534 of the LGC repealed was
Section 3(a)(3) and (b)(2) of Republic Act No. 5447, and not the entire law that
created the Special Education Fund.32 The repealed provisions referred to
allocation of taxes on Virginia type cigarettes and duties on imported leaf tobacco
and the percentage remittances to the taxing authority concerned. The Court of
Appeals, citing The Commission on Audit of the Province of Cebu v. Province of
Cebu,33 held that “[t]he failure to add a specific repealing clause particularly
mentioning the statute to be repealed indicates that the intent was not to repeal
any existing law on the matter, unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and the old laws.”34 The Court of Appeals
quoted the RTC’s discussion on this issue, which we reproduce below:
It may be observed that there is no requirement in RA 7160 that an ordinance
be enacted to enable the collection of the additional 1% tax. This is so since R.A.
5447 is still in force and effect, and the declared policy of the government in
enacting the law, which is to contribute to the financial support of the goals of
education as provided in the Constitution, necessitates the continued and
uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be
collected would be to place the collection of the tax at the option of the local
legislature. This would run counter to the declared policy of the government when
the SEF was created and the tax imposed.35
Regarding the penalty interest, the Court of Appeals found that Section 30 of
Ordinance No. 44 of respondent City provided for a penalty surcharge of 25% of
the tax due for a given year. Said provision reads:
Section 30. PENALTY FOR FAILURE TO PAY TAX.—Failure to pay the tax
provided for under this Chapter within the time fixed in Section 27, shall subject the
taxpayer to a surcharge of twenty-five percent (25%), without interest.36

The Court of Appeals however declared that after the effectivity of the Local
Government Code, the respondent City could only collect penalty surcharge up to
the extent of 72%, covering a period of three years or 36 months, for the entire
delinquent property.37 This was lower than the 25% per annum surcharge imposed
by Ordinance No. 44.38 The Court of Appeals affirmed the findings of the RTC in
the decision quoted below:
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160,
though the 25% penalty collected is higher than the 2% allowed under Sec. 255 of the said
law which provides:
xxxx
This difference does not however detract from the essential enforceability and
effectivity of Ordinance No. 44 pursuant to Section 529 of RA No. 7160 and Article 278 of
the Implementing Rules and Regulations. The outcome of this disparity is simply that
respondent City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent city will have to [recompute] the petitioner’s tax liability.39

It is worthy to note that the Court of Appeals nevertheless held that

even if it is clear that respondent City has the power to impose real
property taxes over petitioner, “it is also evident and categorical that,
under Republic Act No. 6958, the properties of petitioner MCIAA may not
be conveyed or transferred to any person or entity except to the national
government.”40 The relevant provisions of the said law are quoted below:
Section 4. Functions, Powers and Duties.—The Authority shall have the
following functions, powers and duties:
xxxx
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose
of any land, building, airport facility, or property of whatever kind and nature, whether
movable or immovable, or any interest therein: Provided, That any asset located in the
Mactan International Airport important to national security shall not be subject to
alienation or mortgage by the Authority nor to transfer to any entity other than the
National Government[.]
Section 13. Borrowing Power.—The Authority may, in accordance with Section
21, Article XII of the Constitution and other existing laws, rules and regulations on local
or foreign borrowing, raise funds, either from local or international sources, by way of
loans, credit or securities, and other borrowing instruments with the power to create
pledges, mortgages and other voluntary liens or encumbrances on any of its assets or
properties, subject to the prior approval of the President of the Philippines.
All loans contracted by the Authority under this section, together with all interests
and other sums payable in respect thereof, shall constitute a charge upon all the revenues
and assets of the Authority and shall rank equally with one another, but shall have
priority over any other claim or charge on the revenue and assets of the
Authority: Provided, That this provision shall not be construed as a prohibition or
restriction on the power of the Authority to create pledges, mortgages and other voluntary
liens or encumbrances on any asset or property of the Authority.
The payment of the loans or other indebtedness of the Authority may be guaranteed
by the National Government subject to the approval of the President of the Philippines.

The Court of Appeals concluded that “it is clear that petitioner MCIAA is denied
by its charter the absolute right to dispose of its property to any person or entity
except to the national government and it is not empowered to obtain loans or
encumber its property without the approval of the President.”41 The questioned
Decision contained the following conclusion:
With the advent of RA 7160, the Local Government Code, the power to tax is no longer
vested exclusively on Congress. LGUs, through its local legislative bodies, are now given
direct authority to levy taxes, fees and other charges pursuant to Article X, Section 5 of
the 1987 Constitution. And one of the most significant provisions of the LGC is the
removal of the blanket inclusion of instrumentalities and agencies of the national
government from the coverage of local taxation. The express withdrawal by the Code of
previously granted exemptions from realty taxes applied to instrumentalities and
government-owned or -controlled corporations (GOCCs) such as the petitioner Mactan-
Cebu International Airport Authority. Thus, petitioner MCIAA became a taxable person
in view of the withdrawal of the realty tax exemption that it previously enjoyed under
Section 14 of RA No. 6958 of its charter. As expressed and categorically held in
the Mactan case, the removal and withdrawal of tax exemptions previously enjoyed by
persons, natural or juridical, are consistent with the State policy to ensure autonomy to
local governments and the objective of the Local Government Code that they enjoy
genuine and meaningful local autonomy to enable them to attain their fullest development
as self-reliant communities and make them effective partners in the attainment of
national goals.
 However, in the case at bench, petitioner MCIAA’s charter expressly bars the
alienation or mortgage of its property to any person or entity except to the national
government. Therefore, while petitioner MCIAA is a taxable person for purposes of real
property taxation, respondent City of Lapu-Lapu is prohibited from seizing, selling and
owning these properties by and through a public auction in order to satisfy petitioner
MCIAA’s tax liability.42 (Citations omitted)

In the questioned Resolution that affirmed its questioned Decision, the Court
of Appeals denied petitioner’s motion for reconsideration based on the following
grounds:
First, the MCIAA case remains the controlling law on the matter as the same
is the established precedent; not the MIAA case but the MCIAA case since the
former, as keenly pointed out by the respondent City of Lapu-Lapu, has not yet
attained finality as there is still yet a pending motion for reconsideration filed
with the Supreme Court in the aforesaid case.
Second, and more importantly, the ruling of the Supreme Court in
the MIAA case cannot be similarly invoked in the case at bench. The said case
cannot be considered as the “law of the case.” The “law of the case” doctrine has
been defined as that principle under which determinations of questions of law will
generally be held to govern a case throughout all its subsequent stages where such
determination has already been made on a prior appeal to a court of last resort. It is
merely a rule of procedure and does not go to the power of the court, and will not be
adhered to where its application will result in an unjust decision. It relates entirely to
questions of law, and is confined in its operation to subsequent proceedings in the same
case. According to said doctrine, whatever has been irrevocably established constitutes
the law of the case only as to the same parties in the same case and not to different parties
in an entirely different case. Besides, pending resolution of the aforesaid motion for
reconsideration in the MIAA case, the latter case has not irrevocably established
anything.
Thus, after a thorough and judicious review of the allegations in petitioner’s motion
for reconsideration, this Court resolves to deny the same as the matters raised therein
had already been exhaustively discussed in the decision sought to be reconsidered, and
that no new matters were raised which would warrant the modification, much less
reversal, thereof.43(Emphasis added, citations omitted)

Petitioner’s Theory

Petitioner is before us now claiming that this Court, in the 2006 MIAA case,
had expressly declared that petitioner, while vested with corporate powers, is not
considered a government-owned or -controlled corporation, but is a government
instrumentality like the Manila International Airport Authority (MIAA),
Philippine Ports Authority (PPA), University of the Philippines, and Bangko
Sentral ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate
taxes imposed by respondent City.44
Petitioner alleges that Republic Act No. 6958 placed “a limitation on petitioner’s
administration of its assets and properties” as it provides under Section 4(e) that
“any asset in the international airport important to national security cannot be
alienated or mortgaged by petitioner or transferred to any entity other than the
National Government.”45
 Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in
disregarding the following:
I
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY
DECLARED BY THE HONORABLE COURT IN THE MIAA CASE. AS SUCH, IT IS
EXEMPT FROM PAYING REAL ESTATE TAXES IMPOSED BY RESPONDENT CITY
OF LAPU-LAPU.
II
THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL
BUILDING, AIRFIELD, RUNWAY, TAXIWAY, INCLUDING THE LOTS ON WHICH
THEY ARE SITUATED, ARE EXEMPT FROM REAL PROPERTY TAXES.
III
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX
WITHOUT ANY APPROPRIATE ORDINANCE.
IV
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1%
TAX FOR THE SPECIAL EDUCATION FUND IN THE ABSENCE OF ANY
CORRESPONDING ORDINANCE.
V
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY
INTEREST SANS ANY ORDINANCE MANDATING ITS IMPOSITION.46

Petitioner claims the following similarities with MIAA:

1. MCIAA belongs to the same class and performs identical functions as MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the international and domestic airport in
Parañaque City for public use, while MCIAA was organized to operate the
international and domestic airport in Mactan for public use.
4. Both are attached agencies of the Department of Transportation and
Communications.47
Petitioner compares its charter (Republic Act No. 6958) with that of MIAA
(Executive Order No. 903).
Section 3 of Executive Order No. 903 provides:
Sec. 3. Creation of the Manila International Airport Authority.—There is hereby
established a body corporate to be known as the Manila International Airport Authority
which shall be attached to the Ministry of Transportation and Communications. The
principal office of the Authority shall be located at the New Manila International Airport.
The Authority may establish such offices, branches, agencies or subsidiaries as it may
deem proper and necessary; x x x.

Section 2 of Republic Act No. 6958 reads:

Section 2. Creation of the Mactan-Cebu International Airport Authority.—
There is hereby established a body corporate to be known as the Mactan-Cebu
International Airport Authority which shall be attached to the Department of
Transportation and Communications. The principal office of the Authority shall be located
at the Mactan International Airport, Province of Cebu.
The Authority may have such branches, agencies or subsidiaries as it may deem proper
and necessary.
As to MIAA’s purposes and objectives, Section 4 of Executive Order No. 903
reads:
 Sec. 4. Purposes and Objectives.—The Authority shall have the following purposes
and objectives:
(a) To help encourage and promote international and domestic air traffic in the
Philippines as a means of making the Philippines a center of international trade and
tourism and accelerating the development of the means of transportation and
communications in the country;
(b) To formulate and adopt for application in the Airport internationally acceptable
standards of airport accommodation and service; and
(c) To upgrade and provide safe, efficient, and reliable airport facilities for
international and domestic air travel.

Petitioner claims that the above purposes and objectives are analogous to those
enumerated in its charter, specifically Section 3 of Republic Act No. 6958, which
reads:
Section 3. Primary Purposes and Objectives.—The Authority shall principally
undertake the economical, efficient and effective control, management and supervision of
the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu
City, hereinafter collectively referred to as the airports, and such other airports as may
be established in the Province of Cebu. In addition, it shall have the following objectives:
(a) To encourage, promote and develop international and domestic air traffic in the
central Visayas and Mindanao regions as a means of making the regions centers of
international trade and tourism, and accelerating the development of the means of
transportation and communications in the country; and
(b) To upgrade the services and facilities of the airports and to formulate
internationally acceptable standards of airport accommodation and service.

The powers, functions and duties of MIAA under Section 5 of Executive Order
No. 903 are:
Sec. 5. Functions, Powers and Duties.—The Authority shall have the following
functions, powers and duties:
(a) To formulate, in coordination with the Bureau of Air Transportation and other
appropriate government agencies, a comprehensive and integrated policy and program for
the Airport and to implement, review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or
services as shall be necessary for the efficient functioning of the Airport;
(c) To promulgate rules and regulations governing the planning, development,
maintenance, operation and improvement of the Airport, and to control and/or supervise
as may be necessary the construction of any structure or the rendition of any services
within the Airport;
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from time to time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of
any land, building, airport facility, or property of whatever kind and nature, whether
movable or immovable, or any interest therein;
(j) To exercise the power of eminent domain in the pursuit of its purposes and
objectives;
(k) To levy, and collect dues, charges, fees or assessments for the use of the Airport
premises, works, appliances, facilities or concessions or for any service provided by the
Authority, subject to the approval of the Minister of Transportation and Communications
in consultation with the Minister of Finance, and subject further to the provisions of Batas
Pambansa Blg. 325 where applicable;
(l) To invest its idle funds, as it may deem proper, in government securities and other
evidences of indebtedness of the government;
(m) To provide services, whether on its own or otherwise, within the Airport and the
approaches thereof, which shall include but shall not be limited to, the following:
(1) Aircraft movement and allocation of parking areas of aircraft on the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services directed towards the care, convenience and
security of passengers, visitors and other airport users; and
(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.
(n) To perform such other acts and transact such other business, directly or indirectly
necessary, incidental or conducive to the attainment of the purposes and objectives of the
Authority, including the adoption of necessary measures to remedy congestion in the
Airport; and
(o) To exercise all the powers of a corporation under the Corporation Law, insofar as
these powers are not inconsistent with the provisions of this Executive Order.

Petitioner claims that MCIAA has related functions, powers and duties under
Section 4 of Republic Act No. 6958, as shown in the provision quoted below:

Section 4. Functions, Powers and Duties.—The Authority shall have the

following functions, powers and duties:
(a) To formulate a comprehensive and integrated development policy and
program for the airports and to implement, review and update such policy and
program periodically;
(b) To control, supervise, construct, maintain, operate and provide such
facilities or services as shall be necessary for the efficient functioning of the
airports;
(c) To promulgate rules and regulations governing the planning,
development, maintenance, operation and improvement of the airports, and to
control and supervise the construction of any structure or the rendition of any
service within the airports;
(d) To exercise all the powers of a corporation under the Corporation Code
of the Philippines, insofar as those powers are not inconsistent with the
provisions of this Act;
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise
dispose of any land, building, airport facility, or property of whatever kind and
nature, whether movable or immovable, or any interest therein: Provided, That
any asset located in the Mactan International Airport important to national
security shall not be subject to alienation or mortgage by the Authority nor to
transfer to any entity other than the National Government;
(f) To exercise the power of eminent domain in the pursuit of its purposes
and objectives;
(g) To levy and collect dues, charges, fees or assessments for the use of
airport premises, works, appliances, facilities or concessions, or for any service
provided by the Authority;
(h) To retain and appropriate dues, fees and charges collected by the
Authority relative to the use of airport premises for such measures as may be
necessary to make the Authority more effective and efficient in the discharge of
its assigned tasks;
 (i) To invest its idle funds, as it may deem proper, in government securities
and other evidences of indebtedness; and
(j) To provide services, whether on its own or otherwise, within the airports
and the approaches thereof as may be necessary or in connection with the
maintenance and operation of the airports and their facilities.

Petitioner claims that like MIAA, it has police authority within its
premises, as shown in their respective charters quoted below:
EO 903, Sec. 6. Police Authority.—The Authority shall have the power to
exercise such police authority as may be necessary within its premises to carry
out its functions and attain its purposes and objectives, without prejudice to the
exercise of functions within the same premises by the Ministry of National
Defense through the Aviation Security Command (AVSECOM) as provided in
LOI 961: Provided, That the Authority may request the assistance of law
enforcement agencies, including request for deputization as may be required.
x x x.
R.A. No. 6958, Section 5. Police Authority.—The Authority shall have the
power to exercise such police authority as may be necessary within its premises
or areas of operation to carry out its functions and attain its purposes and
objectives: Provided, That the Authority may request the assistance of law
enforcement agencies, including request for deputization as may be required.
x x x.

Petitioner pointed out other similarities in the two charters, such as:
1. Both MCIAA and MIAA are covered by the Civil Service Law, rules
and regulations (Section 15, Executive Order No. 903; Section 12,
Republic Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21,
Executive Order No. 903; Section 14, Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit to the President an
annual report generally dealing with their activities and operations
(Section 14, Executive Order No. 903; Section 11, Republic Act No. 6958);
and
4. Both have borrowing power subject to the approval of the
President (Section 16, Executive Order No. 903; Section 13, Republic Act
No. 6958).48
Petitioner suggests that it is because of its similarity with MIAA that
this Court, in the 2006 MIAA case, placed it in the same class as MIAA and
considered it as a government instrumentality.
Petitioner submits that since it is also a government instrumentality
like MIAA, the following conclusion arrived by the Court in the
2006 MIAA case is also applicable to petitioner:
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of government
units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or -controlled
corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to
“[t]axes, fees or charges of any kind” by local governments. The only exception
is when MIAA leases its real property to a “taxable person” as provided in
Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the
Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA,
being devoted to public use, are properties of public dominion and thus owned
by the State or the Republic of the Philippines. Article 420 specifically mentions
“ports x x x constructed by the State,” which includes public airports and
seaports, as properties of public dominion and owned by the Republic. As
properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from
real estate tax under Section 234(a) of the Local Government Code. This Court
has also repeatedly ruled that properties of public dominion are not subject to
execution or foreclosure sale.49 (Emphases added)

Petitioner insists that its properties consisting of the airport terminal

building, airfield, runway, taxiway and the lots on which they are
situated are not subject to real property tax because they are actually,
solely and exclusively used for public purposes.50 They are indispensable
to the operation of the Mactan International Airport and by their very
nature, these properties are exempt from tax. Said properties belong to
the State and are merely held by petitioner in trust. As earlier mentioned,
petitioner claims that these properties are important to national security
and cannot be alienated, mortgaged, or transferred to any entity except
the National Government.
Petitioner prays that judgment be rendered:
a) Declaring petitioner exempt from paying real property taxes as it is a
government instrumentality;
b) Declaring respondent City of Lapu-Lapu as bereft of any authority to levy
and collect the basic real property tax, the additional tax for the SEF and the
penalty interest for its failure to pass the corresponding tax ordinances; and
c) Declaring, in the alternative, the airport lands and buildings of petitioner
as exempt from real property taxes as they are used solely and exclusively for
public purpose.51

In its Consolidated Reply filed through the OSG, petitioner claims that
the 2006 MIAA ruling has overturned the 1996 MCIAA ruling. Petitioner
cites Justice Dante O. Tinga’s dissent in the MIAA ruling, as follows:
[The] ineluctable conclusion is that the majority rejects the rationale and
ruling in Mactan. The majority provides for a wildly different interpretation of
Sections 133, 193 and 234 of the Local Government Code than that employed by
the Court in Mactan. Moreover, the parties in Mactanand in this case are
similarly situated, as can be obviously deducted from the fact that both
petitioners are airport authorities operating under similarly worded charters.
And the fact that the majority cites doctrines contrapuntal to the Local
Government Code as in Basco and Macedaevinces an intent to go against the
Court’s jurisprudential trend adopting the philosophy of expanded local
government rule under the Local Government Code.
x x x x The majority is obviously inconsistent with Mactan and there is no
way these two rulings can stand together. Following basic principles in
statutory construction, Mactan will be deemed as giving way to this new ruling.
 xxxx
There is no way the majority can be justified unless Mactan is overturned.
The MCIAA and the MIAA are similarly situated. They are both, as will be
demonstrated, GOCCs, commonly engaged in the business of operating an
airport. They are the owners of airport properties they respectively maintain
and hold title over these properties in their name. These entities are both owned
by the State, and denied by their respective charters the absolute right to
dispose of their properties without prior approval elsewhere. Both of them are
not empowered to obtain loans or encumber their properties without prior
approval the prior approval of the President.52 (Citations omitted)

Petitioner likewise claims that the enactment of Ordinance No. 070--

2007 is an admission on respondent City’s part that it must have a tax
measure to be able to impose a tax or special assessment. Petitioner avers
that assuming that it is a non-exempt entity or that its airport lands and
buildings are not exempt, it was only upon the effectivity of Ordinance
No. 070-2007 on January 1, 2008 that respondent City could properly
impose the basic real property tax, the additional tax for the SEF, and
the interest in case of nonpayment.53
Petitioner filed its Memorandum54 on June 17, 2009.

Respondents’ Theory

In their Comment,55 respondents point out that petitioner partially

moved for a reconsideration of the questioned Decision only as to the
issue of whether petitioner is a GOCC or not. Thus, respondents declare
that the other portions of the questioned decision had already attained
finality and ought not to be placed in issue in this petition for certiorari.
Thus, respondents discussed the other issues raised by petitioner with
reservation as to this objection.
Respondents summarized the issues and the grounds relied upon as
follows:
Statement of the Issues
WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY
EXEMPT FROM PAYING REAL PROPERTY TAXES;
WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX,
SPECIAL EDUCATION FUND AND PENALTY INTEREST;
WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD,
RUNWAY, TAXIWAY INCLUDING THE LOTS ON WHICH THEY ARE SITUATED
ARE EXEMPT FROM REALTY TAXES.

Grounds Relied Upon

1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES;
2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM
REALTY TAXES;
3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT;
4. CITY CAN COLLECT REALTY TAX AND INTEREST;
5. CITY CAN COLLECT SEF;
6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING
INJUNCTIVE RELIEF;
 7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC.56
Respondents claim that “the mere mention of MCIAA in the MIAA v.
[Court of Appeals] case does not make it the controlling case on the
matter.”57Respondents further claim that the 1996 MCIAA case where this
Court held that petitioner is a GOCC is the controlling jurisprudence.
Respondents point out that petitioner and MIAA are two very different
entities. Respondents argue that petitioner is a GOCC contrary to its
assertions, based on its Charter and on DOJ Opinion No. 50.
Respondents contend that if petitioner is not a GOCC but an
instrumentality of the government, still the following statement in the
1996 MCIAA case applies:
Besides, nothing can prevent Congress from decreeing that even
instrumentalities or agencies of the Government performing governmental
functions may be subject to tax. Where it is done precisely to fulfill a
constitutional mandate and national policy, no one can doubt its wisdom.58

Respondents argue that MCIAA properties such as the terminal

building, taxiway and runway are not exempt from real property
taxation. As discussed in the 1996 MCIAA case, Section 234 of the LGC
omitted GOCCs such as MCIAA from entities enjoying tax exemptions.
Said decision also provides that the transfer of ownership of the land to
petitioner was absolute and petitioner cannot evade payment of taxes. 59
Even if the following issues were not raised by petitioner in its motion
for reconsideration of the questioned Decision, and thus the ruling
pertaining to these issues in the questioned decision had become final,
respondents still discussed its side over its objections as to the propriety
of bringing these up before this Court.

1. Estoppel does not lie against the government.

2. Respondent City can collect realty taxes and interest.
a. Based on the Local Government Code (Sections 232, 233, 255) and its
IRR (Sections 241, 247).
b. The City of Lapu-Lapu passed in 1980 Ordinance No. 44, or the
Omnibus Tax Ordinance, wherein the imposition of real property tax was
made. This Ordinance was in force and effect by virtue of Article 278 of
the IRR of Republic Act No. 7160.60
c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City
Revenue Code, imposed real property taxes, special education fund and
further provided for the payment of interest and surcharges. Thus, the
issue is passé and is moot and academic.
3. Respondent City can collect Special Education Fund.
a. The LGC does not require the enactment of an ordinance for the
collection of the SEF.
b. Congress did not entirely repeal the SEF law, hence, its levy,
imposition and collection need not be covered by ordinance. Besides, the
City has enacted the Revenue Code containing provisions for the levy
and collection of the SEF.61
Furthermore, respondents aver that:
 1. Collection of taxes is beyond the ambit of injunction.
a. Respondents contend that the petition only questions the denial of
the writ of preliminary injunction by the RTC and the Court of Appeals.
Petitioner failed to show irreparable injury.
b. Comparing the alleged damage that may be caused petitioner and
the direct affront and challenge against the power to tax, which is an
attribute of sovereignty, it is but appropriate that injunctive relief
should be denied.
2. Petitioner did not comply with LGC provisions on payment under
protest.
a. Petitioner should have protested the tax imposition as provided in
Article 285 of the IRR of Republic Act No. 7160. Section 252 of Republic
Act No. 716062 requires that the taxpayer’s protest can only be entertained
if the tax is first paid under protest.63
Respondents submitted their Memorandum64 on June 30, 2009, wherein
they allege that the 1996 MCIAA case is still good law, as shown by the
following cases wherein it was quoted:
1. National Power Corporation v. Local Board of Assessment Appeals of
Batangas [545 Phil. 92 (2007)];
2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil.
302 (2007)];
3. Quezon City v. ABS-CBN Broadcasting Corporation [588 Phil. 785
(2008)]; and
4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].
Respondents assert that the constant reference to the
1996 MCIAA case “could hardly mean that the doctrine has breathed its
last” and that the 1996 MCIAA case stands as precedent and is controlling
on petitioner MCIAA.65
Respondents allege that the issue for consideration is whether it is
proper for petitioner to raise the issue of whether it is not liable to pay
real property taxes, special education fund (SEF), interests and/or
surcharges.66 Respondents argue that the Court of Appeals was correct in
declaring petitioner liable for realty taxes, etc., on the terminal building,
taxiway, and runway. Respondent City relies on the following grounds:
1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234 of the Local Government
Code of 1991 authorizes the collection of real property taxes (etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not of the Public Dominion and
are not exempt from realty taxes, special education fund and interest;
5. Respondent City can collect realty tax, interest/surcharge, and Special
Education Fund from MCIAA; [and]
6. Estoppel does not lie against the government.67

This Court’s Ruling

The petition has merit. The petitioner is an instrumentality of the

government; thus, its properties actually, solely and exclusively used for
public purposes, consisting of the airport terminal building, airfield,
runway, taxiway and the lots on which they are situated, are not subject
to real property tax and respondent City is not justified in collecting
taxes from petitioner over said properties.

Discussion

The Court of Appeals (Cebu City) erred in declaring that the

1996 MCIAA case still controls and that petitioner is a GOCC. The
2006 MIAA case governs.
The Court of Appeals’ reliance on the 1996 MCIAAcase is misplaced and
its staunch refusal to apply the 2006 MIAA case is patently erroneous. The
Court of Appeals, finding for respondents, refused to apply the ruling in
the 2006 MIAA case on the premise that the same had not yet reached
finality, and that as far as MCIAA is concerned, the 1996 MCIAA case is
still good law.68
While it is true, as respondents allege, that the 1996 MCIAA case was
cited in a long line of cases,69still, in 2006, the Court En Banc decided a
case that in effect reversed the 1996 Mactan ruling. The 2006 MIAA case
had, since the promulgation of the questioned Decision and Resolution,
reached finality and had in fact been either affirmed or cited in
numerous cases by the Court.70 The decision became final and executory
on November 3, 2006.71 Furthermore, the 2006 MIAA case was decided by
the Court En Banc while the 1996 MCIAA case was decided by a Division.
Hence, the 1996 MCIAA case should be read in light of the subsequent and
unequivocal ruling in the 2006 MIAA case.
To recall, in the 2006 MIAA case, we held that MIAA’s airport lands and
buildings are exempt from real estate tax imposed by local governments;
that it is not a GOCC but an instrumentality of the national government,
with its real properties being owned by the Republic of the Philippines,
and these are exempt from real estate tax. Specifically referring to
petitioner, we stated as follows:
Many government instrumentalities are vested with corporate powers but
they do not become stock or non-stock corporations, which is a necessary
condition before an agency or instrumentality is deemed a government-owned
or -controlled corporation. Examples are the Mactan International Airport
Authority, the Philippine Ports Authority, the University of the Philippines
and Bangko Sentral ng Pilipinas. All these government instrumentalities
exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes
loosely called government corporate entities. However, they are not
government-owned or -controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.72 (Emphases ours)

In the 2006 MIAA case, the issue before the Court was “whether the
Airport Lands and Buildings of MIAA are exempt from real estate tax
under existing laws.”73 We quote the extensive discussion of the Court
that led to its finding that MIAA’s lands and buildings were exempt from
real estate tax imposed by local governments:
First, MIAA is not a government-owned or -controlled corporation but an
instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or
-Controlled Corporation
xxxx
There is no dispute that a government-owned or
-controlled corporation is not exempt from real estate tax. However, MIAA is
not a government-owned or -controlled corporation. Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987 defines a
government-owned or -controlled corporation as follows:
SEC. 2. General Terms Defined.—x x x
(13) Government-owned or -controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions relating to
public needs whether governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one
(51) percent of its capital stock: x x x.
A government-owned or -controlled corporation must be “organized as a
stock or non-stock corporation.” MIAA is not organized as a stock or non-stock
corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. x x x
xxxx
Clearly, under its Charter, MIAA does not have capital stock that is divided
into shares.
Section 3 of the Corporation Code defines a stock corporation as one whose
“capital stock is divided into shares and x x x authorized to distribute to the
holders of such shares dividends x x x.” MIAA has capital but it is not divided
into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is
not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section
87 of the Corporation Code defines a non-stock corporation as “one where no
part of its income is distributable as dividends to its members, trustees or
officers.” A non-stock corporation must have members. Even if we assume that
the Government is considered as the sole member of MIAA, this will not make
MIAA a non-stock corporation. Non-stock corporations cannot distribute any
part of their income to their members. Section 11 of the MIAA Charter mandates
MIAA to remit 20% of its annual gross operating income to the National
Treasury. This prevents MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are
“organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers.” MIAA is not
organized for any of these purposes. MIAA, a public utility, is organized to
operate an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not
qualify as a government-owned or -controlled corporation. What then is the
legal status of MIAA within the National Government?
 MIAA is a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested with
corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government “instrumentality” as follows:
SEC. 2. General Terms Defined.— x x x
(10) Instrumentality refers to any agency of the National Government, not
integrated within the department framework, vested with special functions or
jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually
through a charter. x x x.
When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government
instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent
domain, police authority and the levying of fees and charges. At the same time,
MIAA exercises “all the powers of a corporation under the Corporation Law,
insofar as these powers are not inconsistent with the provisions of this
Executive Order.”
Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government
machinery although not integrated with the department framework. The MIAA
Charter expressly states that transforming MIAA into a “separate and
autonomous body” will make its operation more “financially viable.”
Many government instrumentalities are vested with corporate powers but
they do not become stock or non-stock corporations, which is a necessary
condition before an agency or instrumentality is deemed a government-owned
or -controlled corporation. Examples are the Mactan International Airport
Authority, the Philippine Ports Authority, the University of the Philippines
and Bangko Sentral ng Pilipinas. All these government instrumentalities
exercise corporate powers but they are not organized as stock or non-stock
corporations as required by Section 2(13) of the Introductory Provisions of the
Administrative Code. These government instrumentalities are sometimes
loosely called government corporate entities. However, they are not
government-owned or -controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.74 (Emphases ours, citations
omitted)

The Court in the 2006 MIAA case went on to discuss the limitation on
the taxing power of the local governments as against the national
government or its instrumentality:
A government instrumentality like MIAA falls under Section 133(o) of the
Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government
Units.—Unless otherwise provided herein, the exercise of the taxing powers of
provinces, cities, municipalities, and barangays shall not extend to the levy of
the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units. x x x.
 Section 133(o) recognizes the basic principle that local governments cannot
tax the national government, which historically merely delegated to local
governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may only
exercise such power “subject to such guidelines and limitations as the Congress
may provide.”
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments.
The rule is that a tax is never presumed and there must be clear language in the
law imposing the tax. Any doubt whether a person, article or activity is taxable
is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation, such
exemption is construed liberally in favor of the national government
instrumentality. x x x.
xxxx
There is, moreover, no point in national and local governments taxing each
other, unless a sound and compelling policy requires such transfer of public
funds from one government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for
sound and compelling policy considerations. There must be express language in
the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against
local governments.
Thus, Section 133 of the Local Government Code states that “unless otherwise
provided” in the Code, local governments cannot tax national government
instrumentalities. x x x.75 (Emphases ours, citations omitted)

The Court emphasized that the airport lands and buildings of MIAA
are owned by the Republic and belong to the public domain. The Court
said:
The Airport Lands and Buildings of MIAA are property of public dominion
and therefore owned by the State or the Republic of the Philippines. x x x.
xxxx
No one can dispute that properties of public dominion mentioned in Article
420 of the Civil Code, like “roads, canals, rivers, torrents, ports and bridges
constructed by the State,” are owned by the State. The term “ports” includes
seaports and airports. The MIAA Airport Lands and Buildings constitute a
“port” constructed by the State. Under Article 420 of the Civil Code, the MIAA
Airport Lands and Buildings are properties of public dominion and thus owned
by the State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are
used by the public for international and domestic travel and transportation.
The fact that the MIAA collects terminal fees and other charges from the public
does not remove the character of the Airport Lands and Buildings as properties
for public use. x x x.
 The terminal fees MIAA charges to passengers, as well as the landing fees
MIAA charges to airlines, constitute the bulk of the income that maintains the
operations of MIAA. The collection of such fees does not change the character
of MIAA as an airport for public use. Such fees are often termed user’s tax. This
means taxing those among the public who actually use a public facility instead
of taxing all the public including those who never use the particular public
facility. A user’s tax is more equitable — a principle of taxation mandated in the
1987 Constitution.
The Airport Lands and Buildings of MIAA
x x x are properties of public dominion because they are intended for public
use. As properties of public dominion, they indisputably belong to the State or
the Republic of the Philippines.76 (Emphases supplied, citations omitted)

The Court also held in the 2006 MIAA case that airport lands and
buildings are outside the commerce of man.
As properties of public dominion, the Airport Lands and Buildings are
outside the commerce of man. The Court has ruled repeatedly that properties
of public dominion are outside the commerce of man. As early as 1915, this Court
already ruled in Municipality of Cavite v. Rojas that properties devoted to
public use are outside the commerce of man, thus:
xxxx
The Civil Code, Article 1271, prescribes that everything which is not outside
the commerce of man may be the object of a contract, x x x.
xxxx
The Court has also ruled that property of public dominion, being outside the
commerce of man, cannot be the subject of an auction sale.
Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance,
levy on execution or auction sale of any property of public dominion is void for
being contrary to public policy. Essential public services will stop if properties
of public dominion are subject to encumbrances, foreclosures and auction sale.
This will happen if the City of Parañaque can foreclose and compel the auction
sale of the 600-hectare runway of the MIAA for nonpayment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the President
must first withdraw from public use the Airport Lands and Buildings. x x x.
xxxx
Thus, unless the President issues a proclamation withdrawing the Airport
Lands and Buildings from public use, these properties remain properties of
public dominion and are inalienable. Since the Airport Lands and Buildings are
inalienable in their present status as properties of public dominion, they are
not subject to levy on execution or foreclosure sale. As long as the Airport Lands
and Buildings are reserved for public use, their ownership remains with the
State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain for
public use, and to withdraw such public use, is reiterated in Section 14, Chapter
4, Title I, Book III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the
Government.—(1) The President shall have the power to reserve for settlement
or public use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved land
shall thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation;
 xxxx
There is no question, therefore, that unless the Airport Lands and Buildings
are withdrawn by law or presidential proclamation from public use, they are
properties of public dominion, owned by the Republic and outside the
commerce of man.77

Thus, the Court held that MIAA is “merely holding title to the Airport
Lands and Buildings in trust for the Republic. [Under] Section 48,
Chapter 12, Book I of the Administrative Code [which] allows
instrumentalities like MIAA to hold title to real properties owned by the
Republic.”78
The Court in the 2006 MIAA case cited Section 234(a) of the Local
Government Code and held that said provision exempts from real estate
tax any “[r]eal property owned by the Republic of the Philippines.”79 The
Court emphasized, however, that “portions of the Airport Lands and
Buildings that MIAA leases to private entities are not exempt from real
estate tax.” The Court further held:
This exemption should be read in relation with Section 133(o) of the same
Code, which prohibits local governments from imposing “[t]axes, fees or charges
of any kind on the National Government, its agencies and instrumentalities
x x x.” The real properties owned by the Republic are titled either in the name
of the Republic itself or in the name of agencies or instrumentalities of the
National Government. The Administrative Code allows real property owned by
the Republic to be titled in the name of agencies or instrumentalities of the
national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency
or instrumentality of the national government. This happens when title of the
real property is transferred to an agency or instrumentality even as the
Republic remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption. Section 234(a) of the Local Government
Code states that real property owned by the Republic loses its tax exemption
only if the “beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person.” MIAA, as a government instrumentality, is not
a taxable person under Section 133(o) of the Local Government Code. Thus, even
if we assume that the Republic has granted to MIAA the beneficial use of the
Airport Lands and Buildings, such fact does not make these real properties
subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land area
occupied by hangars that MIAA leases to private corporations is subject to real
estate tax. In such a case, MIAA has granted the beneficial use of such land area
for a consideration to a taxable person and therefore such land area is subject
to real estate tax. x x x.80

Significantly, the Court reiterated the above ruling and applied the
same reasoning in Manila International Airport Authority v. City of
Pasay,81thus:
The only difference between the 2006 MIAA case and this case is that the 2006
MIAA case involved airport lands and buildings located in Parañaque City
while this case involved airport lands and buildings located in Pasay City. The
2006 MIAA case and this case raised the same threshold issue: whether the local
government can impose real property tax on the airport lands, consisting
mostly of the runways, as well as the airport buildings, of MIAA. x x x.
xxxx
The definition of “instrumentality” under Section 2(10) of the Introductory
Provisions of the Administrative Code of 1987 uses the phrase “includes x x x
government-owned or -controlled corporations” which means that a
government “instrumentality” may or may not be a “government-owned or -
controlled corporation.” Obviously, the term government “instrumentality”
is broader than the term “government-owned or -controlled corporation.” x x x.
xxxx
The fact that two terms have separate definitions means that while a
government “instrumentality” may include a “government-owned or -controlled
corporation,” there may be a government “instrumentality” that will not qualify
as a “government-owned or -controlled corporation.”
A close scrutiny of the definition of “government-owned or -controlled
corporation” in Section 2(13) will show that MIAA would not fall under such
definition. MIAA is a government “instrumentality” that does not qualify as a
“government-owned or -controlled corporation.” x x x.
xxxx
Thus, MIAA is not a government-owned or -controlled corporation but a
government instrumentality which is exempt from any kind of tax from the local
governments. Indeed, the exercise of the taxing power of local government units
is subject to the limitations enumerated in Section 133 of the Local Government
Code. Under Section 133(o) of the Local Government Code, local government
units have no power to tax instrumentalities of the national government like
the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay
properties.
Furthermore, the airport lands and buildings of MIAA are properties of
public dominion intended for public use, and as such are exempt from real
property tax under Section 234(a) of the Local Government Code. However,
under the same provision, if MIAA leases its real property to a taxable person,
the specific property leased becomes subject to real property tax. In this case,
only those portions of the NAIA Pasay properties which are leased to taxable
persons like private parties are subject to real property tax by the City of Pasay.
(Emphases added, citations omitted)

The Court not only mentioned petitioner MCIAA as similarly situated

as MIAA. It also mentioned several other government instrumentalities,
among which was the Philippine Fisheries Development Authority. Thus,
applying the 2006 MIAA ruling, the Court, in Philippine Fisheries
Development Authority v. Court of Appeals,82 held:
On the basis of the parameters set in the MIAA case, the Authority should be
classified as an instrumentality of the national government. As such, it is
generally exempt from payment of real property tax, except those portions
which have been leased to private entities.
In the MIAA case, petitioner Philippine Fisheries Development Authority
was cited as among the instrumentalities of the national government. x x x.
xxxx
Indeed, the Authority is not a GOCC but an instrumentality of the
government. The Authority has a capital stock but it is not divided into shares
of stocks. Also, it has no stockholders or voting shares. Hence, it is not a stock
corporation. Neither [is it] a non-stock corporation because it has no members.
The Authority is actually a national government instrumentality which is
defined as an agency of the national government, not integrated within the
department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds,
and enjoying operational autonomy, usually through a charter. When the law
vests in a government instrumentality corporate powers, the instrumentality
does not become a corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also corporate powers.
Thus, the Authority which is tasked with the special public function to carry
out the government’s policy “to promote the development of the country’s
fishing industry and improve the efficiency in handling, preserving, marketing,
and distribution of fish and other aquatic products,” exercises the
governmental powers of eminent domain, and the power to levy fees and
charges. At the same time, the Authority exercises “the general corporate
powers conferred by laws upon private and government-owned or -controlled
corporations.”
xxxx
In light of the foregoing, the Authority should be classified as an
instrumentality of the national government which is liable to pay taxes only
with respect to the portions of the property, the beneficial use of which were
vested in private entities. When local governments invoke the power to tax on
national government instrumentalities, such power is construed strictly against
local governments. The rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt whether a person, article
or activity is taxable is resolved against taxation. This rule applies with greater
force when local governments seek to tax national government
instrumentalities.
Thus, the real property tax assessments issued by the City of Iloilo should be
upheld only with respect to the portions leased to private persons. In case the
Authority fails to pay the real property taxes due thereon, said portions cannot
be sold at public auction to satisfy the tax delinquency. x x x.
xxxx
In sum, the Court finds that the Authority is an instrumentality of the
national government, hence, it is liable to pay real property taxes assessed by
the City of Iloilo on the IFPC only with respect to those portions which are
leased to private entities. Notwithstanding said tax delinquency on the leased
portions of the IFPC, the latter or any part thereof, being a property of public
domain, cannot be sold at public auction. This means that the City of Iloilo has
to satisfy the tax delinquency through means other than the sale at public
auction of the IFPC. (Citations omitted)

Another government instrumentality specifically mentioned in the

2006 MIAA case was the Philippine Ports Authority (PPA). Hence,
in Curata v. Philippine Ports Authority,83 the Court held that the PPA is
similarly situated as MIAA, and ruled in this wise:
This Court’s disquisition in Manila International Airport Authority v. Court
of Appeals –– ruling that MIAA is not a government-owned and/or -controlled
corporation (GOCC), but an instrumentality of the National Government and
thus exempt from local taxation, and that its real properties are owned by the
Republic of the Philippines –– is instructive. x x x. These findings are squarely
applicable to PPA, as it is similarly situated as MIAA. First, PPA is likewise not
a GOCC for not having shares of stocks or members. Second, the docks, piers
and buildings it administers are likewise owned by the Republic and, thus,
outside the commerce of man. Third, PPA is a mere trustee of these properties.
Hence, like MIAA, PPA is clearly a government instrumentality, an agency of
the government vested with corporate powers to perform efficiently its
governmental functions.
Therefore, an undeniable conclusion is that the funds of PPA partake of
government funds, and such may not be garnished absent an allocation by its
Board or by statutory grant. If the PPA funds cannot be garnished and its
properties, being government properties, cannot be levied via a writ of
execution pursuant to a final judgment, then the trial court likewise cannot
grant discretionary execution pending appeal, as it would run afoul of the
established jurisprudence that government properties are exempt from
execution. What cannot be done directly cannot be done indirectly. (Citations
omitted)

In Government Service Insurance System v. City Treasurer and City

Assessor of the City of Manila84the Court found that the GSIS was also a
government instrumentality and not a GOCC, applying the
2006 MIAA case even though the GSIS was not among those specifically
mentioned by the Court as similarly situated as MIAA. The Court said:

GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Court’s fairly recent ruling
in Manila International Airport Authority v. Court of Appeals, a case likewise
involving real estate tax assessments by a Metro Manila city on the real
properties administered by MIAA, argues for the non-tax liability of GSIS for
real estate taxes. x x x.
While perhaps not of governing sway in all fours inasmuch as what were
involved in Manila International Airport Authority, e.g., airfields and runways,
are properties of the public dominion and, hence, outside the commerce of man,
the rationale underpinning the disposition in that case is squarely applicable
to GSIS, both MIAA and GSIS being similarly situated. First, while created
under CA 186 as a non-stock corporation, a status that has remained unchanged
even when it operated under PD 1146 and RA 8291, GSIS is not, in the context
of the aforequoted Sec. 193 of the LGC, a GOCC following the teaching of Manila
International Airport Authority, for, like MIAA, GSIS’s capital is not divided into
unit shares. Also, GSIS has no members to speak of. And by members, the
reference is to those who, under Sec. 87 of the Corporation Code, make up the
non-stock corporation, and not to the compulsory members of the system who
are government employees. Its management is entrusted to a Board of Trustees
whose members are appointed by the President.
Second, the subject properties under GSIS’s name are likewise owned by the
Republic. The GSIS is but a mere trustee of the subject properties which have
either been ceded to it by the Government or acquired for the enhancement of
the system. This particular property arrangement is clearly shown by the fact
that the disposal or conveyance of said subject properties are either done by or
through the authority of the President of the Philippines. x x x. (Emphasis
added, citations omitted)
 All the more do we find that petitioner MCIAA, with its many
similarities to the MIAA, should be classified as a government
instrumentality, as its properties are being used for public purposes, and
should be exempt from real estate taxes. This is not to derogate in any
way the delegated authority of local government units to collect realty
taxes, but to uphold the fundamental doctrines of uniformity in taxation
and equal protection of the laws, by applying all the jurisprudence that
have exempted from said taxes similar authorities, agencies, and
instrumentalities, whether covered by the 2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with corporate powers but it
is not a stock or non-stock corporation, which is a necessary condition
before an agency or instrumentality is deemed a government-owned or -
controlled corporation. Like MIAA, petitioner MCIAA has capital under
its charter but it is not divided into shares of stock. It also has no
stockholders or voting shares. Republic Act No. 6958 provides:
Section 9. Capital.—The [Mactan-Cebu International Airport] Authority
shall have an authorized capital stock equal to and consisting of:
(a) the value of fixed assets (including airport facilities, runways and
equipment) and such other properties, movable and immovable, currently
administered by or belonging to the airports as valued on the date of the
effectivity of this Act;
(b) the value of such real estate owned and/or administered by the airports;
and
(c) government contribution in such amount as may be deemed an
appropriate initial balance. Such initial amount, as approved by the President
of the Philippines, which shall be more or less equivalent to six (6) months
working capital requirement of the Authority, is hereby authorized to be
appropriated in the General Appropriations Act of the year following its
enactment into law.
Thereafter, the government contribution to the capital of the Authority shall
be provided for in the General Appropriations Act.

Like in MIAA, the airport lands and buildings of MCIAA are properties
of public dominion because they are intended for public use. As
properties of public dominion, they indisputably belong to the State or
the Republic of the Philippines, and are outside the commerce of man.
This, unless petitioner leases its real property to a taxable person, the
specific property leased becomes subject to real property tax; in which
case, only those portions of petitioner’s properties which are leased to
taxable persons like private parties are subject to real property tax by
the City of Lapu-Lapu.
We hereby adopt and apply to petitioner MCIAA the findings and
conclusions of the Court in the 2006 MIAA case, and we quote:
To summarize, MIAA is not a government-owned or -controlled corporation
under Section 2(13) of the Introductory Provisions of the Administrative Code
because it is not organized as a stock or non-stock corporation. Neither is MIAA
a government-owned or -controlled corporation under Section 16, Article XII of
the 1987 Constitution because MIAA is not required to meet the test of economic
viability. MIAA is a government instrumentality vested with corporate powers
and performing essential public services pursuant to Section 2(10) of the
Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments
under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a
taxable entity under the Local Government Code. Such exception applies only
if the beneficial use of real property owned by the Republic is given to a taxable
entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to
public use and thus are properties of public dominion. Properties of public
dominion are owned by the State or the Republic. x x x.
xxxx
The term “ports x x x constructed by the State” includes airports and
seaports. The Airport Lands and Buildings of MIAA are intended for public use,
and at the very least intended for public service. Whether intended for public
use or public service, the Airport Lands and Buildings are properties of public
dominion. As properties of public dominion, the Airport Lands and Buildings
are owned by the Republic and thus exempt from real estate tax under Section
234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of government
units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or -controlled
corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to
“[t]axes, fees or charges of any kind” by local governments. The only exception
is when MIAA leases its real property to a “taxable person” as provided in
Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the
Airport Lands and Buildings leased to taxable persons like private parties are
subject to real estate tax by the City of Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA,
being devoted to public use, are properties of public dominion and thus owned
by the State or the Republic of the Philippines. Article 420 specifically mentions
“ports x x x constructed by the State,” which includes public airports and
seaports, as properties of public dominion and owned by the Republic. As
properties of public dominion owned by the Republic, there is no doubt
whatsoever that the Airport Lands and Buildings are expressly exempt from
real estate tax under Section 234(a) of the Local Government Code. This Court
has also repeatedly ruled that properties of public dominion are not subject to
execution or foreclosure sale.85 (Emphases added)
WHEREFORE, we hereby GRANT the petition. We REVERSE and SET
ASIDE the Decision dated October 8, 2007 and
the Resolution dated February 12, 2008 of the Court of Appeals (Cebu
City) in C.A.-G.R. S.P. No. 01360. Accordingly, we DECLARE:
1. Petitioner’s properties that are actually, solely and exclusively used
for public purpose, consisting of the airport terminal building, airfield,
runway, taxiway and the lots on which they are situated, EXEMPT from
real property tax imposed by the City of Lapu-Lapu.
2. VOID all the real property tax assessments, including the additional
tax for the special education fund and the penalty interest, as well as the
final notices of real property tax delinquencies, issued by the City of
Lapu-Lapu on petitioner’s properties, except the assessment covering the
portions that petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27 of petitioner’s
properties and the eventual forfeiture and purchase of the said
properties by respondent City of Lapu-Lapu. We likewise
declare VOID the corresponding Certificates of Sale of Delinquent
Property issued to respondent City of Lapu-Lapu.
SO ORDERED.
Sereno (CJ., Chairperson), Bersamin, Perez and Perlas-Bernabe, JJ.,
concur.
Petition granted, judgment and resolution reversed and set aside.
Notes.—For real property taxes, the incidental generation of income is
permissible because the test of exemption is the use of the property; The
effect of failing to meet the use requirement is simply to remove from the
tax exemption that portion of the property not devoted to charity.
(Commissioner of Internal Revenue vs. St. Luke’s Medical Center, Inc., 682
SCRA 66 [2012])
The requirement of “payment under protest” is a condition sine qua
non before a protest or an appeal questioning the correctness of an
assessment of real property tax may be entertained. (Camp John Hay
Development Corporation vs. Central Board of Assessment Appeals, 706
SCRA 547 [2013])
——o0o——
 G.R. No. 183531. March 25, 2015.*

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC.,

petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
Court of Tax Appeals; The Court of Tax Appeals (CTA) has developed an expertise on
the subject of taxation because it is a specialized court dedicated exclusively to the study
and resolution of tax problems.—Foremost, it should be noted that the CTA has developed
an expertise on the subject of taxation because it is a specialized court dedicated
exclusively to the study and resolution of tax problems. As such, its findings of fact are
accorded the highest respect and are generally conclusive upon this Court, in the absence
of grave abuse of discretion or palpable error. Its decisions shall not be lightly set aside
on appeal, unless this Court finds that the questioned decision is not supported by
substantial evidence or there is a showing of abuse or improvident exercise of authority.
Secretary of Finance; Jurisdiction; The Secretary of Finance has the authority to
promulgate the necessary rules and regulations for the effective enforcement of the
provisions of the National Internal Revenue Code (NIRC).—The Secretary of Finance has
the authority to promulgate the necessary rules and regulations for the effective
enforcement of the provisions of the NIRC. Such rules and regulations are given weight
and respect by the courts in view of the rulemaking authority given to those who formulate
them and their specific expertise in their respective fields.
Taxation; Tax Refunds; Tax Credits; Zero-Rated Transactions; The failure to indicate
the words “zero-rated” on the invoices and receipts issued by a taxpayer would result in the
denial of the claim for refund or tax credit.—An applicant for a claim for tax refund or tax
credit must not only prove entitlement to the claim but also compliance with all the
documentary and evidentiary requirements. Consequently, the old CTA, as affirmed by
the CTA En Banc, correctly ruled that a claim for the refund of creditable input taxes
must be evidenced by a VAT invoice or official receipt in accordance with Section 110(A)(1)
of the NIRC. Sections 237 and 238 of the same Code as well as Section 4.108-1 of RR No.
7-95 provide for the invoicing requirements that all VAT-registered taxpayers should
observe, such as: (a) the BIR Permit to Print; (b) the Tax Identification Number of the
VAT-registered purchaser; and (c) the word “zero-rated” imprinted thereon. Thus, the
failure to indicate the words “zero-rated” on the invoices and receipts issued by a taxpayer
would result in the denial of the claim for refund or tax credit.
Same; Same; Tax refunds, being in the nature of tax exemptions, are construed in
strictissimi juris against the taxpayer and liberally in favor of the government.—Tax
refunds, being in the nature of tax exemptions, are construed in strictissimi jurisagainst
the taxpayer and liberally in favor of the government. Accordingly, it is a claimant’s
burden to prove the factual basis of a claim for refund or tax credit. Considering that ETPI
is engaged in mixed transactions that cover its zero-rated sales, taxable and exempt sales,
it is only appropriate and reasonable for it to present competent evidence to validate all
entries in its returns in order to properly determine which transactions are zero-rated and
which are taxable. Clearly, compliance with all the VAT invoicing requirements provided
by tax laws and regulations is mandatory. A claim for unutilized input taxes attributable
to zero-rated sales will be given due course; otherwise, the claim should be struck off for
failure to do so, such as what ETPI did in the present case.
PETITION for review on certiorari of the decision and resolution of the Court
of Tax Appeals En Banc.
The facts are stated in the opinion of the Court.
Salvador & Associates for petitioner.
Office of the Solicitor General for respondent.
REYES, J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
which seeks to reverse and set aside the Decision2 dated April 30, 2008 and
Resolution3dated July 2, 2008 of the Court of Tax Appeals (CTA) En Banc in C.T.A.
E.B. No. 327 affirming the denial of Eastern Telecommunications Philippines,
Inc.’s (ETPI) claim for refund of its unutilized input value-added tax (VAT) in the
amount of P9,265,913.42 allegedly attributable to ETPI’s zero-rated sales of
services to nonresident foreign corporation for the taxable year 1998.

The Antecedents

ETPI is a domestic corporation located at the Telecoms Plaza Building, No. 316,
Sen. Gil Puyat Avenue, Salcedo Village, Makati City. It registered with the Bureau
of Internal Revenue (BIR) as a VAT taxpayer with Certificate of Registration
bearing RDO Control No. 49-490-000205 dated June 10, 1994.4
As a telecommunications company, ETPI entered into various international
service agreements with international telecommunications carriers and handles
incoming telecommunications services for nonresident foreign telecommunication
companies and the relay of said international calls within and around other places
in the Philippines. Consequently, to broaden its distribution coverage of
telecommunications services throughout the country, ETPI entered into various
interconnection agreements with local carriers that can readily relay the said
foreign calls to the intended local end-receiver.5
The nonresident foreign corporations pays ETPI in US dollars inwardly
remitted through the Philippine local banks, Metropolitan Banking Corporation,
Hong Kong and Shanghai Banking Corporation and Citibank through the manner
and mode of payments based on an internationally established standard which is
embodied in a Blue Book, or Manual, prepared by the Consultative Commission of
International Telegraph and Telephony and implemented between the contracting
parties in consonance with a set of procedural guidelines denominated as Traffic
Settlement Procedure.6
ETPI seasonably filed its Quarterly VAT Returns for the year 1998 which were,
however, simultaneously amended on February 22, 2001 to correct its input VAT
on domestic purchases of goods and services and on importation of goods and to
reflect its zero-rated and exempt sales for said year.7
On January 25, 2000, ETPI filed an administrative claim with the BIR for the
refund of the amount of P9,265,913.42 representing excess input tax attributable
to its effectively zero-rated sales in 1998 pursuant to Section 1128 of the Republic
Act (R.A.) No. 8424, also known as the National Internal Revenue Code of 1997
(NIRC), as implemented by Revenue Regulations (RR) No. 5-87 and as amended
by RR No.
7-95. 9

Pending review by the BIR, ETPI filed a Petition for Review10 before the CTA
on February 21, 2000 in order to toll the two-year reglementary period under
Section 22911of the NIRC. The case was docketed as CTA Case No. 6019. The BIR
Commissioner opposed the petition and averred that no judicial action can be
instituted by a taxpayer unless a claim has been duly filed before it. Considering
the importance of such procedural requirement, the BIR stressed that ETPI did
not file a formal/written claim for refund but merely submitted a quarterly VAT
return for the 4th quarter of 1998 contrary to what Section 229 of the NIRC
prescribes.12
In a Decision13 dated November 19, 2003, the CTA denied the petition because
the VAT official receipts presented by ETPI to support its claim failed to imprint
the word “zero-rated” on its face in violation of the invoicing requirements under
Section 4.108-1 of RR No. 7-95 which reads:
Sec. 4.108-1. Invoicing Requirements.—All VAT-registered persons shall, for every
sale or lease of goods or properties or services, issue duly registered receipts or sales or
commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;
5. the word “zero-rated” imprinted on the invoice covering zero-rated sales;
and
6. the invoice value or consideration. x x x (Emphasis ours)

The CTA further mentioned that even if ETPI is entitled to a refund, it still
failed to present sales invoices covering its VATable and exempt sales for purposes
of allocating its input taxes. It also criticized ETPI for filing its 1998 audited
financial records on February 22, 2001 when the same should have been reported
to the BIR as early as February 22, 1999. It being so, the CTA ratiocinated that
tax refunds, being in the nature of tax exemptions, are construed in strictissimi
juris against the taxpayer.14 Thus, ETPI’s noncompliance with what the tax laws
and regulations require resulted to the denial of its claim for VAT refund.
ETPI moved for the CTA’s reconsideration15 but it was denied in the
Resolution16 dated March 19, 2004. It was discussed: (1) that ETPI’s failure to
imprint the word “zero-rated” on the face of its receipts and invoices gives the
presumption that it is 10% VATable; (2) that its validly supported input VAT may
still be claimed as an automatic tax credit in payment of its future output VAT
liability; (3) that the total sales appearing on its 1998 Quarterly Return affects the
determination of its allowable refund even if the amounts of the reported zero-
rated sales indicated in the amended Quarterly VAT Returns and company-
provided zero-rated sales are the same; (4) that there is a need to verify the
truthfulness regarding ETPI’s claim that the discrepancy in the sales was due to
“write off” accounts; and (5) that the denial of the claim for refund was based on
the allocation it provided to its independent certified public accountant (CPA)
which it failed to support and which the independent CPA failed to include in its
audit.
Undaunted, ETPI filed a petition before the Court of Appeals (CA) which
referred the case to the CTA En Bancdue to the passage of R.A. No. 9282.17
On April 30, 2008, the CTA En Banc rendered a Decision18 which affirmed the
decision of the old CTA. In its disquisition, the CTA En Banc stated that VAT-
registered persons must comply with the invoicing requirements prescribed in
Sections 113(A)19 and 23720 of the NIRC. Moreover, the invoicing requirements
enumerated in Section 4.108-1 of RR No. 7-95 are mandatory due to the word
“shall” and not “may.” Hence, noncompliance with any thereof would disallow any
claim for tax credit or VAT refund. CTA Presiding Justice Ernesto Acosta (PJ
Acosta) filed a Concurring and Dissenting Opinion21 wherein he disagreed with the
majority’s view regarding the supposed mandatory requirement of imprinting the
term “zero-rated” on official receipts or invoices. He stated that Section 113 in
relation to Section 237 of the NIRC does not require the imprinting of the phrase
“zero-rated” on an invoice or official receipt for the document to be considered valid
for the purpose of claiming a refund or an issuance of a tax credit certificate.
Hence, the absence of the term “zero-rated” in an invoice or official receipt does
not affect its admissibility or competency as evidence in support of a refund claim.
Assuming that stamping the term “zero-rated” on an invoice or official receipt is a
requirement of the current NIRC, the denial of a refund claim is not the imposable
penalty for failure to comply with that requirement. Nevertheless, PJ Acosta
agreed with the majority’s decision to deny the claim due to ETPI’s failure to prove
the input taxes it paid on its domestic purchases of goods and services during the
period involved.
ETPI filed a motion for reconsideration which was denied in the
Resolution22 dated July 2, 2008. Hence, this petition.

The Issue

Whether or not the CTA erred in denying ETPI’s claim for refund of input taxes
resulting from its zero-rated sales.

Ruling of the Court

The petition is bereft of merit.

Foremost, it should be noted that the CTA has developed an expertise on the
subject of taxation because it is a specialized court dedicated exclusively to the
study and resolution of tax problems. As such, its findings of fact are accorded the
highest respect and are generally conclusive upon this Court, in the absence of
grave abuse of discretion or palpable error. Its decisions shall not be lightly set
aside on appeal, unless this Court finds that the questioned decision is not
supported by substantial evidence or there is a showing of abuse or improvident
exercise of authority.23

The word “zero-rated” is required on the invoices or receipts issued by

VAT-registered taxpayers.

ETPI posits that the NIRC allows VAT-registered taxpayers to file a claim for
refund of input taxes directly attributable to zero-rated transactions subject to
compliance with certain conditions. To bolster its averment, ETPI pointed out that
the imprint of the word “zero-rated” on the face of the sales invoice or receipt is
merely required in RR No. 7-95 which cannot prevail over a taxpayer’s substantive
right to claim a refund or tax credit for its input taxes. And, that the lack of the
word “zero-rated” on its invoices and receipts does not justify an outright denial of
its claim for refund or tax credit considering that it has presented equally relevant
and competent evidence to prove its claim. Moreover, its clients are nonresident
foreign corporations which are exempted from paying VAT. Thus, it cannot take
advantage of its omission to print the word “zero-rated” on its invoices and sales
receipts.
The Secretary of Finance has the authority to promulgate the necessary rules
and regulations for the effective enforcement of the provisions of the NIRC. Such
rules and regulations are given weight and respect by the courts in view of the
rule-making authority given to those who formulate them and their specific
expertise in their respective fields.24
An applicant for a claim for tax refund or tax credit must not only prove
entitlement to the claim but also compliance with all the documentary and
evidentiary requirements.25 Consequently, the old CTA, as affirmed by the CTA En
Banc, correctly ruled that a claim for the refund of creditable input taxes must be
evidenced by a VAT invoice or official receipt in accordance with Section
110(A)(1)26 of the NIRC. Sections 237 and 23827 of the same Code as well as Section
4.108-1 of RR No. 7-95 provide for the invoicing requirements that all VAT-
registered taxpayers should observe, such as: (a) the BIR Permit to Print; (b) the
Tax Identification Number of the VAT-registered purchaser; and (c) the word
“zero-rated” imprinted thereon. Thus, the failure to indicate the words “zero-rated”
on the invoices and receipts issued by a taxpayer would result in the denial of the
claim for refund or tax credit. Revenue Memorandum Circular No. 42-2003 on this
point reads:
A-13: Failure by the supplier to comply with the invoicing requirements on the
documents supporting the sale of goods and services will result to the disallowance of the
claim for input tax by the purchaser-claimant.
If the claim for refund/TCC is based on the existence of zero-rated sales by
the taxpayer but it fails to comply with the invoicing requirements in the
issuance of sales invoices (e.g., failure to indicate the TIN), its claim for tax
credit/refund of VAT on its purchases shall be denied considering that the
invoice it is issuing to its customers does not depict its being a VAT-registered
taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment
is without prejudice to the right of the taxpayer to charge the input taxes to the
appropriate expense account or asset account subject to depreciation, whichever is
applicable. Moreover, the case shall be referred by the processing office to the concerned
BIR office for verification of other tax liabilities of the taxpayer. (Emphasis ours)

In this respect, the Court has consistently ruled on the denial of a claim for
refund or tax credit whenever the word “zero-rated” has been omitted on the
invoices or sale receipts of the taxpayer-claimant as pronounced in Panasonic
Communications Imaging Corporation of the Philippines v. CIR 28 wherein it was
ratiocinated, viz.:
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the
Secretary of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for
the efficient enforcement of the tax code and of course its amendments. The requirement
is reasonable and is in accord with the efficient collection of VAT from the covered
sales of goods and services. As aptly explained by the CTA’s First Division, the
appearance of the word “zero-rated” on the face of invoices covering zero-rated
sales prevents buyers from falsely claiming input VAT from their purchases
when no VAT was actually paid. If, absent such word, a successful claim for input VAT
is made, the government would be refunding money it did not collect.
 Further, the printing of the word “zero-rated” on the invoice helps segregate
sales that are subject to 10% (now 12%) VAT from those sales that are zero-rated.
Unable to submit the proper invoices, petitioner Panasonic has been unable to
substantiate its claim for refund.29 (Citations omitted and emphasis ours)

ETPI failed to substantiate its claim for refund or tax credit.

ETPI argues that its quarterly returns for the year 2008 substantiate the
amounts of its taxable and exempt sales which show the amounts of its taxable
sales, zero-rated sales and exempt sales. Moreover, the submission of its invoices
and receipts including the verification of its independent CPA are all sufficient to
support its claim.
The Court is not persuaded.
ETPI failed to discharge its burden to prove its claim. Tax refunds, being in the
nature of tax exemptions, are construed in strictissimi juris against the taxpayer
and liberally in favor of the government. Accordingly, it is a claimant’s burden to
prove the factual basis of a claim for refund or tax credit. Considering that ETPI
is engaged in mixed transactions that cover its zero-rated sales, taxable and
exempt sales, it is only appropriate and reasonable for it to present competent
evidence to validate all entries in its returns in order to properly determine which
transactions are zero-rated and which are taxable. Clearly, compliance with all
the VAT invoicing requirements provided by tax laws and regulations is
mandatory. A claim for unutilized input taxes attributable to zero-rated sales will
be given due course; otherwise, the claim should be struck off for failure to do so,
such as what ETPI did in the present case.
As aptly discussed by the old CTA:
But even assuming that the VAT official receipts which failed to indicate the word
“zero-rated” are accepted because of the corroborating evidence, still we cannot grant
petitioner’s claim for refund. This court noted that the amounts of sales appearing on the
1998 quarterly returns differ from those of the amounts used by the commissioned
independent CPA as bases for the allocation of verified input taxes, to wit:

The above table shows that [ETPI] adjusted its taxable sales by reducing the same to
P8,594,177.20 or a reduction of P50,990,134.05 while the amount of exempt sales was
overstated by P293,089,580.45. The adjustments, according to [ETPI’s] Assistant Vice
President – Finance Controllership Regina E. De Leon, were due to write-off of accounts.
Such being the case, the court believes that [ETPI] should have presented additional
documents to prove the accuracy of the adjustments made. Earlier, we have noted that
petitioner failed to present its VAT official receipts for taxable sales and non-VAT official
receipts for its exempt sales. These documents are necessary to verify the amounts of
taxable and exempt sales and for the court to properly allocate the verified input taxes
among the taxable, zero-rated and exempt sales. It is pertinent to state that while a
decrease in taxable sales will not affect [ETPI’s] claim for refund, the increase in the
exempt sales has the effect of a proportionate reduction on its claimed input VAT credits.
Thus, in the absence of the aforementioned documents, the court has no basis in the
computation of the allowable refund that may be granted to [ETPI].
The disparity between the amounts declared as taxable or exempt sales by [ETPI] in
its amended 1998 quarterly VAT returns and the revenue allocation provided by
petitioner has further created a doubt as to the accuracy of [ETPI’s] claim, considering
further that the 1998 audited financial statements, which were the bases of the revenue
allocation, were already available as early as February 22, 1999 while [ETPI] filed its
amended 1998 quarterly VAT returns on February 22, 2001.30

Lastly, the old CTA and the CTA En Banc, including PJ Acosta in his
Concurring and Dissenting Opinion, both found that ETPI failed to sufficiently
substantiate the existence of its effectively zero-rated sales for taxable year 1998.
It is noteworthy to state that the CTA is a highly specialized court dedicated
exclusively to the study and consideration of revenue-related problems, in which
it has necessarily developed an expertise. Hence, its factual findings, when
supported by substantial evidence, will not be disturbed on appeal. Verily, this
Court finds no sufficient reason to rule otherwise.
WHEREFORE, in view of the foregoing premises, the Decision dated April 30,
2008 and Resolution dated July 2, 2008 of the Court of Tax Appeals En Banc in
C.T.A. E.B. No. 327 are AFFIRMED.
SO ORDERED.
Velasco, Jr. (Chairperson), Peralta, Villarama, Jr. and Jardeleza, JJ., concur.
Judgment and resolution affirmed.
Notes.—A taxpayer can apply his input Value-Added Tax (VAT) only against
his output VAT. The only exception is when the taxpayer is expressly “zero-rated
or effectively zero-rated” under the law, like companies generating power through
renewable sources of energy. (Commissioner of Internal Revenue vs. San Roque
Power Corporation, 690 SCRA 336 [2013])
Prior to seeking judicial recourse before the Court of Tax Appeals (CTA), a
value-added tax (VAT)-registered person may apply for the issuance of a tax credit
certificate or refund of creditable input tax attributable to zero-rated or effectively
zero-rated sales within two (2) years after the close of taxable quarter when the
sales or purchases were made. (Commissioner of Internal Revenue vs. Silicon
Philippines, Inc. [formerly Intel Philippines Manufacturing, Inc.], 718 SCRA 513
[2014])
——o0o——
 G.R. No. 206019. March 18, 2015.*

PHILIPPINE NATIONAL BANK, petitioner, vs.COMMISSIONER OF

INTERNAL REVENUE, respondent.
Taxation; Withholding Tax; The probative value of Bureau of Internal Revenue (BIR)
Form 2307, which is basically a statement showing the amount paid for the subject
transaction and the amount of tax withheld therefrom, is to establish only the fact of
withholding of the claimed creditable withholding tax. There is nothing in BIR Form No.
2307 which would establish either utilization or non-utilization, as the case may be, of the
creditable withholding tax.—In claims for excess and unutilized creditable withholding
tax, the submission of BIR Forms 2307 is to prove the fact of withholding of the excess
creditable withholding tax being claimed for refund. This is clear in the provision of
Section 58.3, RR 2-98, as amended, and in various rulings of the Court. In the words of
Section 2.58.3, RR 2-98, “That the fact of withholding is established by a copy of a
statement duly issued by the payor (withholding agent) to the payee showing the amount
paid and the amount of tax withheld therefrom.” Hence, the probative value of BIR Form
2307, which is basically a statement showing the amount paid for the subject transaction
and the amount of tax withheld therefrom, is to establish only the fact of withholding of
the claimed creditable withholding tax. There is nothing in BIR Form No. 2307 which
would establish either utilization or non-utilization, as the case may be, of the creditable
withholding tax.
PETITION for review on certiorari of the decision and resolution of the Court of
Tax Appeals En Banc.
The facts are stated in the opinion of the Court.
Zambrano & Gruba Law Offices for petitioner.
Office of the Solicitor General for respondent.
VELASCO, JR., J.:

Nature of the Case

This is an appeal via a Petition for Review on Certiorariunder Rule 45 of the

Rules of Court seeking to reverse and set aside the Court of Tax Appeals (CTA) En
Banc September 12, 2012 Decision, as reiterated in a Resolution of February 12,
2013 in C.T.A. E.B. Case No. 762, affirming the earlier decision of its First Division
denying petitioner’s claim for the refund of excess creditable withholding tax
which it allegedly erroneously paid the Bureau of Internal Revenue (BIR) in the
amount of Twelve Million Four Hundred Thousand and Four Pesos and Seventy-
One Centavos (P12,400,004.71).

The Facts

Gotesco Tyan Ming Development, Inc. (Gotesco), a Filipino corporation engaged

in the real estate business,1entered on April 7, 1995 into a syndicated loan
agreement with petitioner Philippine National Bank (PNB) and three (3) other
banks. To secure the loan, Gotesco mortgaged a six-hectare expanse known as the
Ever Ortigas Commercial Complex, under a mortgage trust indenture agreement
in favor of PNB, through its Trust Banking Group, as trustee.2
Gotesco subsequently defaulted on its loan obligations. Thus, PNB foreclosed
the mortgaged property through a notarial foreclosure sale on July 30, 1999. On
August 4, 1999, a certificate of sale was issued in favor of PNB, subject to Gotesco’s
right, as debtor and mortgagor, to redeem the property within one (1) year from
the date of inscription of the certificate of sale with the Register of Deeds of Pasig
City on November 9, 1999.3
On October 20, 2000, Gotesco filed a civil case against PNB before the Regional
Trial Court of Pasig, Branch 168 (RTC) for the annulment of the foreclosure
proceedings, specific performance and damages with prayer for temporary
restraining order (TRO) and/or preliminary injunction.4
On November 9, 2000, the RTC issued a TRO enjoining PNB from consolidating
ownership over the mortgaged property, then on December 21, 2000, a writ of
preliminary injunction. PNB’s motion for reconsideration was subsequently
denied.5
PNB went to the Court of Appeals (CA) via a Petition for Certiorari. The CA
ruled in favor of PNB and issued an Order reversing and setting aside the writ of
preliminary injunction issued by the RTC. Gotesco’s Motion for Reconsideration
was denied on December 22, 2003.6 As Gotesco did not challenge the CA ruling,
the setting aside of the writ of preliminary injunction became final and executory.
As it prepared for the consolidation of its ownership over the foreclosed
property, PNB paid the BIR Eighteen Million Six Hundred Fifteen Thousand
Pesos (P18,615,000) as documentary stamp tax (DST) on October 31, 2003. PNB
also withheld and remitted to the BIR withholding taxes equivalent to six percent
(6%) of the bid price of One Billion Two Hundred Forty Million Four Hundred
Sixty-Nine Pesos and Eighty-Two Centavos (P1,240,000,469.82) or Seventy-Four
Million Four Hundred Thousand and Twenty-Eight Pesos and Forty-Nine
Centavos (P74,400,028.49) on October 31, 2003 and November 11, 2003.7
Pending the issuance of the Certificate Authorizing Registration (CAR), the
BIR informed PNB that it is imposing interests, penalties and surcharges of Sixty-
One Million Six Hundred Seventy-Eight Thousand Four Hundred Ninety Pesos
and Twenty-Eight Centavos (Php61,678,490.28) on capital gains tax and Fifteen
Million Four Hundred Ninety-Four Thousand and Sixty-Five Pesos
(Php15,494,065) on DST. To facilitate the release of the CAR, petitioner paid all
the surcharges, interests and penalties assessed against it in the total amount of
Seventy-Seven Million One Hundred Seventy-Two Thousand Five Hundred Fifty-
Five Pesos and Twenty-Eight Centavos (Php77,172,555.28) on April 5, 2005.8
On the claim that what it paid the BIR was not entirely due, PNB lost no time
in instituting the necessary actions. Thus, on October 27, 2005, it filed an
administrative claim for the refund of excess withholding taxes with the BIR. A
day after, or on October 28, 2005, it filed its petition for review before the tax court,
docketed thereat as CTA Case No. 7355.9
In its claim for refund, PNB explained that it inadvertently applied the six
percent (6%) creditable withholding tax rate on the sale of real property classified
as ordinary asset, when it should have applied the five percent (5%) creditable
withholding tax rate on the sale of ordinary asset, as provided in Section
2.57.2(J)(B) of Revenue Regulation (RR) No. 2-98 as amended by RR No. 6-01,
considering that Gotesco is primarily engaged in the real estate business. The
applicable creditable withholding tax rate of five percent (5%) of the bid price is
equivalent to the amount of Sixty-Two Million Twenty-Three Pesos and Forty-
Nine Centavos (Php62,000,023.49). Therefore, PNB claimed that it erroneously
withheld and remitted to the BIR excess taxes of Twelve Million Four Hundred
Thousand and Four Pesos and Seventy-One Centavos (Php12,400,004.71).10
On March 22, 2007, PNB filed another claim for refund claiming erroneous
assessment and payment of the surcharges, penalties and interests. Petitioner
filed its corresponding Petition for Review on March 30, 2007, docketed as CTA
Case No. 7588.11
Upon motion of petitioner, CTA Case Nos. 7355 and 7588 were consolidated.
The consolidated cases were set for pretrial conference which CIR failed to attend
despite several resetting. On September 21, 2007, CIR was declared to be in
default.12

CTA’s Decision

In its July 12, 2010 consolidated Decision,13 the CTA Special First Division
(First Division), in CTA Case No. 7588, ordered the CIR to refund to PNB
P77,172,555.28 representing its claim for refund of interests, surcharges and
penalties on capital gains taxes and documentary stamp taxes for the year 2003.14
In CTA Case No. 7355, however, the First Division denied PNB’s claim for the
refund of excess creditable withholding taxes for insufficiency of evidence. The tax
court agreed with PNB that the applicable withholding rate was indeed five
percent (5%) and not six percent (6%).15Nevertheless, it held that PNB, while able
to establish the fact of tax withholding and the remittance thereof to the BIR,
failed to present evidence to prove that Gotesco did not utilize the withheld taxes
to settle its tax liabilities. The First Division further stated that PNB should have
offered as evidence the 2003 Income Tax Return (2003 ITR) of Gotesco to show
that the excess withholding tax payments were not used by Gotesco to settle its
tax liabilities for 2003. The First Division elucidated:
With the above proof of payments, this Court finds that the fact of withholding and
payment of the withholding tax due were properly established by petitioner. x x x
However, it must be noted that although petitioner duly paid the withholding taxes,
there was no evidence presented to this Court showing that GOTESCO utilized the taxes
withheld to settle its own tax liability for the year 2003. Being creditable in nature,
petitioner should have likewise offered as evidence the 2003 Income Tax Return of
GOTESCO to convince the court that indeed the excess withholding tax payments were
not used by GOTESCO. The absence of such relevant evidence is fatal to petitioner’s
action preventing this Court from granting its claim. To allow petitioner its claim may
cause jeopardy to the Government if it be required to refund the claim already utilized.16

On July 30, 2010, PNB filed a Motion for Reconsideration (MR), attaching
therewith, among others, Gotesco’s 2003 ITR and the latter’s Schedule of Prepaid
Tax, which the First Division admitted as part of the records.
On April 5, 2011, the First Division issued a Resolution17 denying PNB’s MR
mainly because there were no documents or schedules to support the figures
reported in Gotesco’s 2003 ITR to show that no part of the creditable withholding
tax sought to be refunded was used, in part, for the settlement of Gotesco’s tax
liabilities for the same year. It stated that PNB should have likewise presented
the Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) issued
to Gotesco in relation to the creditable taxes withheld reported in its 2003 ITR.
BIR Form No. 2307, so declared in the Resolution, will confirm whether or not that
the amount being claimed by PNB was indeed not utilized by Gotesco to offset its
taxes. In denying the MR, the First Division explained:
Petitioner attached to its Motion, income tax returns of GOTESCO for the taxable year
2003, to prove that the latter did not utilize the taxes withheld by petitioner. The returns
were submitted without any attachment regarding its creditable taxes withheld. Except
for GOTESCO’s Unadjusted Schedule of Prepaid Tax for the taxable year 2003, there were
no other documents or schedules presented before this Court to support the figures
reported in the tax returns of GOTESCO for the same year under lines 27(C), (D) and (G)
of the Creditable Taxes Withheld.
We note that the amounts reported by GOTESCO as creditable taxes withheld for the
year 2003 were just P6,014,433.00 in total, which is less than P74,400,028.49, the
creditable taxes withheld from it by the petitioner. In fact, it is less than the
P12,400,004.70 creditable taxes withheld being claimed by petitioner in its present
motion. However, this Court deemed that such observation alone, without any supporting
document or schedule, is not enough to convince us that no part of the creditable
withholding tax sought to be refunded is included in the total tax credits reported by
GOTESCO in its tax returns for the taxable year 2003 which was used, in part, for the
settlement of its tax liabilities for the same year.
To sufficiently prove that GOTESCO did not utilize the creditable taxes withheld,
petitioner should have likewise presented BIR Forms No. 2307 issued to GOTESCO in
relation to the creditable taxes withheld reported in its 2003 tax returns. Doing so will
dispel any doubt as to the composition of GOTESCO’s creditable taxes withheld for 2003.
This will settle once and for all that the amount being claimed by petitioner was not
utilized by GOTESCO, and thus the claim should be granted. Until then, this Court will
stand by its decision and deny the claim.18

In due time, PNB filed an appeal before the CTA En Banc by way of a Petition
for Review, docketed as CTA EB Case No. 762.19 PNB argued that its evidence
confirms that Gotesco’s Six Million Fourteen Thousand and Four Hundred Thirty-
Three Pesos (P6,014,433) worth of tax credits, as reported and claimed in its 2003
ITR, did not form part of the P74,400,028.49 equivalent to six percent (6%)
creditable tax withheld. To support the foregoing position, PNB highlighted the
following:
1. Gotesco continues to recognize the foreclosed property as its own asset in its 2003
audited financial statements. It did not recognize the foreclosure sale and has not claimed
the corresponding creditable withholding taxes withheld by petitioner on the foreclosure
sale.
2. Gotesco testified that the P6,014,4333.00 tax credits claimed in the year 2003 does
not include the P74,400,028.49 withholding taxes withheld and paid by petitioner in the
year 2003.
3. PNB presented BIR Form No. 1606, the withholding tax remittance return filed by
PNB as withholding agent, which clearly shows that the amount of P74,400,028.49 was
withheld and paid upon PNB’s foreclosure of Gotesco’s asset.20

Finally, in its July 12, 2010 Decision, the First Division expressly provided that
Gotesco’s 2003 ITR was the only evidence it needed to show that the excess
withholding taxes paid and remitted to the BIR were not utilized by Gotesco.
On September 12, 2012, the CTA En Banc, in the first assailed
Decision,21 denied PNB’s Petition for Review and held:
In this case, petitioner is counting on the Income Tax Returns of GOTESCO for the
taxable year 2003 and on a certain Unadjusted Schedule of Prepaid Tax for the same year
to support its argument that GOTESCO did not utilize the taxes withheld by petitioner;
however, We are not persuaded.
To reiterate, since the claim for refund involves creditable taxes withheld from
GOTESCO, it is necessary to prove that these creditable taxes were not utilized by
GOTESCO to pay for its liabilities. The income tax returns alone are not enough to fully
support petitioner’s contention that no part of the creditable withholding tax sought to be
refunded by petitioner was utilized by GOTESCO; first, there were no other relevant
supporting documents or schedules presented to delineate the figures constituting the
creditable taxes withheld that was reported in GOTESCO’s 2003 tax returns; and second,
this Court cannot give credence to the Unadjusted Schedule of Prepaid Tax for the taxable
year 2003 being referred to by petitioner as the same pertains merely to a list of
GOTESCO’s creditable tax withheld for taxable year 2003 and was not accompanied by
any attachment to support its contents; also it is manifest from the records that petitioner
failed to have this Schedule of Prepaid Tax offered in evidence, and thus, was not admitted
as part of the records of this case.22

After the denial of PNB’s Motion for Reconsideration on February 12,

2013,23 the bank filed this instant petition.

Issue

Whether or not PNB is entitled to the refund of creditable withholding taxes

erroneously paid to the BIR. Subsumed in this main issue is the evidentiary value
under the premises of BIR Form No. 2307.
The Court’s Ruling

The petition is impressed with merit. As PNB insists at every turn, it has
presented sufficient evidence showing its entitlement to the refund of the excess
creditable taxes it erroneously withheld and paid to the BIR.
As earlier stated, the CTA predicated its denial action on the postulate that
even if PNB’s withholding and remittance of taxes were undisputed, it was not
able to prove that Gotesco did not utilize the taxes thus withheld to pay for its tax
liabilities for the year 2003.
In its Decision, the First Division categorically stated, “[P]etitioner should have
likewise offered as evidence the 2003 Income Tax Return of GOTESCO to convince
this Court that indeed the excess withholding tax payments were not used by
GOTESCO. The absence of such relevant evidence is fatal to petitioner’s action
preventing this Court from granting its claim.”24
Thus, apprised on what to do, and following the First Division’s advice, PNB
presented Gotesco’s 2003 ITRs as an attachment to its MR, which was
subsequently denied however. In ruling on the MR, the First Division again
virtually required PNB to present additional evidence, specifically, Gotesco’s
Certificates of Creditable Taxes Withheld (BIR Form No. 2307) covering
P6,014,433 tax credits claimed for year 2003, purportedly to show non-utilization
by Gotesco of the P74,400,028.49 withholding tax payments.
Although PNB was not able to submit Gotesco’s BIR Form No. 2307, the Court
is persuaded and so declares that PNB submitted evidence sufficiently showing
Gotesco’s non-utilization of the taxes withheld subject of the refund.
 First, Gotesco’s Audited Financial Statements for year 2003, 25 which it
subsequently filed with the BIR in 2004, still included the foreclosed Ever Ortigas
Commercial Complex, in the Asset account “Property and Equipment.” This was
explained on page 8, Note 5 of Gotesco’s 2003 Audited Financial Statements:
Commercial complex and improvements pertain to the Ever Pasig Mall. As discussed
in Notes 1 and 7, the land and the mall, which were used as collaterals for the Company’s
bank loans, were foreclosed by the lender banks in 1999. However, the lender banks have
not been able to consolidate the ownership and take possession of these properties pending
decision of the case by the Court of Appeals. Accordingly, the properties are still carried
in the books of the Company. As of April 21, 2004, the Company continues to operate the
said mall. Based on the December 11, 2003 report of an independent appraiser, the fair
market value of the land, improvements and machinery and equipment would amount to
about P2.9 billion.
Land pertains to the Company’s properties in Pasig City where the Ever Pasig Mall is
situated.26

It is clear that as of year-end 2003, Gotesco had continued to assert ownership

over the Ever Ortigas Commercial Complex as evidenced by the following: (a) it
persistently challenged the validity of the foreclosure sale which was the
transaction subject to the P74,400,028.49 creditable withholding tax; and (b) its
2003 Audited Financial Statements declared said complex as one of its properties.
Thus, it is reasonable to conclude that since Gotesco vehemently refused to
recognize the validity of the foreclosure sale, it stands to reason that it also refused
to recognize the payment of the creditable withholding tax that was due on the
sale and most especially, claim the same as a tax credit.
Certainly, Gotesco’s relentless refusal to transfer registered ownership of the
Ever Ortigas Commercial Complex to PNB constitutes proof enough that Gotesco
will not do any act inconsistent with its claim of ownership over the foreclosed
asset, including claiming the creditable tax imposed on the foreclosure sale as tax
credit and utilizing such amount to offset its tax liabilities. To do such would run
roughshod over Gotesco’s firm stance that PNB’s foreclosure on the mortgage was
invalid and that it remained the owner of the subject property.
Several pieces of evidence likewise point to Gotesco’s non-utilization of the
claimed creditable withholding tax. As advised by the First Division, Gotesco
presented its 2003 ITR27 along with its 2003 Schedule of Prepaid Tax28which
itemized in detail the withholding taxes claimed by Gotesco for the year 2003
amounting to P6,014,433. The aforesaid schedule shows that the creditable
withholding taxes Gotesco utilized to pay for its 2003 tax liabilities came from the
rental payments of its tenants in the Ever Ortigas Commercial Complex, not from
the foreclosure sale.
Further, Gotesco’s former accountant, Ma. Analene T. Roxas, stated in her
Judicial Affidavit29 that the tax credits claimed for year 2003 did not include any
portion of the amount subject to the claim for refund. First, she explained that
Gotesco could not have possibly utilized the amount claimed for refund as it was
not even aware that PNB paid the six percent (6%) creditable withholding tax
since no documents came to its attention which showed such payment by PNB. As
she also explained, had Gotesco claimed the entire or even any portion of
P74,400,028.49, corresponding to the six percent (6%) taxwithheld by PNB, the
amount appearing in Items 27D30and 27C31 of Gotesco’s 2003 ITR should have
reflected the additional amount of P74,400,028.49. The pertinent portions of
Roxas’ Judicial Affidavit read:
 All in all, the evidence presented by petitioner sufficiently proved its
entitlement to the claimed refund. There is no need for PNB to present Gotesco’s
BIR Form No. 2307, as insisted by the First Division, because the information
contained in the said form may be very well gathered from other documents
already presented by PNB. Thus, the presentation of BIR Form No. 2307 would be
in the final analysis a superfluity, of little or no value.
In claims for excess and unutilized creditable withholding tax, the submission
of BIR Forms 2307 is to prove the fact of withholding of the excess creditable
withholding tax being claimed for refund. This is clear in the provision of Section
58.3, RR 2-98, as amended, and in various rulings of the Court.33 In the words of
Section 2.58.3, RR 2-98, “That the fact of withholding is established by a copy of a
statement duly issued by the payor (withholding agent) to the payee showing the
amount paid and the amount of tax withheld therefrom.”
Hence, the probative value of BIR Form 2307, which is basically a statement
showing the amount paid for the subject transaction and the amount of tax
withheld therefrom, is to establish only the fact of withholding of the claimed
creditable withholding tax. There is nothing in BIR Form No. 2307 which would
establish either utilization or non-utilization, as the case may be, of the creditable
withholding tax.
It must be noted that PNB had already presented the Withholding Tax
Remittance Returns (BIR Form No. 1606) relevant to the transaction. The said
forms show that the amount of P74,400,028.49 was withheld and paid by PNB in
the year 2003. It contains, among other data, the name of the payor and the payee,
the description of the property subject of the transaction, and the determination
of the taxable base, and the tax rate applied. These are the very same key
information that would be gathered from BIR Form No. 2307.
While perhaps it may be necessary to prove that the taxpayer did not use the
claimed creditable withholding tax to pay for his/its tax liabilities, there is no basis
in law or jurisprudence to say that BIR Form No. 2307 is the only evidence that
may be adduced to prove such nonuse.
In this case, PNB was able to establish, through the evidence it presented, that
Gotesco did not in fact use the claimed creditable withholding taxes to settle its
tax liabilities, to reiterate: (1) Gotesco’s 2003 Audited Financial Statements, which
still included the mortgaged property in the asset account “Properties and
Equipment,” proving that Gotesco did not recognize the foreclosure sale and
therefore, the payment by PNB of the creditable withholding taxes corresponding
to the same; (2) Gotesco’s 2003 ITRs, which the CTA Special First Division
required to show that the excess creditable withholding tax claimed for refund was
not used by Gotesco, along with the 2003 Schedule of Prepaid Tax which itemized
in detail the withholding taxes claimed by Gotesco for the year 2003 amounting to
P6,014,433.00; (3) the testimony of Gotesco’s former accountant, proving that the
amount subject of PNB’s claim for refund was not included among the creditable
withholding taxes stated in Gotesco’s 2003 ITR; and (4) the Withholding Tax
Remittance Returns (BIR Form 1606) proving that the amount of P74,400,028.49
was withheld and paid by PNB in the year 2003.
Ergo, the evidence on record sufficiently proves that the claimed creditable
withholding tax was withheld and remitted to the BIR, that such withholding and
remittance was erroneous, and that the claimed creditable withholding tax was
not used by Gotesco to settle its tax liabilities.
WHEREFORE, the Court resolves to GRANT the petition. The Decision of the
Court of Tax Appeals En Banc dated September 12, 2012 and its Resolution dated
February 12, 2013 in CTA EB Case No. 762 are hereby REVERSED and SET
ASIDE, and a new one entered DIRECTING respondent Commissioner of
Internal Revenue to refund to petitioner Philippine National Bank, within thirty
(30) days from the finality of this Decision, the amount of Twelve Million Four
Hundred Thousand and Four Pesos and Seventy-One Centavos
(Php12,400,004.71), representing excess creditable withholding taxes withheld
and paid for the year 2003.
SO ORDERED.
Peralta, Del Castillo,** Villarama, Jr. and Reyes, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.

Notes.—The copies of the Certificates of Creditable Tax Withheld at Source

when found by the duly commissioned ICPA to be faithful reproductions of the
original copies would suffice to establish the fact of withholding. (Commissioner of
Internal Revenue vs. TeaM [Philippines] Operations Corporation, 707 SCRA 467
[2013])
Upon presentation of a withholding tax certificate complete in its relevant
details and with a written statement that it was made under the penalties of
perjury, the burden of evidence then shifts to the Commissioner of Internal
Revenue (CIR) to prove that (1) the certificate is not complete; (2) it is false; or (3)
it was not issued regularly. (Commissioner of Internal Revenue vs. Philippine
National Bank, 736 SCRA 609 [2014])
——o0o——