Tax Case Digest: Planters Product V. Fertiphil Corp.
W/N Fertiphil has locus standi
(2008)
Planters Product v. Fertiphil Corp.
G.R. No. 166006 March 14, 2008
REYES, R.T., J.
Lessons Applicable: Bet. private and public suit, easier to
file public suit, Apply real party in interest test for private
suit and direct injury test for public suit, Validity test
varies depending on which inherent power
Laws Applicable:
FACTS:
President Ferdinand Marcos, exercising his legislative
powers, issued LOI No. 1465 which provided, among
others, for the imposition of a capital recovery
component (CRC) on the domestic sale of all grades of
fertilizers which resulted in having Fertiphil paying P
10/bag sold to the Fertilizer and Perticide Authority
(FPA).
FPA remits its collection to Far East Bank and Trust
Company who applies to the payment of corporate debts
of Planters Products Inc. (PPI)
After the Edsa Revolution, FPA voluntarily stopped the
imposition of the P10 levy. Upon return of democracy,
Fertiphil demanded a refund but PPI refused. Fertiphil
filed a complaint for collection and damages against FPA
and PPI with the RTC on the ground that LOI No. 1465 is
unjust, unreaonable oppressive, invalid and unlawful
resulting to denial of due process of law.
FPA answered that it is a valid exercise of the police
power of the state in ensuring the stability of the
fertilizing industry in the country and that Fertiphil did
NOT sustain damages since the burden imposed fell on
the ultimate consumers.
RTC and CA favored Fertiphil holding that it is an exercise
of the power of taxation ad is as such because it is NOT
for public purpose as PPI is a private corporation.
ISSUE:
1.
2. W/N LOI No. 1465 is an invalid exercise of the power
of taxation rather the police power
Held:
1. Yes. In private suits, locus standi requires a litigant to
be a "real party in interest" or party who stands to be
benefited or injured by the judgment in the suit. In public
suits, there is the right of the ordinary citizen to petition
the courts to be freed from unlawful government
intrusion and illegal official action subject to the direct
injury test or where there must be personal and
substantial interest in the case such that he has sustained
or will sustain direct injury as a result. Being a mere
procedural technicality, it has also been held that locus
standi may be waived in the public interest such as cases
of transcendental importance or with far-reaching
implications whether private or public suit, Fertiphil has
locus standi.
2. As a seller, it bore the ultimate burden of paying the
levy which made its products more expensive and harm
its business. It is also of paramount public importance
since it involves the constitutionality of a tax law and use
of taxes for public purpose.
3. Yes. Police power and the power of taxation are
inherent powers of the state but distinct and have
different tests for validity. Police power is the power of
the state to enact the legislation that may interfere with
personal liberty on property in order to promote general
welfare. While, the power of taxation is the power to
levy taxes as to be used for public purpose. The main
purpose of police power is the regulation of a behavior
or conduct, while taxation is revenue generation. The
lawful subjects and lawful means tests are used to
determine the validity of a law enacted under the police
power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.
In this case, it is for purpose of revenue. But it is a
robbery for the State to tax the citizen and use the funds
generation for a private purpose. Public purpose does
NOT only pertain to those purpose which are
traditionally viewed as essentially governmental function
such as building roads and delivery of basic services, but
also includes those purposes designed to promote social
justice. Thus, public money may now be used for the
relocation of illegal settlers, low-cost housing and urban
or agrarian reform.
Francia v Intermediate Appellate Court (1988)
Francia v Intermediate Appellate Court GR No L-67649,
June 28, 1988
FACTS:
Engracio Francia was the registered owner of a house
and lot located in Pasay City. A portion of such property
was
expropriated by the Republic of the Philippines in 1977.
It appeared that Francia did not pay his real estate taxes
from 1963 to 1977. Thus, his property was sold in a public
auction by the City Treasurer of Pasay City. Francia filed
a complaint to annual the auction sale. The lower court
dismissed the complaint and the Intermediate Appellate
Court affirmed the decision of the lower court in toto.
Hence, this petition for review. Francia contends that his
tax delinquency of P 2,400 has been extinguished by legal
compensation. He claims that the government owed him
P 4,116 when a portion of his land was expropriated on
October 15, 1977.
ISSUE:
May the expropriation payment compensate for the real
estate taxes due?
RULING:
No. There can be no offsetting of taxes against the claims
that the taxpayer may have against the government. A
person
cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater
than the tax being collected. The collection of a tax
cannot await the results of a lawsuit against the
government. Internal revenue taxes cannot be the
subject of compensation. The Government and the
taxpayer are not mutually creditors and debtors of each
other under Article 1278 of the Civil Code and a claim of
taxes is not such a debt, demand, contract or judgment
as is allowed to be set-off.
Moreover, the amount of P4,116 paid by the national
government for the 125 square meter portion of his lot
was deposited with the Philippine National Bank long
before the sale at public auction of his remaining
property. It would have been an easy matter to withdraw
P 2,400 from the deposit so that he could pay the tax
obligation thus aborting the sale at public auction. Thus,
the petition for review is dismissed. The taxes assessed
are the obligations of the taxpayer arising from law,
while the money judgment against the government is an
obligation arising from contract, whether express or
implied.
PHILIPPINE AIRLINES, INC. v. EDU
G.R. No. L- 41383, August 15, 1988
FACTS:
The Philippine Airlines (PAL) is a corporation engaged in
the air transportation business under a legislative
franchise, Act No. 42739. Under its franchise, PAL is
exempt from the payment of taxes.
Sometime in 1971, however, Land Transportation
Commissioner Romeo F. Elevate (Elevate) issued a
regulation pursuant to Section 8, Republic Act 4136,
otherwise known as the Land and Transportation and
Traffic Code, requiring all tax exempt entities, among
them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, Elevate refused to register
PAL's motor vehicles unless the amounts imposed under
Republic Act 4136 were paid. PAL thus paid, under
protest, registration fees of its motor vehicles. After
paying under protest, PAL through counsel, wrote a
letter dated May 19,1971, to Land Transportation
Commissioner Romeo Edu (Edu) demanding a refund of
the amounts paid. Edu denied the request for refund.
Hence, PAL filed a complaint against Edu and National
Treasurer Ubaldo Carbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed
to the Court of Appeals which in turn certified the case
to the Supreme Court.
ISSUE:
Whether or not motor vehicle registration fees are
considered as taxes.
RULING:
Yes. If the purpose is primarily revenue, or if revenue is,
at least, one of the real and substantial purposes, then
the exaction is properly called a tax. Such is the case of
motor vehicle registration fees. The motor vehicle
registration fees are actually taxes intended for
additional revenues of the government even if one fifth
or less of the amount collected is set aside for the
operating expenses of the agency administering the
program.
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
FACTS: Petitioner is a government-owned and
controlled corporation created under Commonwealth
Act No. 120, as amended.
For many years now, petitioner sells electric power to
the residents of Cabanatuan City, posting a gross
income of P107,814,187.96 in 1992.7 Pursuant to
section 37 of Ordinance No. 165-92,8 the respondent
assessed the petitioner a franchise tax amounting to
P808,606.41, representing 75% of 1% of the latter’s
gross receipts for the preceding year.
Petitioner refused to pay the tax assessment arguing
that the respondent has no authority to impose tax on
government entities. Petitioner also contended that as
a non-profit organization, it is exempted from the
payment of all forms of taxes, charges, duties or fees
in accordance with sec. 13 of Rep. Act No. 6395, as
amended.
The respondent filed a collection suit in the RTC,
demanding that petitioner pay the assessed tax due,
plus surcharge. Respondent alleged that petitioner’s
exemption from local taxes has been repealed by
section 193 of the LGC, which reads as follows:
“Sec. 193. Withdrawal of Tax Exemption
Privileges.- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical,
including government owned or controlled
corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.”
RTC upheld NPC’s tax exemption. On appeal the CA
reversed the trial court’s Order on the ground that
section 193, in relation to sections 137 and 151 of the
LGC, expressly withdrew the exemptions granted to
the petitioner.
ISSUE: W/N the respondent city government has the
authority to issue Ordinance No. 165-92 and impose
an annual tax on “businesses enjoying a franchise
HELD: YES. Taxes are the lifeblood of the
government, for without taxes, the government can
neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its
source from the very existence of the state whose
social contract with its citizens obliges it to promote
public interest and common good. The theory behind
the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-
being of the people.
Section 137 of the LGC clearly states that the LGUs
can impose franchise tax “notwithstanding any
exemption granted by any law or other special law.”
This particular provision of the LGC does not admit any
exception. In City Government of San Pablo, Laguna
v. Reyes,74 MERALCO’s exemption from the payment
of franchise taxes was brought as an issue before this
Court. The same issue was involved in the subsequent
case of Manila Electric Company v. Province of
Laguna.75 Ruling in favor of the local government in
both instances, we ruled that the franchise tax in
question is imposable despite any exemption enjoyed
by MERALCO under special laws, viz:
“It is our view that petitioners correctly rely on
provisions of Sections 137 and 193 of the LGC to
support their position that MERALCO’s tax exemption
has been withdrawn. The explicit language of section
137 which authorizes the province to impose franchise
tax ‘notwithstanding any exemption granted by any law
or other special law’ is all-encompassing and
clear. The franchise tax is imposable despite any
exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax
exemption privileges. By stating that unless otherwise
provided in this Code, tax exemptions or incentives
granted to or presently enjoyed by all persons, whether
natural or juridical, including government-owned or
controlled corporations except (1) local water districts,
(2) cooperatives duly registered under R.A. 6938, (3)
non-stock and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of this
code, the obvious import is to limit the exemptions to
the three enumerated entities. It is a basic precept of
statutory construction that the express mention of one
person, thing, act, or consequence excludes all others
as expressed in the familiar maxim expressio unius est
exclusio alterius. In the absence of any provision of the
Code to the contrary, and we find no other provision in
point, any existing tax exemption or incentive enjoyed
by MERALCO under existing law was clearly intended
to be withdrawn.
Reading together sections 137 and 193 of the LGC, we
conclude that under the LGC the local government unit
may now impose a local tax at a rate not exceeding
50% of 1% of the gross annual receipts for the
preceding calendar based on the incoming receipts
realized within its territorial jurisdiction. The legislative
purpose to withdraw tax privileges enjoyed under
existing law or charter is clearly manifested by the
language used on (sic) Sections 137 and 193
categorically withdrawing such exemption subject only
to the exceptions enumerated. Since it would be not
only tedious and impractical to attempt to enumerate
all the existing statutes providing for special tax
exemptions or privileges, the LGC provided for an
express, albeit general, withdrawal of such exemptions
or privileges. No more unequivocal language could
have been used.”76 (emphases supplied)
Doubtless, the power to tax is the most effective
instrument to raise needed revenues to finance and
support myriad activities of the local government units
for the delivery of basic services essential to the
promotion of the general welfare and the enhancement
of peace, progress, and prosperity of the people. As
this Court observed in the Mactan case, “the original
reasons for the withdrawal of tax exemption privileges
granted to government-owned or controlled
corporations and all other units of government were
that such privilege resulted in serious tax base erosion
and distortions in the tax treatment of similarly situated
enterprises.” With the added burden of devolution, it is
even more imperative for government entities to share
in the requirements of development, fiscal or
otherwise, by paying taxes or other charges due from
them.