CIR v CTA

GR No 106611, July 21, 1994

FACTS:
Citytrust filed a petition with the Court of Tax Appeals claiming the refund of its income tax
overpayments for the years 1983, 1984 and 1985 in the total amount of P19,971,745. The CIR
could not present any evidence due to the repeated failure of the tax credit/refund division
of the BIR to transmit the records of the case and the investigation report to the Solicitor
General. The case was decided in favor of City Trust. Upon motion of reconsideration,
petitioner alleged that through an inter-office memorandum of the Tax Credit/Refund
Division, dated August 8, 1991, he came to know only that Citytrust had outstanding tax
liabilities for 1984 in the amount of P56,588,740.91 representing deficiency income and
business taxes.

ISSUES:
1. Whether the BIR was denied its day in court
2. Whether the CTA erred in denying petitioner’s supplemental motion for reconsideration
alleging bringing to said court’s attention the existence of deficiency income and business
taxes

RULING:
1. Yes, the BIR is denied its day in court. When it was petitioner’s turn to present evident
evidence, several postponements were sought by its counsel, the Solicitor General, due to
the unavailability of the necessary records which were not transmitted by the Refund Audit
Division of the BIR to said counsel. It was under such predicament and in deference to the
tax court that the counsel was constrained to submit the case for decision without
presenting any evidence. It is a long and firmly settled rule of law that the Government is not
bound by the errors committed by its agents.
2. Yes. The fact of such deficiency assessment is intimately related and inextricably
intertwined with the right of the bank. The private respondent cannot be entitled to refund
and at the same time be liable for a deficiency tax assessment for the same year.
CASE DIGEST: LA SUERTE CIGAR & CIGARETTE FACTORY, Petitioner, vs. COURT OF APPEALS
and COMMISSIONER OF INTERNAL REVENUE, Respondents. (G.R. No. 125346; November 11,
2014)

FACTS:
These cases involve the taxability of stemmed leaf tobacco imported and locally purchased
by cigarette manufacturers for use as raw material in the manufacture of their cigarettes.
Under the Tax Code, if it is to be exported or to be used in the manufacture of cigars,
cigarettes, or other tobacco products on which the excise tax will eventually be paid on the
finished product.

La Suerte was assessed by the BIR for excise tax deficiency amounting to more than 34
million pesos. La Suerte protested invoking the Tax Code which allows the sale of stemmed
leaf tobacco as raw material by one manufacturer directly to another without payment of
the excise tax. However, the CIR insisted that stemmed leaf tobacco is subject to excise tax
"unless there is an express grant of exemption from [the] payment of tax."

La Suerte petitioned for review before the CTA which cancelled the assessment. The CIR
appealed to the CA which reversed the CTA. The CIR invoked a revenue regulation (RR)
which limits the exemption from payment of specific tax on stemmed leaf tobacco to sales
transactions between manufacturers classified as L-7 permittees.

ISSUES:
[1] Is stemmed leaf tobacco subject to excise (specific) tax?
[2] Is purchase of stemmed leaf tobacco from manufacturers who are not classified as L-7
permittees subject to tax?
[3] Is the RR valid?
[4] Is the possessor or owner, or importer or exporter, of stemmed leaf tobacco liable for
the payment of specific tax if such tobacco product is removed from the place of production
without payment of said tax?
[5] Does the imposition of excise tax on stemmed leaf tobacco under Section 141 of the 1986
Tax Code constitute double taxation, considering they are paying the specific tax on the raw
material and on the finished product in which the raw material was a part?

HELD:
[1] Yes, excise taxes on domestic products shall be paid by the manufacturer or producer
before[the] removal [of those products] from the place of production." "It does not matter
to what use the article[s] subject to tax is put; the excise taxes are still due, even though the
articles are removed merely for storage in someother place and are not actually sold or
consumed.

When tobacco is harvested and processed either by hand or by machine, all itsproducts
become subject to specific tax. Section 141 reveals the legislative policy to tax all forms of
manufactured tobacco — in contrast to raw tobacco leaves — including tobacco refuse or
all other tobacco which has been cut, split, twisted, or pressed and is capable of being
smoked without further industrial processing.

Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a partially
prepared tobacco. The removal of the stem or midrib from the leaf tobacco makes the
resulting stemmed leaf tobacco a prepared or partially prepared tobacco.

Despite the differing definitions for "stemmed leaf tobacco" under revenue regulations, the
onus of proving that stemmed leaf tobacco is not subject to the specific tax lies with the
cigarette manufacturers. Taxation is the rule, exemption is the exception.

[2] Stemmed leaf tobacco transferred in bulk between cigarette manufacturers are exempt
from excise tax under the Tax Code vis-a-vis RRs.

Section 137 authorizes a tax exemption subject to the following: (1) that the stemmed leaf
tobacco is sold in bulk as raw material by one manufacturer directly to another; and (2) that
the sale or transfer has complied with the conditions prescribed by the Department of
Finance.

The conditions under which stemmed leaf tobacco may be transferred from one factory to
another without prepayment of specific tax are as follows: (a) The transfer shall be under an
official L-7 invoice on which shall be entered the exact weight of the tobacco at the time of
its removal; (b) Entry shall be made in the L-7 register in the place provided on the page for
removals; and (c) Corresponding debit entry shall bemade in the L-7 register book of the
factory receiving the tobacco under the heading, "Refuse, etc.,received from the other
factory," showing the date of receipt, assessment and invoice numbers, name and address
of the consignor, formin which received, and the weight of the tobacco.

[3] Yes, valid. Under Section 3(h) of RR No. 17-67, entities that were issued by the Bureau of
Internal Revenue with an L-7 permit refer to "manufacturers of tobacco products." Hence,
the transferor and transferee of the stemmed leaf tobacco must be an L-7 tobacco
manufacturer.
The reason behind the tax exemption of stemmed leaf tobacco transferred between two L-7
manufacturers is that the same had already been previously-taxed when acquired by the L-7
manufacturer from dealers of tobacco. There is no new product when stemmed leaf
tobacco is transferred between two L-7 permit holders. Thus, there can be no excise tax that
will attach. The regulation, therefore, is reasonable and does not create a new statutory
right.

Moreover, although delegation is not allowed as a rule, the power to fill in the details and
manner as to the enforcement and administration of a law may be delegated to various
specialized administrative agencies.

[4] Importation of stemmed leaf tobacco not included in the exemption. The transaction
contemplated in Section 137 does not include importation of stemmed leaf tobacco for the
reason that the law uses the word "sold" to describe the transaction of transferring the raw
materials from one manufacturer to another.

[5] In this case, there is no double taxation in the prohibited sense because the specific tax is
imposed by explicit provisions of the Tax Code on two different articles or products: (1) on
the stemmed leaf tobacco; and (2) on cigar or cigarette.
Commissioner of Internal Revenue vs. Cebu Portland Cement Co.
G.R. No. L-29059, 15 December 1987

Facts: CTA decision ordered the petitioner CIR to refund to the Cebu Portland Cement
Company, respondent, P 359,408.98 representing overpayments of ad valorem taxes on
cement sold by it. Execution of judgement was opposed by the petitioner citing that private
respondent had an outstanding sales tax liability to which the judgment debt had already
been credited. In fact, there was still a P4 M plus balance they owed. The Court of Tax
Appeals, in holding that the alleged sales tax liability of the private respondent was still
being questioned and therefore could not be set-off against the refund, granted private
respondent's motion. The private respondent questioned the assessed tax based on Article
186 of the Tax Code, contending that cement was adjudged a mineral and not a
manufactured product; and thusly they were not liable for their alleged tax deficiency.
Thereby, petitioner filed this petition for review.

Issue: Whether or not assessment of taxes can be enforced even if there is a case contesting
it.

Held: The argument that the assessment cannot as yet be enforced because it is still being
contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the
government." If the payment of taxes could be postponed by simply questioning their
validity, the machinery of the state would grind to a halt and all government functions would
be paralyzed. That is the reason why, save for the exception in RA 1125 , the Tax Code
provides that injunction is not available to restrain collection of tax. Thereby, we hold that
the respondent Court of Tax Appeals erred in its order.
TITLE: J.B.L. Reyes, Edmundo Reyes, et al, petitioner, v. Board of Assessment Appeals of
Manila and City Assessor of Manila, respondents

CITATION: G.R. Nos. L-49839-46, 196 SCRA 322

DATE: April 26, 1991

FACTS:

J.B.L Reyes, et al., petitioners, owners of parcels of land in Tondo and Sta. Cruz
Districts, City of Manila which are leased by tenants for a monthly rentals not exceeding
three hundred pesos (P300.00) in July 1971. Around that time, a law was passed prohibiting
the increase of rentals of properties leased for rentals not exceeding P300.00 monthly and
ejecting lessees after the expiration of the usual legal period of lease. In 1973, respondent
City Assessor of Manila re-classified and reassessed the value of the subject properties based
on the schedule of market values which entailed an increase in the acorresponding tax rates
prompting petitioners to file a Memorandum of Disagreement with the Board of Tax
Assessment Appeals. They averred that the reassessments made were "excessive,
unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes
imposed upon them greatly exceeded the annual income derived from their properties. They
argued that the income approach should have been used in determining the land values
instead of the comparable sales approach which the City Assessor adopted

ISSUE:

Is the approach adopted by the City Assessor appropriate in assessing the property?

HELD:

No. The taxing power is an attribute of sovereignty. However, the power to tax is not
unconfined as there are restrictions. The due process and equal protection clauses of the
Constitution limit this power. The laws should operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the same manner, the
conditions not being different both in the privileges conferred and the liabilities imposed.
The market value of properties covered by P.D. No. 20 cannot be equated with the market
value of properties not covered. The former has naturally a much lesser market value in view
of the rental restrictions. Consequently, the use of the Comparable Sales Approach in the
assessment of the properties on the ground of uniformity is unreasonable.
PHIL. GUARANTY CO. VS. CIR

GR L-22074, April 30, 1965

TOPIC: Cession of the premiums taxable as income from sources within the Philippines.

FACTS: The Philippine Guaranty Co., Inc., a domestic insurance company, entered into
reinsurance contracts, on various dates, with foreign insurance companies not doing
business in the Philippines. Petitioner thereby agreed to cede to the foreign reinsurers a
portion of the premiums on insurance it has originally underwritten in the Philippines, in
consideration for the assumption by the latter of liability on an equivalent portion of the
risks insured.

Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the
foreign reinsurers outside the Philippines.

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it
file its income tax returns. It did not withhold or pay tax on them. Consequently, the CIR
assessed against PETITIONER .withholding tax on the ceded reinsurance premiums.

Petitioner protested the assessment on the ground that reinsurance premiums ceded to
foreign reinsurers not doing business in the Philippines are not subject to withholding tax.

CTA: IN FAVOR OF RESPONDENT

ISSUE: Whether reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines are subject to tax

HELD: Yes. The reinsurance premiums are subject to tax.

The reinsurance contracts show that the transactions or activities that constituted the
undertaking to reinsure Philippine Guaranty Co., Inc. against loses arising from the original
insurances in the Philippines were performed in the Philippines.

Section 24 of the Tax Code subjects foreign corporations to tax on their income from
sources within the Philippine .“Sources” means the activity, property, or service giving rise
to the income. The original insurance undertakings took place in the Philippines. It is not
required that the foreign corporation be engaged in business in the Philippines. What is
controlling is no the place of business, but the place of activity that created the income.
Thus, the income is subject to income tax.
NOTE: The foreign insurers' place of business should not be confused with their place of
activity. Business should not be continuity and progression of transactions while activity
may consist of only a single transaction. An activity may occur outside the place of business.
Commissioner of Internal Revenue vs. Algue Inc.
GR No. L-28896 | Feb. 17, 1988

Facts:
Algue Inc. is a domestic corp engaged in engineering, construction and other allied
activities. On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency
income taxes from 1958-1959, amtg to P83,183.85. A letter of protest or reconsideration was
filed by Algue Inc on Jan 18. On March 12, a warrant of distraint and levy was presented to
Algue Inc. thru its counsel, Atty. Guevara, who refused to receive it on the ground of the
pending protest. Since the protest was not found on the records, a file copy from the corp
was produced and given to BIR Agent Reyes, who deferred service of the warrant. On April
7, Atty. Guevara was informed that the BIR was not taking any action on the protest and it
was only then that he accepted the warrant of distraint and levy earlier sought to be served.
On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax
Appeals

CIR contentions:
- the claimed deduction of P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense
- payments are fictitious because most of the payees are members of the same family in
control of Algue and that there is not enough substantiation of such payments

CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of
promotional fees. These were collected by the Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by Algue as legitimate business expenses in its income tax returns

Ruling:
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance, made in accordance with law. RA 1125: the appeal may be made
within thirty days after receipt of the decision or ruling challenged. During the intervening
period, the warrant was premature and could therefore not be served. Originally, CIR
claimed that the 75K promotional fees to be personal holding company income, but later on
conformed to the decision of CTA. There is no dispute that the payees duly reported their
respective shares of the fees in their income tax returns and paid the corresponding taxes
thereon. CTA also found, after examining the evidence, that no distribution of dividends was
involved. CIR suggests a tax dodge, an attempt to evade a legitimate assessment by
involving an imaginary deduction. Algue Inc. was a family corporation where strict business
procedures were not applied and immediate issuance of receipts was not required. at the
end of the year, when the books were to be closed, each payee made an accounting of all of
the fees received by him or her, to make up the total of P75,000.00. This arrangement was
understandable in view of the close relationship among the persons in the family
corporation. The amount of the promotional fees was not excessive. The total commission
paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After
deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything,
from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it
of the Sugar Estate properties.

Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - All the
ordinary and necessary expenses paid or incurred during the taxable year in carrying on any
trade or business, including a reasonable allowance for salaries or other compensation for
personal services actually rendered xxx the burden is on the taxpayer to prove the validity of
the claimed deduction. In this case, Algue Inc. has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the payees in inducing
investors and prominent businessmen to venture in an experimental enterprise and involve
themselves in a new business requiring millions of pesos. Taxes are what we pay for
civilization society. Without taxes, the government would be paralyzed for lack of the
motive power to activate and operate it. Hence, despite the natural reluctance to surrender
part of one's hard earned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. Taxation must be exercised
reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer
has a right to complain and the courts will then come to his succor

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in accordance
with Rep. Act No. 1125. And we also find that the claimed deduction by Algue Inc. was
permitted under the Internal Revenue Code and should therefore not have been disallowed
by the CIR.
Lutz v Araneta
GR No L-7859 December 22, 1955

FACTS: Walter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, sought to recover the sum of P14,666.40 paid by the estate as taxes from the
Commissioner under Section e of Commonwealth Act 567 or the Sugar Adjustment Act,
alleging that such tax is unconstitutional as it levied for the aid and support of the sugar
industry exclusively, which is in his opinion not a public purpose.

ISSUE: Is the tax valid?

HELD: Yes. The tax is levied with a regulatory purpose, i.e. to provide means for the
rehabilitation and stabilization of the threatened sugar industry. The act is primarily an
exercise of police power and is not a pure exercise of taxing power.
As sugar production is one of the great industries of the Philippines and its promotion,
protection and advancement redounds greatly to the general welfare, the legislature found
that the general welfare demanded that the industry should be stabilized, and provided that
the distribution of benefits had to sustain.
Further, it cannot be said that the devotion of tax money to experimental stations to seek
increase of efficiency in sugar production, utilization of by-products, etc., as well as to the
improvement of living and working conditions in sugar mills and plantations without any
part of such money being channeled directly to private persons, constitute expenditure of
tax money for private purposes.
Hence, the tax is valid.
GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando,
Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was returned
to the petitioner. Petitioner now assails the constitutionality of the statute claiming that RA
1635 otherwise known as the Anti-TB Stamp law is violative of the equal protection clause
because it constitutes mail users into a class for the purpose of the tax while leaving
untaxed the rest of the population and that even among postal patrons the statute
discriminatorily grants exemptions. The law in question requires an additional 5 centavo
stamp for every mail being posted, and no mail shall be delivered unless bearing the said
stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal
protection clause?

HELD: No. It is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions. This power has aptly been described as "of wide range
and flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in classification. The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a privilege and
on administrative convenience. Tax exemptions have never been thought of as raising
revenues under the equal protection clause.
Chavez v Ongpin
GR No 76778, June 6, 1990

FACTS:
Section 21 of Presidential Decree 464 provides that every 5 years starting calendar year 1978,
there shall be a provincial or city general revision of real property assessments. The general
revision was completed in 1984.
On November 25, 1986, President Corazon Aquino issued EO 73 stating that beginning
January 1, 1987, the 1984 assessments shall be the basis of real property taxes. Francisco
Chavez, a taxpayer and landowner, questioned the constitutionality of EO 74. He alleges that
it will bring unreasonable increase in real property taxes.

ISSUE:
Is EO 73 constitutional?

RULING:
Yes. Without EO 73, the basis for collection of real property taxes will still be the 1978
revision of property values. Certainly, to continue collecting real property taxes based on
valuations arrived at several years ago, in disregard of the increases in the value of real
properties that have occurred since then is not in consonance with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that
sources of revenue must be adequate to meet government expenditures and their
variations.
RENATO V. DIAZ v. SECRETARY OF FINANCE, GR No. 193007, 2011-07-19
Facts:
Petitioners filed this petition for declaratory relief... assailing the validity of the impending
imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the
collections of... tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest
as regular users of tollways in stopping the BIR action. Additionally, Diaz claims that he
sponsored the approval of EVAT Law... and... the 1997 National Internal Revenue Code... at
the House of Representatives. Timbol, on the other hand, claims that she served as
Assistant Secretary of the Department of Trade and Industry and consultant of the Toll
Regulatory Board (TRB) in... the past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria
Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred, however, in
view of the consistent opposition of Diaz and other sectors to such move. But, upon
President Benigno C. Aquino III's assumption of office in 2010, the BIR revived the idea and
would impose the challenged tax on toll fees beginning August 16, 2010 unless judicially
enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include
toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a
"user's tax," not a sale of services; that to impose VAT on toll fees would amount to a... tax
on public service; and that, since VAT was never factored into the formula for computing toll
fees, its imposition would violate the non-impairment clause of the constitution.
On August 13, 2010 the Court issued a TRO enjoining the implementation of the VAT.
The Court required the government, represented by respondents Cesar V. Purisima,
Secretary of the Department of Finance, and Kim S. Jacinto-Henares, Commissioner of
Internal Revenue, to comment on the petition within 10 days from notice.
Later, the Court issued another resolution treating the petition as one for prohibition.
The government avers that the NIRC imposes VAT on all kinds of services of franchise
grantees, including tollway operations, except where the law provides... otherwise; that the
Court should seek the meaning and intent of the law from the words used in the statute; and
that the imposition of VAT on tollway operations has been the subject as early as 2003 of
several BIR rulings and circulars.
The government also argues that petitioners have no right to invoke the non-impairment of
contracts clause since they clearly have no personal interest in existing toll operating
agreements... between the government and tollway operators.
Finally, the government contends that the non-inclusion of VAT in the parametric formula
for computing toll rates cannot exempt tollway operators from VAT.
Issues:
Whether or not the imposition of VAT on tollway operators... is not administratively feasible
and cannot be... implemented.
Ruling:
Administrative feasibility is one of the canons of a sound tax system. It simply means that
the tax system should be capable of being effectively administered and enforced with the
least inconvenience to the taxpayer. Non-observance of the canon, however, will not render
a tax... imposition invalid "except to the extent that specific constitutional or statutory
limitations are impaired."
Thus, even if the imposition of VAT on tollway operations may seem burdensome to
implement, it is not necessarily invalid unless some aspect... of it is shown to violate any law
or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on
tollway operations. Any declaration by the Court that the manner of its implementation is
illegal or unconstitutional would be premature. Although the transcript of the August 12,
2010 Senate... hearing provides some clue as to how the BIR intends to go about it,... the
facts pertaining to the matter are not sufficiently established for the Court to pass judgment
on. Besides, any concern about how the VAT on tollway operations will be enforced... must
first be addressed to the BIR on whom the task of implementing tax laws primarily and
exclusively rests. The Court cannot preempt the BIR's discretion on the matter, absent any
clear violation of law or the Constitution.
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or
expand the VAT law's coverage when she sought to impose VAT on tollway
operations. Section 108(A) of the Code clearly states that services of all other franchise
grantees are subject to
VAT, except as may be provided under Section 119 of the Code. Tollway operators are not
among the franchise grantees subject to franchise tax under the latter provision. Neither are
their services among the VAT-exempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so
strongly allege, then it would have been well for the law to clearly say so. Tax exemptions
must be justified by clear statutory grant and based on language in the law too plain to be...
mistaken.
But as the law is written, no such exemption obtains for tollway operators.
ASSOCIATION OF CUSTOM BROKERS, INC. vs. MUNICIPAL BOARD
G.R. No. L-4376 May 22, 1953

FACTS:
The Association of Customs Brokers, Inc., which is composed of all brokers and public
service operators of motor vehicles in the City of Manila challenge the validity Ordinance No.
3379 on the ground that (1) while it levies a so-called property tax it is in reality a license tax
which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance
offends against the rule of uniformity of taxation; and (3) it constitutes double taxation.
The respondents contend on their part that the challenged ordinance imposes a property
tax which is within the power of the City of Manila to impose under its Revised Charter
[Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the
rule of uniformity of taxation, nor does it constitute double taxation.
ISSUE:
Whether or not the ordinance is null and void
RULING:
The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution.
Note that the ordinance exacts the tax upon all motor vehicles operating within the City of
Manila. It does not distinguish between a motor vehicle for hire and one which is purely for
private use. Neither does it distinguish between a motor vehicle registered in the City of
Manila and one registered in another place but occasionally comes to Manila and uses its
streets and public highways. This is an inequality which we find in the ordinance, and which
renders it offensive to the Constitution.
Esso Standard Eastern, Inc. v CIR GR Nos L-28508-9, July 7, 1989

Facts:
ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business
expenses, the amount it had spent for drilling and exploration of its petroleum concessions.
The Commissioner disallowed the claim on the ground that the expenses should be
capitalized and might be written off as a loss only when a “dry hole” should result. Hence,
ESSO filed an amended return where it asked for the refund of P323,270 by reason of its
abandonment, as dry holes, of several of its oil wells. It also claimed as ordinary and
necessary expenses in the same return amount representing margin fees it had paid to the
Central Bank on its profit remittances to its New York Office.

ISSUE:
Whether the margin fees were deductible from gross income either as a

1. (1) tax or
2. (2) ordinary and necessary business expense

RULING:

1. (1) No, it is not a tax. A tax is levied to provide revenue for government operations,
while the proceeds of the margin fee are applied to strengthen our country’s
international reserves. Thus the margin fee was imposed by the State in the
exercise of its police power ant not the power of taxation.

2. (2) No. ESSO has not shown that the remittance to the head office of part of its
profits was made in furtherance of its own trade or business. The petitioner merely
presumed that all corporate expenses are necessary and appropriate in the absence
of a showing that they are illegal or ultra vires. This is error. The public respondent is
correct when it asserts that the paramount rule is that claims for deductions are a
matter of legislative grace and do not turn on mere equitable considerations... The
taxpayer in every instance has the burden of justifying the allowance of any
deduction claimed.
PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY, GR No. L-36081, 1989-04-24
Facts:
Progressive Development Corporation, owner and operator of a public market known as the
"Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary
Injunction against respondent... on the ground that the supervision fee or license tax
imposed by the above-mentioned ordinances is in reality a tax on income which respondent
may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended
Petitioner, however, insists that the "supervision fee" collected from rentals, being a return
from capital invested in the construction of the Farmers Market, practically operates as a tax
on income, one of those expressly excepted from respondent's taxing authority, and... thus
beyond the latter's competence.
Issues:
The only issue to be resolved here is whether the tax imposed by respondent on gross
receipts of stall rentals is properly characterized as partaking of the nature of an income tax
or, alternatively, of a license fee.
Ruling:
The "Farmers' Market and Shopping Center" being a public market in the sense of a market
open to and inviting the, patronage of the general public, even though privately owned,
petitioner's operation thereof required a license issued by the respondent City, the
issuance... of which, applying the standards set forth above, was done principally in the
exercise of the respondent's police power
The operation of a privately owned market is, as correctly noted by the Solicitor General,...
equivalent to or quite the same as the operation of a government-owned market;
We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax... but rather a license tax or fee for
the regulation of the business in which the petitioner is engaged.
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.
Villegas vs Hiu Chiong Tsai Pao Ho

Nov. 10, 1978

Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those
employed in the diplomatic and consular missions of foreign countries, in technical
assistance programs of the government and another country, and members of religious
orders or congregations) to procure the requisite mayor’s permit so as to be employed or
engage in trade in the City of Manila. The permit fee is P50, and the penalty for the violation
of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or both.

Issue: Whether the ordinance imposes a regulatory fee or a tax.

Held: The ordinance’s purpose is clearly to raise money under the guise of regulation by
exacting P50 from aliens who have been cleared for employment. The amount is
unreasonable and excessive because it fails to consider difference in situation among aliens
required to pay it, i.e. being casual, permanent, part-time, rank-and-file or executive.

[ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being
applied only to aliens who are thus deprived of their rights to life, liberty and property and
therefore violates the due process and equal protection clauses of the Constitution. Further,
the ordinance does not lay down any criterion or standard to guide the Mayor in the
exercise of his discretion, thus conferring upon the mayor arbitrary and unrestricted powers.
]
Compania General de Tabacos vs City of Manila

June 29, 1963

Facts: Compania General de Tabacos de Filipinas (Tabacalera) paid the City of Manila the
fixed license fees prescribed by Ordinance 3358 for the years 1954 to 1957. In 1954, City
Ordinance 3634 and 3816 were passed; where the term “general merchandise” found
therein included all articles in Sections 123 to 148 of the Tax Code (thus, also liquor under
Sedctions 133 to 135). The Tabacalera paid its wholesaler’s and retailer’s taxes. In 1954, the
City Treasurer addressed a letter to an accounting firm, expressing the view that liquor
dealers paying the annual wholesale and retail fixed tax under Ordinance 3358 are not
subject to the wholesale aand retail deaklers’ taxes prescribed by City Ordinances 3634,
3301, and 3816. The Tabacalera, upon learning of said stopped including quarterly sworn
declaratons required by the latter ordinances, and in 1957, demanded refunde of the alleged
overpayment. The claim was disallowed.

Issue: Whether there is a distinction between Ordinance 3358 and Ordinances 3634, 3301
and 3816, to prevent refund to the company

Held: Yes. Generally, the term “tax” applies to all kinds of exactions which become public
funds. Legally, however, a license fee is a legal concept quite distinct from tax: the former is
imposed in the exercise of police power for purposes of regulation, while the latter is
imposed under the taxing power for the purpose of raising revenues. Ordinance 3358
prescribes municipal license fees for the privilege to engage in the business of selling liquor
or alcohol beverages; considering that the sale of intoxicating liquor is (potentially) harmful
to public health and morals, and must be subject to supervision or regulation by the State
and by cities and municipalities authorized to act in the premises. On the other hand,
Ordinances 3634, 3301 and 3816 imposed taxes on the sales of general merchandise,
wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila.
AMERICAN MAIL LINE, ET AL vs. CITY OF BASILAN, ET AL

G.R. No. L-12647 May 31, 1961

FACTS:

Appellees are foreign shipping companies licensed to do business in the Philippines, with
offices in Manila. Their vessels call at Basilan City and anchor in the bay or channel within its
territorial waters. As the city treasurer assessed and attempted to collect from them the
anchorage fees prescribed in the aforesaid amendatory ordinance, they filed the present
action for Declaratory Relief to have the courts determine its validity. Upon their petition the
lower court issued a writ of preliminary injunction restraining appellants from collecting or
attempting to collect from them the fees prescribed therein.

Appellant contended that, through its city council, it had authority to enact the questioned
ordinance in the exercise of either its revenue-raising power or of its police power. The
question to be resolved is whether the City of Basilan has the authority to enact Ordinance
180 and to collect the anchorage fees prescribed therein.

ISSUE:

Is the ordinance valid exercise of taxing power of the City of Basilan.

RULING:

Under paragraph (a) sec. 14, R.A. 288, it is clear that the City of Basilan may only levy and
collect taxes for general and special purposes in accordance with or as provided by law; in
other words, the city of Basilan was not granted a blanket power of taxation. The use of the
phrase "in accordance with law" — which, in our opinion, means the same as "provided by
law" — clearly discloses the legislative intent to limit the taxing power of the City.

It has been held that the power to regulate as an exercise of police power does not include
the power to impose fees for revenue purposes. Appellant city's own contention that the
questioned ordinance was enacted in the exercise of its power of taxation, makes it obvious
that the fees imposed are not merely regulatory.
OSMEÑA vs. ORBOS 220 SCRA 703

GR No. 99886, March 31, 1993

" To avoid the taint of unlawful delegation of the power to tax, there must be a standard
which implies that the legislature determines matter of principle and lays down fundamental
policy."

FACTS: Senator John Osmeña assails the constitutionality of paragraph 1c of PD 1956, as

amended by EO 137, empowering the Energy Regulatory Board (ERB) to approve the
increase of fuel prices or impose additional amounts on petroleum products which proceeds
shall accrue to the Oil Price Stabilization Fund (OPSF) established for the reimbursement to
ailing oil companies in the event of sudden price increases. The petitioner avers that the
collection on oil products establishments is an undue and invalid delegation of legislative
power to tax. Further, the petitioner points out that since a 'special fund' consists of monies
collected through the taxing power of a State, such amounts belong to the State, although
the use thereof is limited to the special purpose/objective for which it was created. It thus
appears that the challenge posed by the petitioner is premised primarily on the view that
the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the
taxation power of the State.

ISSUE: Is there an undue delegation of the legislative power of taxation?

HELD: None. It seems clear that while the funds collected may be referred to as taxes, they
are exacted in the exercise of the police power of the State. Moreover, that the OPSF as a
special fund is plain from the special treatment given it by E.O. 137. It is segregated from the
general fund; and while it is placed in what the law refers to as a "trust liability account," the
fund nonetheless remains subject to the scrutiny and review of the COA. The Court is
satisfied that these measures comply with the constitutional description of a "special fund."
With regard to the alleged undue delegation of legislative power, the Court finds that the
provision conferring the authority upon the ERB to impose additional amounts on petroleum
products provides a sufficient standard by which the authority must be exercised. In
addition to the general policy of the law to protect the local consumer by stabilizing and
subsidizing domestic pump rates, P.D. 1956 expressly authorizes the ERB to impose
additional amounts to augment the resources of the Fund.
Republic of the Philippines v Bacolod-Murcia GR No. L-19824, L-19825, L-19826
July 9, 1966

FACTS:
RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, the Institute
acquired the Insular Sugar Refinery for P3.07 million payable in installments from the
proceeds of the Sugar tax to be collected under RA 632. The operation of the refinery for
1954 to 1957 was disastrous as the Institute suffered tremendous losses. Contending that
the purchase of refinery with money from the Institute’s fund was not authorized under RA
632, and that the continued operation of the refinery is inimical to their interest, Bacolod-
Murcia Milling Co., Ma-ao Sugar Central, Talisay-Silay Milling Co. and the Central Azucarera
del Danao refused to continue with their contribution to said fund. The trial court found
them liable under RA 632. Hence, this petition.

ISSUE:
Are the milling companies liable?

RULING:
Yes. The special assessment or levy for the Philippine Sugar Institute Fund is not so much an
exercise of the power of
taxation, nor the imposition of a special assessment, but the exercise of police power for the
general welfare of the entire country. It is, therefore, an exercise of a sovereign power
which no private citizen may lawfully resist.
Section 2a of the charter authorizes Philsugin to acquire the refinery in question. The
financial loss resulting from the operation thereof is no means an index that the industry did
profit therefrom, as other gains of a different nature (such as experience) may have been
realized.
VICTORIAS MILLING CO. V PPA
153 SCRA 317; August 27, 1987

FACTS: This is a petition for review on certiorari of the July 27, 1984 Decision of the Office of
the Presidential Assistant For Legal Affairs dismissing the appeal from the adverse ruling of
the Philippine Ports Authority on the sole ground that the same was filed beyond the
reglementary period.

On April 28, 1981, the Iloilo Port Manager of respondent Philippine Ports Authority (PPA for
short) wrote petitioner Victorias Milling Co., requiring it to have its tugboats and barges
undergo harbor formalities and pay entrance/clearance fees as well as berthing fees
effective May 1, 1981. PPA, likewise, requiring petitioner to secure a permit for cargo
handling operations at its Da-an Banua wharf and remit 10% of its gross income for said
operations as the government's share.

Victorias Milling Co. maintained that it is except from paying PPA any fee or charge because:
1. The wharf and its facilities are built and installed on it’s own land; 2. Repairs and
maintenance are solely paid by it; 3. Maintenance and dredging of the channel are done by
the Company personnel; 4. At not time has the government paid any centavo for such
activities.

ISSUE: WON the Victorias Milling Co. claim of exception for PPA fees is meritorious.

HELD: No, the petitioners claim that there is no basis for the PPA to assess and impose the
dues and charge is devoid of merit.

As correctly stated by the Solicitor General, the fees and charges PPA collects are not for the
use of the wharf that petitioner owns but for the privilege of navigating in public waters, of
entering and leaving public harbours and berthing on public streams or waters.

As to the requirement to remit 10% of the handling charges, Section 6B-(ix) of the
Presidential Decree No. 857 authorized the PPA "To levy dues, rates, or charges for the use
of the premises, works, appliances, facilities, or for services provided by or belonging to the
Authority, or any organization concerned with port operations." This 10% government share
of earnings of arrastre and stevedoring operators is in the nature of contractual
compensation to which a person desiring to operate arrastre service must agree as a
condition to the grant of the permit to operate.
 G.R. No. 159796 July 17, 2007
ROMEO P. GEROCHI, KATULONG NG BAYAN (KB) and ENVIRONMENTALIST CONSUMERS
NETWORK, INC. (ECN), petitioners
vs
DEPARTMENT OF ENERGY (DOE), ENERGY REGULATORY COMMISSION (ERC), NATIONAL
POWER CORPORATION (NPC), POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT
GROUP (PSALM Corp.), STRATEGIC POWER UTILITIES GROUP (SPUG), and PANAY ELECTRIC
COMPANY INC. (PECO),respondents.
FACTS:
On June 8, 2001 Congress enacted RA 9136 or the Electric Power Industry Act of 2001.
Petitioners Romeo P. Gerochi and company assail the validity of Section 34 of the EPIRA Law
for being an undue delegation of the power of taxation. Section 34 provides for the
imposition of a “Universal Charge” to all electricity end users after a period of (1) one year
after the effectively of the EPIRA Law. The universal charge to be collected would serve as
payment for government debts, missionary electrification, equalization of taxes and
royalties applied to renewable energy and imported energy, environmental charge and for a
charge to account for all forms of cross subsidies for a period not exceeding three years. The
universal charge shall be collected by the ERC on a monthly basis from all end users and will
then be managed by the PSALM Corp. through the creation of a special trust fund.

ISSUE:
Whether or not there is an undue delegation of the power to tax on the part of the ERC

HELD:
No, the universal charge as provided for in section 34 is not a tax but an exaction of the
regulatory power (police power) of the state. The universal charge under section 34 is
incidental to the regulatory duties of the ERC, hence the provision assailed is not for
generation of revenue and therefore it cannot be considered as tax, but an execution of the
states police power thru regulation.

Moreover, the amount collected is not made certain by the ERC, but by the legislative
parameters provided for in the law (RA 9136) itself, it therefore cannot be understood as a
rule solely coming from the ERC. The ERC in this case is only a specialized administrative
agency which is tasked of executing a subordinate legislation issued by congress; which
before execution must pass both the completeness test and the sufficiency of standard test.
The court in appreciating Section 34 of RA 9136 in its entirety finds the said law and the
assailed portions free from any constitutional defect and thus deemed complete and
sufficient in form.
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. W/N Fertiphil has locus standi
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.
 G.R. No. 173863 September 15, 2010
CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES, INC.), Petitioner,
vs.
BASES CONVERSION DEVELOPMENT AUTHORITY and CLARK DEVELOPMENT
CORPORATION, Respondents
Facts:
On June 28, 2002, the Board of Directors of respondent Clark Development Corporation
(CDC) issued and approved Policy Guidelines on the Movement of Petroleum Fuel to and
from the Clark Special Economic Zone. In one of its provisions, it levied royalty fees to
suppliers delivering Coastal fuel from outside sources for Php0.50 per liter for those
delivering fuel to CSEZ locators not sanctioned by CDC and Php1.00 per litter for those
bringing-in petroleum fuel from outside sources. The policy guidelines were implemented
effective July 27, 2002.

The petitioner Chevron Philippines Inc (formerly Caltex Philippines Inc) who is a fuel supplier
to Nanox Philippines, a locator inside the CSEZ, received a Statement of Account from CDC
billing them to pay the royalty fees amounting to Php115,000 for its fuel sales from Coastal
depot to Nanox Philippines from August 1 to September 21, 2002.

Petitioner, contending that nothing in the law authorizes CDC to impose royalty fees based
on a per unit measurement of any commodity sold within the special economic zone,
protested against the CDC and Bases Conversion Development Authority (BCDA). They
alleged that the royalty fees imposed had no reasonable relation to the probably expenses
of regulation and that the imposition on a per unit measurement of fuel sales was for a
revenue generating purpose, thus, akin to a “tax”.

BCDA denied the protest. The Office of the President dismissed the appeal as well for lack of
merit.

Upon appeal, CA dismissed the case. CA held that in imposing the royalty fees, CDC was
exercising its right to regulate the flow of fuel into CSEZ under the vested exclusive right to
distribute fuel within CSEZ pursuant to its Joint Venture Agreement (JVA) with Subic Bay
Metropolitan Authority (SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI) dated April 11,
1996. The appellate court also found that royalty fees were assessed on fuel delivered, not
on the sale, by petitioner and that the basis of such imposition was petitioner’s delivery
receipts to Nanox Philippines. The fact that revenue is incidentally also obtained does not
make the imposition a tax as long as the primary purpose of such imposition is regulation.

When elevated in SC, petitioner argued that: 1) CDC has no power to impose fees on sale of
fuel inside CSEZ on the basis of income generating functions and its right to market and
distribute goods inside the CSEZ as this would amount to tax which they have no power to
impose, and that the imposed fee is not regulatory in nature but rather a revenue generating
measure; 2) even if the fees are regulatory in nature, it is unreasonable and are grossly in
excess of regulation costs.
Respondents contended that the purpose of royalty fees is to regulate the flow of fuel to
and from the CSEZ and revenue (if any) is just an incidental product. They viewed it as a valid
exercise of police power since it is aimed at promoting the general welfare of public; that
being the CSEZ administrator, they are responsible for the safe distribution of fuel products
inside the CSEZ.

Issue:
Whether the act of CDC in imposing royalty fees can be considered as valid exercise of the
police power.
Held:
Yes. SC held that CDC was within the limits of the police power of the State when it imposed
royalty fees.
In distinguishing tax and regulation as a form of police power, the determining factor is the
purpose of the implemented measure. If the purpose is primarily to raise revenue, then it
will be deemed a tax even though the measure results in some form of regulation. On the
other hand, if the purpose is primarily to regulate, then it is deemed a regulation and an
exercise of the police power of the state, even though incidentally, revenue is generated.

In this case, SC held that the subject royalty fee was imposed for regulatory purposes and
not for generation of income or profits. The Policy Guidelines was issued to ensure the
safety, security, and good condition of the petroleum fuel industry within the CSEZ. The
questioned royalty fees form part of the regulatory framework to ensure “free flow or
movement” of petroleum fuel to and from the CSEZ. The fact that respondents have the
exclusive right to distribute and market petroleum products within CSEZ pursuant to its JVA
with SBMA and CSBTI does not diminish the regulatory purpose of the royalty fee for fuel
products supplied by petitioner to its client at the CSEZ.

However, it was erroneous for petitioner to argue that such exclusive right of respondent
CDC to market and distribute fuel inside CSEZ is the sole basis of the royalty fees imposed
under the Policy Guidelines. Being the administrator of CSEZ, the responsibility of ensuring
the safe, efficient and orderly distribution of fuel products within the Zone falls on CDC.
Addressing specific concerns demanded by the nature of goods or products involved is
encompassed in the range of services which respondent CDC is expected to provide under
Sec. 2 of E.O. No. 80, in pursuance of its general power of supervision and control over the
movement of all supplies and equipment into the CSEZ.

There can be no doubt that the oil industry is greatly imbued with public interest as it vitally
affects the general welfare. Fuel is a highly combustible product which, if left unchecked,
poses a serious threat to life and property. Also, the reasonable relation between the royalty
fees imposed on a “per liter” basis and the regulation sought to be attained is that the
higher the volume of fuel entering CSEZ, the greater the extent and frequency of
supervision and inspection required to ensure safety, security, and order within the Zone.
Respondents submit that the increased administrative costs were triggered by security risks
that have recently emerged, such as terrorist strikes. The need for regulation is more evident
in the light of 9/11 tragedy considering that what is being moved from one location to
another are highly combustible fuel products that could cause loss of lives and damage to
properties.

As to the issue of reasonableness of the amount of the fees, SC held that no evidence was
adduced by the petitioner to show that the fees imposed are unreasonable. Administrative
issuances have the force and effect of law. They benefit from the same presumption of
validity and constitutionality enjoyed by statutes. These two precepts place a heavy burden
upon any party assailing governmental regulations. Petitioner’s plain allegations are simply
not enough to overcome the presumption of validity and reasonableness of the subject
imposition.

WHEREFORE, the petition is DENIED for lack of merit and the Decision of the Court of Appeals
dated November 30, 2005 in CA-G.R. SP No. 87117 is hereby AFFIRMED.
Petitioner: Angeles University Foundation

Respondents: City of Angeles, Juliet Quinsaat, in her capacity as Treasurer of Angeles City
and Engr. Donato N. Dizon, in his capacity as Acting Angeles City Building Official

Facts:

Petitioner Angeles University Foundation (AUF) is an educational institution established on

May 25, 1962 and was converted into a non-stock, non-profit education foundation under
the provisions of Republic Act (RA) No. 6055 on December 4, 1975.

On August 2005, petitioner filed with the Office of the City Building Official in the City of
Angeles Pampanga an application for a building permit for the construction of an 11-storey
building in its main Campus. A Building Permit Fee Assessment and an order of payment for
Locational Clearance Fees was issued by the said office.

Petitioner claimed, through a letter addressed to respondents City Treasurer and Acting City
Building Official, that it is exempted from the payment of the building permit and locational
clearance fees and cited legal opinions rendered by the Department of Justice (DOJ).

Respondents referred the matter to the Bureau of Local Government Finance (BLGF) of the
Department of Finance, which in turn endorsed the query to the DOJ. DOJ replied and
affirmed the claim of the petitioner.

Despite the petitioner’s plea, however, respondents refused to issue the building permit.
Petitioner then appealed the matter to the City Mayor but received no written response.
Consequently, petitioner paid under protest a total of P826,662.99 and the Building Permit
and other documents were issued afterwards.

Petitioner formally requested the respondents to refund the fees it paid under protest
through letters dated June 15, 2006 and August 7, 2006. But the respondents denied the
claim for refund.

On August 31, 2006, petitioner filed a Complaint before the trial court seeking for the refund
of P826,662.99 plus interest at a rate of 12% per annum, and for attorneys fee in the amount
of P300,000.00 and litigation expenses.

On September 21, 2007, the trial court rendered judgment in favor of the petitioner.
Respondents appeal to the CA which reversed the trial court’s decision. Petitioner filed a
motion for reconsideration but was denied.

So the petitioner filed a petition for review on certiorari before the Supreme Court.
Issue:

Whether or not the building permit fee is a tax from which petitioner is exempt.

Discussion:

The building permit fee is neither a tax nor a charge on property. Based on Sections 102, 103
and 104, the building permit fee is a regulatory imposition on certain activities the owner
may conduct either to build such structures or to repair, alter, renovate or demolish the
same. Since building permit fees are not charges on property, they are not impositions from
which petitioner is exempt.

As to petitioner’s argument that the building permit fees collected by respondents are in
reality taxes because the primary purpose is to raise revenues for the local government unit,
the same does not hold water.

A charge of a fixed sum which bears no relation at all to the cost of inspection and
regulation may be held to be a tax rather than an exercise of the police power. In this case,
the Secretary of Public Works and Highways who is mandated to prescribe and fix the
amount of fees and other charges that the Building Official shall collect in connection with
the performance of regulatory functions, has promulgated and issued the Implementing
Rules and Regulations which provide for the bases of assessment of such fees.

The court cited the case of CHEVRON PHILIPPINES, INC. VS. BASES CONVERSION
DEVELOPMENT AUTHORITY and explained the difference between tax and regulation:

IN DISTINGUISHING TAX AND REGULATION AS A FORM OF POLICE POWER, THE

DETERMINING FACTOR IS THE PURPOSE OF THE IMPLEMENTED MEASURE. IF THE
PURPOSE IS PRIMARILY TO RAISE REVENUE, THEN IT WILL BE DEEMED A TAX EVEN
THOUGH THE MEASURE RESULTS IN SOME FORM OF REGULATION. ON THE OTHER HAND,
IF THE PURPOSE IS PRIMARILY TO REGULATE, THEN IT IS DEEMED A REGULATION AND AN
EXERCISE OF THE POLICE POWER OF THE STATE, EVEN THOUGH INCIDENTALLY, REVENUE
IS GENERATED.

In GEROCHI V. DEPARTMENT OF ENERGY, the Court stated:

THE CONSERVATIVE AND PIVOTAL DISTINCTION BETWEEN THESE TWO (2) POWERS RESTS
IN THE PURPOSE FOR WHICH THE CHARGE IS MADE. IF GENERATION OF REVENUE IS THE
PRIMARY PURPOSE AND REGULATION IS MERELY INCIDENTAL, THE IMPOSITION IS A TAX;
BUT IF REGULATION IS THE PRIMARY PURPOSE, THE FACT THAT REVENUE IS INCIDENTALLY
RAISED DOES NOT MAKE THE IMPOSITION A TAX. The petition was denied and the decision of
the Court of Appeals was affirmed.
Ferrer vs Bautista

June 30, 2015

Facts:
 The City of Quezon passed two ordinances namely.
 The first one was the Socialized Housing Tax of QC allowing the imposition of special
assessment (1/2 of the assessed valued of land in excess of P100k)
 The second one was Ordinance No. SP-2235, S-2013 on Garbage Collection Fees
imposing fees depending on the amount of the land or floor area).
 Jose Ferrer, as a property in Quezon City questioned the validity of the city ordinances.
 According to Ferrer:
 The city has no power to impose the tax.
 The SHT violates the rule on equality because it burdens real property owners
with expenses to provide funds for the housing of informal settlers.
 The SHT is confiscatory or oppressive.
 Also, he assails the validity of the garbage fees imposition because:
 It violates the rule on double taxation.
 It violates the rule on equality because the fees are collected from only domestic
households and not from restaurants, food courts, fast food chains, and other
commercial dining places that spew garbage much more than residential property
owners.

Issue: WON the ordinances were valid.

Held: 1st ordinance: Socialized Housing Tax of Quezon City is valid.

Cities have the power to tax

It must be noted that local government units such as cities has the power to tax. The
collection for the socialized housing tax is valid. It must be noted that the collections were
made to accrue to the socialized housing programs and projects of the city.

The imposition was for a public purpose (exercise of power of taxation + police power)
In this case, there was both an exercise of the power to tax (primary) and police power
(incidental). Removing slum areas in Quezon City is not only beneficial to the
underprivileged and homeless constituents but advantageous to the real property owners
as well.
The situation will improve the value of the their property investments, fully enjoying the
same in view of an orderly, secure, and safe community, and will enhance the quality of life
of the poor, making them law-abiding constituents and better consumers of business
products.

There is no violation of the rule on equality

Note: There is a substantial distinction between: real property owner and an informal settler.
In fact, the Supreme Court said that the disparity is so obvious. It is inherent in the power to
tax that a State is free to select the subjects of taxation. Inequities which result from a
singling out of one particular class for taxation or exemption infringe no constitutional
limitation.

All these requisites are complied with: An ordinance based on reasonable classification does
not violate the constitutional guaranty of the equal protection of the law. The requirements
for a valid and reasonable classification are: (1) it must rest on substantial distinctions; (2) it
must be germane to the purpose of the law; (3) it must not be limited to existing conditions
only; and (4) it must apply equally to all members of the same class.

The ordinance is not oppressive or confiscatory

The ordinance is also not oppressive since the tax rate being imposed is consistent with the
UDHA (Urban Development and Housing Act of 1992). While the law authorizes LGUs to
collect SHT on properties with an assessed value of more than P50,000.00, the questioned
ordinance only covers properties with an assessed value exceeding P100,000.00. As well, the
ordinance provides for a tax credit equivalent to the total amount of the special assessment
paid by the property owner beginning in the sixth (6th) year of the effectivity of the
ordinance.
CIR vs. PLDT

Dec. 15, 2005

1. From 1992-1994, PLDT paid taxes amounting to more than 164 M pesos for
equipment, machineries, and spare parts it imported for its business and also paid
VAT amounting to more than 116 M pesos for similar importations.
2. It then sought a confirmatory ruling on its tax exemption privileges under S. 12, RA
7082- the law that granted its franchise.
3. BIR then responded by saying that the said company shall only be subjected to 3%
franchise tax on gross receipts “in lieu of all taxes”. Thus, it shall also be exempted
from VAT.
4. Armed by this ruling, PLDT claimed for tax refund amounting to more than 280 M
pesosesoses representing the compensating taxes, advance sales taxes, VAT and
other internal revenue taxes alleged to have been erroneously paid on its
importations.
5. Not having been acted upon by the BIR, it filed a petition for review before the CTA
which ruled in its favour but reduced the total amount to 223M+ pesoses. CTA
associate judge Saga dissented and said that the phrase in lieu of all taxes in the
aforementioned provision only covers direct taxes.
6. On appeal, the CA affirmed the CTA decision. Hence, this petition.

Issue: W/N the phrase “in lieu of all taxes” found in S. 12 of RA 7082 granting the tax
exemption to PLDT also covers indirect taxes and therefore exempts the company from
paying VAT and other indirect taxes.

Held:

The court started out by explaining the difference between direct and indirect taxes.

Direct taxes are those that are exacted from the very person who, it is intended or desired,
should pay them; they are impositions for which a taxpayer is directly liable on the
transaction or business he is engaged in.

On the other hand, indirect taxes are those that are demanded, in the first instance, from, or
are paid by, one person in the expectation and intention that he can shift the burden to
someone else.
It then went on by saying that VAT is an indirect tax- the amount of which may be shifted to
the buyer, transferee, or lessee of goods and is imposed on all taxpayers who import goods
unless under exempted transactions under S. 109 of the Revenue code.

It was also revealed that VAT on importation replaced advance sales tax paid by regular
importers. The court then explained the concepts of the following:

1. Advance sales tax- having attributes of indirect tax, laying the economic burden
on the purchaser;
2. Compensation tax- an excise tax to place, for tax purposes, persons purchasing
from merchants in the PH on a more or less equal basis withose who buy directly
from foreign countries.

It further ruled that the liability of indirect tax payment lies only with the seller who cannot
invoke the exemption privileges to avoid passing VAT to him by manufacturers or suppliers
of goods bought. Thus, it is important to determine if tax exemption includes indirect taxes.
Otherwise, the presumption is such exemption only includes direct taxes.

As a rule, exemption is the exception. Statutes granting it must be construed in strictissimi

juris (in the strictest letter of the law.) It must be interepreted strictly against the taxpayer
and liberally in favour of the taxing authority. The burden of justifying exemption lies on the
one claiming for the refund or exemption.

In this case, the phrase: “in lieu of all taxes” was immediately followed by: “on this franchise
or earnings thereof” which is considered as a limiting phrase.

The SC also used the maxim: Redendo singular singulis which means: take the words
distributively and apply the reference; each word or phrase must be given its proper
connection in order to give it proper force and effect rendering none of them useless or
superfluous.

Hence, the CTA and CA decisions’ practice of employing the literal meaning of the provision
is entirely fallacious. Tax exemption means a loss of revenue to the government and should
not rest on vague reference.

As for the refund of advance sales tax and compensating tax amounting to more than 94 M
pesos, it was granted by the SC since it was admitted by the BIR that VAT on importations
already replaced these taxes.

Thus, the petition was just partially granted.

ASIA INTERNATIONAL AUCTIONEERS v. GUILLERMO L. PARAYNO, GR No. 163445, 2007-12-18

Facts:
On June 3, 2003, then CIR Guillermo L. Parayno, Jr. issued Revenue Memorandum Circular (RMC)
No. 31-2003 setting the "Uniform Guidelines on the Taxation of Imported Motor Vehicles
through the Subic Free Port Zone and Other Freeport Zones that are Sold at Public Auction.
Petitioners Asia International Auctioneers, Inc. (AIAI) and Subic Bay Motors Corporation...
corporations
Philippine... with principal place of business within the SSEZ.
They are engaged in the importation of mainly secondhand or used motor vehicles and heavy...
transportation or construction equipment which they sell to the public through auction.
Petitioners filed a complaint before the RTC of Olongapo City, praying for the nullification of
RMC No. 31-2003 for being unconstitutional and an ultra vires act.
Respondents CIR, Regional Director and Revenue District Officer submitted their joint
"Opposition
Respondents CIR, BIR Regional Director and BIR
Revenue District Officer also filed their joint Motion to Dismiss on the grounds that "[t]he trial
court has no jurisdiction over the subject matter of the complaint"... the trial court... petitioners'
application for the issuance of a writ of preliminary injunction is hereby GRANTED
Consequently, respondents CIR,... Petitioners contend that jurisdiction over the case at bar
properly pertains to the regular courts as this is "an action to declare as unconstitutional, void
and against the provisions of [R.A. No.] 7227" the RMCs issued by the CIR
They explain that they "do not challenge... the rate, structure or figures of the imposed taxes,
rather they challenge the authority of the respondent Commissioner to impose and collect the
said taxes.
They claim that the challenge on the authority of the CIR to issue the RMCs does not fall within
the jurisdiction of the
Court of Tax Appeals (CTA).
Petitioners point out that the CA based its decision on Section 7 of R.A. No. 1125 that the CTA
"shall exercise exclusive appellate jurisdiction to review by appeal..." decisions of the CIR
They argue that in the instant case, there is no decision of the respondent CIR... on any disputed
assessment to speak of as what is being questioned is purely the authority of the CIR to impose
and collect value-added and excise taxes.
Having declared the court a quo without jurisdiction over the subject matter of the instant case,
any further disquisition would be obiter dictum.
Issues:
[W]hich Court- the regular courts of justice established under Batas Pambansa Blg. 129 or the
Court of Tax Appeals - is the proper court of jurisdiction to hear a case to declare Revenue
Memorandum Circulars unconstitutional... does the trial court have jurisdiction over the subject
matter of this case?
Ruling:
There is thus no reason to preclude the CA from ruling on this issue even if allegedly, the same
has not yet been resolved by the trial court.
R.A. No. 1125, as amended, states:
Sec. 7
The Court of Tax Appeals shall exercise exclusive appellate jurisdiction
Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,...
other matters arising under the National Internal Revenue Code or other... laws or part of law
administered by the Bureau of Internal Revenue
RMCs are considered administrative rulings which are issued from time to time by the CIR.
Pursuant to this, the CIR issued General Circular No. V-148 which stated that "bona fide and...
active members of duly organized gun clubs and accredited by the Provost Marshal General...
shall pay an initial fee of fifteen pesos and an annual fee of five pesos for each firearm held on
license except caliber .22 revolver or rifle."... filed an action... in the Court of First Instance (now
RTC) of Manila for the nullification of the circular and the refund of P5... the action was not an
appeal from a ruling of the CIR but merely an attempt to nullify General
Circular No. V-148, hence, not within the jurisdiction of the CTA.
[R.A.] No. 1125, section 7 of which provides that the [CTA] "shall exercise exclusive appellate
jurisdiction to review by appeal * * * decisions of the Collector of Internal Revenue in * * *
matters arising under the National Internal Revenue
Code or other law or part of law administered by the Bureau of Internal Revenue."
Leal then filed a petition for prohibition with the RTC of San Mateo, Rizal, seeking to prohibit
petitioner CIR from implementing the revenue orders.
CIR, through the OSG, filed a motion to dismiss on the ground of lack of jurisdiction.
"[t]he questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the
Commissioner implementing the Tax Code on the taxability of pawnshops.
The Court held that under
R.A. No. 1125 (An Act Creating the Court of Tax Appeals), as amended, such rulings of the CIR are
appealable to the CTA.
In the case at bar, the assailed revenue regulations and revenue memorandum circulars are
actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public
auction within the SSEZ to implement Section 12 of R.A. No. 7227 which provides that
"exportation or removal of goods from the territory of the [SSEZ] to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines."
In the case at bar, the assailed revenue regulations and revenue memorandum circulars are
actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public
auction within the SSEZ to implement Section 12 of R.A. No. 7227 which provides that
"exportation or removal of goods from the territory of the [SSEZ] to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines." They were issued pursuant... to the power
of the CIR under Section 4 of the National Internal Revenue Code,... The power to decide... other
matters arising under this Code or other laws or portions thereof administered by the Bureau of
Internal Revenue is... vested in the Commissioner, subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals.
PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 PHIL 331
GR No. L-10405, December 29, 1960

"A law appropriating the public revenue is invalid if the public advantage or benefit, derived
from such expenditure, is merely incidental in the promotion of a particular enterprise."

FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with
injunction, upon the ground that RA No. 920, which apropriates funds for public works
particularly for the construction and improvement of Pasig feeder road terminals. Some of
the feeder roads, however, as alleged and as contained in the tracings attached to the
petition, were nothing but projected and planned subdivision roads, not yet constructed
within the Antonio Subdivision, belonging to private respondent Zulueta, situated at Pasig,
Rizal; and which projected feeder roads do not connect any government property or any
important premises to the main highway. The respondents' contention is that there is public
purpose because people living in the subdivision will directly be benefitted from the
construction of the roads, and the government also gains from the donation of the land
supposed to be occupied by the streets, made by its owner to the government.

ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose
of justifying an expenditure of the government?

HELD: No. It is a general rule that the legislature is without power to appropriate public
revenue for anything but a public purpose. It is the essential character of the direct object of
neither the expenditure which must determine its validity as justifying a tax, and not the
magnitude of the interest to be affected nor the degree to which the general advantage of
the community, and thus the public welfare, may be ultimately benefited by their
promotion. Incidental to the public or to the state, which results from the promotion of
private interest and the prosperity of private enterprises or business, does not justify their
aid by the use public money.

The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve
the public.
Pepsi Cola Bottling Company vs Municipality of Tanauan

69 SCRA 460 – Taxation – Delegation to Local Governments – Double Taxation

FACTS: Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September
1962, the Municipality approved Ordinance No. 23 which levies and collects “from soft drinks
producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of
soft drink corked.”

In December 1962, the Municipality also approved Ordinance No. 27 which levies and collects
“on soft drinks produced or manufactured within the territorial jurisdiction of this
municipality a tax of one centavo P0.01) on each gallon of volume capacity.”

Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double
taxation in two instances: a) double taxation because Ordinance No. 27 covers the same
subject matter and impose practically the same tax rate as with Ordinance No. 23, b) double
taxation because the two ordinances impose percentage or specific taxes.

Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the
delegation of taxing powers to local government units; that allowing local governments to
tax companies like Pepsi Cola is confiscatory and oppressive.

The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others,
that only Ordinance No. 27 is being enforced and that the latter law is an amendment of
Ordinance No. 23, hence there is no double taxation.

ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there is
double taxation.

HELD: No. There is no undue delegation. The Constitution even allows such delegation.
Legislative powers may be delegated to local governments in respect of matters of local
concern. By necessary implication, the legislative power to create political corporations for
purposes of local self-government carries with it the power to confer on such local
governmental agencies the power to tax. Under the New Constitution, local governments
are granted the autonomous authority to create their own sources of revenue and to levy
taxes. Section 5, Article XI provides: “Each local government unit shall have the power to
create its sources of revenue and to levy taxes, subject to such limitations as may be
provided by law.” Withal, it cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative power to enact and vest in local
governments the power of local taxation.

There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi
Cola’s assertion that the delegation of taxing power in itself constitutes double taxation
cannot be merited. It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may not be exercised. The
reason is that the State has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our fundamental law unlike in
other jurisdictions. Double taxation becomes obnoxious only where the taxpayer is taxed
twice for the benefit of the same governmental entity or by the same jurisdiction for the
same purpose, but not in a case where one tax is imposed by the State and the other by the
city or municipality.
Manila International Airport Authority vs Court of Appeals
GR No. 155650 July 20, 2006

Facts: Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) complex in Parañaque City under Executive Order No. 9303,
otherwise known as the revised charter of the MIAA. EO 903 was issued on July 21, 1983 by
then President Ferdinand E. Marcos. Subsequently EO 909 and 298 amended the MIAA
charter as operator of the international operator, MIAA administers the land, improvements,
and equipments within the NAIA complex. The MIAA charter transferred to MIAA
approximately 600 hectares of land, including the runways and buildings then under the
Bureau of Air Transportation. The MIAA charter provides that no portion of the land
transferred to MIAA shall be disposed of through sale or any other mode unless specifically
approved by the President of the Philippines. On March 21, 1997, the Office of the
Government Corporate Counsel issued opinion no. 061. The OGCC opined that the local
government code of 1991 withdraw the exemption from real estate tax granted to MIAA
under section 21 of the MIAA charter. Thus, MIAA negotiated with respondent city of
Parañaque to pay the real estate tax imposed by the city. MIAA then paid some of the real
estate tax already due. On July 17, 2001, the City of Parañaque, through its city treasurer
issued notices of levy and warrants of levy on the airport lands and buildings. The mayor of
the city of Parañaque threatened to sell at public auction the airport lands and buildings
should MIAA fail to pay the real estate tax deliquency. MIAA thus sought clarification of
OGCC opinion no. 061. On August 9, 2001, the OGCC issued opinion no. 147 clarifying OGCC
opinion no. 061. The OGCC pointed out that section 206 of the local government code
requires persons exempt from real estate tax to show proof of exemption. The OGCC
opined that section 21 of the MIAA charter is the proof that MIAA is exempt from real estate
tax.

Issue: Whether or not the airport lands and buildings are exempt from real estate tax.

Held: Yes. 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 21 (10) of the
introductory provisions of the administrative code defines a government instrumentality as
follows:

Sec 2 General terms defined

xxx

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.
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 surging of fees and charges. At the same time,
MIAA exercises all the powers of a corporation under the corporation law, in so far as these
powers are not inconsistent with the provisions of this executive order.

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 the local government units – Unless
otherwise provided herein, the exercise of the taxing power of the provinces, cities,
municipalities and barangays shall not extend to the levy of the following:

xxx

o.) Taxes, fees or charges of any kind on the national government, its agencies and
instrumentalities and local government units.

Section 133 (0) recognizes the basic principles that local governments cannot tax the
national government, which historically, merely delegated to the local governments the
power to tax. While the 1987 constitution now includes taxation as one of the powers of the
local governments, local governments may only exercise such powers subject to such
guidelines and limitations as the congress may provide.
SEA-LAND SERVICE, INC., petitioner, vs. COURT OF APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.

G.R. No. 122605 - April 30, 2001

FACTS: Appeal via certiorari from the decision of the Court of Appeals affirming in toto that
of the Court of Tax Appeals which denied petitioners claim for tax credit or refund of income
tax paid on its gross Philippine billings.

Sea-Land Service Incorporated (SEA-LAND), an American international shipping company

licensed by the SEC to do business in the Philippines entered into a contract with the United
States Government to transport military household goods and effects of U. S. military
personnel assigned to the Subic Naval Base. From the aforesaid contract, SEA-LAND derived
an income for the taxable year 1984 amounting to P58,006,207.54. During the taxable year
in question, SEA-LAND filed with the BIR the corresponding corporate Income Tax Return
(ITR) and paid the income tax due thereon of 1.5% as required in Section 25 (a) (2) of the
National Internal Revenue Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty,
amounting to P870,093.12.

Claiming that it paid the aforementioned income tax by mistake, a written claim for refund
was filed with the BIR. However, before the said claim for refund could be acted upon by the
Commissioner of Internal Revenue, SEA-LAND filed a petition for review with the CTA
docketed, to judicially pursue its claim for refund and to stop the running of the two-year
prescriptive period under the then Section 243 of the NIRC. CTA rendered its decision
denying SEA-LANDs claim for refund of the income tax it paid in 1984. Petitioner appealed
the decision of the CTA to the CA. The CA promulgated its decision dismissing the appeal and
affirming in toto the decision of the CTA. Hence, this petition.

ISSUE: Whether the income that petitioner derived from services in transporting the
household goods and effects of U. S. military personnel falls within the tax exemption
provided in Article XII, paragraph 4 of the RP-US Military Bases Agreement

HELD: No. Laws granting exemption from tax are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the
exception. The law does not look with favor on tax exemptions and that he who would seek
to be thus privileged must justify it by words too plain to be mistaken and too categorical to
be misinterpreted.

Under Article XII (4) of the RPUS Military Bases Agreement, the Philippine Government
agreed to exempt from payment of Philippine income tax nationals of the United States, or
corporations organized under the laws of the United States, residents in the United States in
respect of any profit derived under a contract made in the United States with the
Government of the United States in connection with the construction, maintenance,
operation and defense of the bases.
It is obvious that the transport or shipment of household goods and effects of U. S.
military personnel is not included in the term construction, maintenance, operation and
defense of the bases. Neither could the performance of this service to the U. S. government
be interpreted as directly related to the defense and security of the Philippine territories.
When the law speaks in clear and categorical language, there is no reason for interpretation
or construction, but only for application.
The avowed purpose of tax exemption is some public benefit or interest, which the
lawmaking body considers sufficient to offset the monetary loss entailed in the grant of the
exemption. The hauling or transport of household goods and personal effects of U. S.
military personnel would not directly contribute to the defense and security of the
Philippines.
31st Infantry Post Exchange vs. Posadas
GR 33403, 4 September 1930
En Banc, Malcolm (J): 5 concur

Facts: The 31st Infantry Post Exchange is a post exchange constituted in accordance with
Army regulations and the laws of the United States. in the course of its duly authorized
business transactions, the Exchange made many purchases of various and diverse
commodities, goods, wares and merchandise from various merchants in the Philippines. The
Commissioner collected a sales tax of 1 1/2 % ofthe gross value of the commodities, etc. from
the merchants who sold said commodities to the Exchange. A formal protest was lodged by
the Exchange.

Issue: Whether the Exchange is exempt from the sales tax imposed against its suppliers.

Held: Taxes have been collected from merchants who made sales to Army Post Exchanges
since 1904 (Act 1189, Section 139). Similar taxes are paid by those who sell merchandise to
the Philippine Government, and by those who do business with the US Army and Navy in the
Philippines. Herein, the merchants who effected the sales to the Post Exchange are the ones
who paid the tax; and it is the officers, soldiers, and civilian employees and their familites
who are benefited by the post exchange to whom the tax is ultimately shifted.

The tax laid upon the merchants who sell to the Army Post Exchanges does not interfere
with the supremacy of the US Government, nor with the operations of its instrumentalities,
such as the US Army, to such extent or in such a manner as to render the tax illegal. The tax
does not deprive the Army of the power to serve the Government as it was intended to
serve it, or hinder the efficient exercise of its power.

An Army Post Exchange, although an agency within the US Army, cannot secure exemption
from taxation for merchants who make sales to the Post Exchange.
William C. Reagan, Petitioner vs
Commission of Internal Revenue

Facts: The petitioner is a citizen of the United State and an employee of Bendix Radio,
Divison of Bendix Aviation Corporation, which provided technical assistance to the United
States Air Force was assigned at the Clark Air Base Pampanga, honor about July 7, 19. Nine
months, before his tour duty expires, petitioner imported a tax free 1960 Cadillac car which
valued at $6443.83. More than two months after the car was imported, petitioner requested
the Clark Air Base Commander for a permit to sell the car. The request was granted with the
condition that he would sell it to a member of the United States Armed Forces or an
employee of the U.S. Military Bases.
On July 11, 1960, petitioner sold the car to Willie Johnson for $6600, a private in US
Marine Corps, Sangby Point, Cavite as shown by a bill of sale executed at Clark Air Base. On
the same date William Johnson Jr. sold the car to Fred Meneses for P32,000 as evidence by a
deed of sale executed in Manila.
The respondent after deducting the landed cost of the car and the personal
exemption which the petitioner was entitled, fixed as his net income arising from such
transaction the amount of P17912.34 rendering him liable for income tax of P2979.00. After
paying the sum, he sought refund from the respondent claiming that he is exempted. He
filed a case within the Court of Tax Appeals seeking recovery of the sum P2979.00 plus legal
rate of interest.

Issue: Whether or not the said income tax of P2979.00 was legally collected by respondent
from petitioner.

Ruling: The Philippine is an independent and sovereign country or state. Its authority may be
exercised over its entire domain. Its laws govern therein and everyone to whom it applies
must submit to its term. It does not preclude from allowing another power to participate in
the exercise of jurisdictional rights over certain portions of its territory. Such areas sustain
their status as native soil and still subject to its authority. Its jurisdiction may be diminished
but it does not disappear.
The Clark Air Base is one of he bases under lease to the American armed forces by
virtue of the Military Bases Agreement which states that a “national of the US serving or
employed in the Philippines in connection with the construction, maintenance, operation, or
defense of the bases and residing in the Philippines only by reason such unemployment is
not to be taxed on his income unless derived in the bases which one clearly derived the Phil.
Therefore the Supreme Court sustained the decision of the Court of Tax Appeals
rendering the petitioner liable of the income tax arising from the sale of his automobile that
have taken place in Clark Air Field which is within our territory to tax
CIR vs Mitsubishi, GR No L-54908, January 22, 1990

FACTS: Atlas Consolidated Mining and Dev Corp (Atlas) entered into a loan and sales
contract with Mitsubishi, a Japanese corp licenses to engage in business in the Phils., for
purposes of the projected expansion of the productive capacity of Atlas.

Mitsubishi agreed to extend a loan to Atlas for the installation of a new concentrator for
copper production and Atlas to sell to Mitsubishi all the copper concentrates produced for
15 years.
Mitsubishi applied for a loan with Export-Import Bank of Japan (Eximbank) for purpose of its
obligation under said contract. Pursuant to the contract between Atlas and Mitsubishi,
interest payments were made by Atlas to Mitsubishi for the years 1974-75. The
corresponding 15% tax thereon in the amount of P1,971,595.01 was withheld pursuant to sec.
24(b)(1) and sec. 53 (b)(2) of NIRC, as amended by PD 131, and duly remitted to the
government.

Private respondent filed a claim for the tax credit requesting the sum of P1,971,595.01 be
applied against their existing and future tax liabilities. It was later noted by respondent CTA
that Mitsubishi executed a waiver and disclaimer of its interest in the claim for tax credit in
favor of Atlas.

Mitsubishi filed a petition for review with respondent court on the ground that Mitsubishi
was a mere agent of Eximbank, which is a financing institution owned, controlled and
financed by the Japanese Government. Such government status of Eximbank, if it may be so
called, is the basis for private respondents claim for exemption from paying the tax on the
interest payment on the loan. It was further claimed that the interest payments on the loan
from the consortium of Japanese banks were likewise exempt because loan supposedly
came from or were fniancé by Eximbank. Relying on the provision of sec. 29(b)(7)(A) NIRC.

CTA promulgated its decision ordering petitioner to grant a tax credit in favor of Atlas and
the court declared that all papers and documents pertaining to the loan obtained by
Mitsubishi from Eximbank shows that this was the same amount given to Atlas. It also
observed that the money for the loan from the consortium of private Japanese banks
originated from Eximbank. From these, respondent court concluded that the ultimate
creditor of Atlas was Eximbank. Mitsubishi was acting as a mere “arranger or conduit
through which the loan flowed from the creditor Eximbank to the debtor Atlas.

ISSUE: 1) WON the interest income from the loan extended to Atlas by Mitsubishi is
excludible from gross income taxation pursuant to sec. 29(b)(7)(A), NIRC and therefore,
exempt from withholding tax.

2) WON Mitsubishi is a mere conduit of Eximbank which will then be considered as the
creditor whose investment in the Phils. On loans are exempt from taxes.
 HELD:

1) NO
The signatories on the loans and sales contract were Mitsubishi and Atlas, nowhere in the
contract can it be inferred that Mitsubishi acted for and behalf of Eximbank of Japan nor of
any entity, private or public, for that matter. When Mitsubishi obtained the loan of USD 20M
from Eximbank of Japan said amount ceased to be the property of the bank and become
property of Mitsubishi.

Mitsubishi and not Eximbank is the sole creditor of Atlas, the former being the owner of the
USD 20M upon completion of its loan contract with Eximbank of Japan. The interest income
of the loan paid by Atlas to Mitsubishi is therefore entirely different from the interest
income paid by Mitsubishi to Eximbank of Japan. What was the subject of the 15%
withholding tax is not the interest income paid by Mitsubishi to Eximbank, but the interest
income earned by Mitsubishi from the loan to Atlas.

2) NO

When Mitsubishi secured the loan, it was in its own independent capacity as a private entity
and not as a conduit of the consortium of Japanese banks or the Eximbank of Japan. While
loans were secured by Mitsubishi primarily “as a loan to and in consideration for importing
copper concentrates from Atlas, the fact remains that it was a loan by Eximbank of Japan to
Mitsubishi and not to Atlas.
CIR vs Matubeni - December 18, 2001

Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the
1985 deficiency income, branch profit remittance and contractor’s taxes from Marubeni
Corp after finding the latter to have properly availed of the tax amnesty under EO 41 & 64, as
amended.

Marubeni, a Japanese corporation, engaged in general import and export trading, financing
and construction, is duly registered in the Philippines with Manila branch office. CIR
examined the Manila branch’s books of accounts for fiscal year ending March 1985, and
found that respondent had undeclared income from contracts with NDC and Philphos for
construction of a wharf/port complex and ammonia storage complex respectively.

On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency
taxes. CIR claims that the income respondent derived were income from Philippine sources,
hence subject to internal revenue taxes. On Sept 1986, respondent filed 2 petitions for
review with CTA: the first, questioned the deficiency income, branch profit remittance and
contractor’s tax assessments and second questioned the deficiency commercial broker’s
assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that
taxpayers who wished to avail this should on or before Oct 31, 1986. Marubeni filed its tax
amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and donor’s taxes under
Title 3 and business tax under Chap 2, Title 5 of NIRC, extended the period of availment to
Dec 15, 1986 and stated those who already availed amnesty under EO 41 should file an
amended return to avail of the new benefits. Marubeni filed a supplemental tax amnesty
return on Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the
deficiency taxes. CA affirmed on appeal.

Issue: W/N Marubeni is exempted from paying tax

Held: Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty because it falls under the exception
in Sec 4b of EO 41:

“Sec. 4. Exceptions.—The following taxpayers may not avail themselves of the amnesty
herein granted: xxx b) Those with income tax cases already filed in Court as of the
effectivity hereof;”
Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986,
a case had already been filed and was pending before the CTA and Marubeni therefore fell
under the exception. However, the point of reference is the date of effectivity of EO 41 and
that the filing of income tax cases must have been made before and as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with
CTA on Sept 26, 1986. When EO 41 became effective, the case had not yet been filed.
Marubeni does not fall in the exception and is thus, not disqualified from availing of the
amnesty under EO 41 for taxes on income and branch profit remittance.

The difficulty herein is with respect to the contractor’s tax assessment (business tax) and
respondent’s availment of the amnesty under EO 64, which expanded EO 41’s coverage.
When EO 64 took effect on Nov 17, 1986, it did not provide for exceptions to the coverage of
the amnesty for business, estate and donor’s taxes. Instead, Section 8 said EO provided that:

“Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to
or inconsistent with this amendatory Executive Order shall remain in full force and
effect.”
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of
effectivity. The general rule is that an amendatory act operates prospectively. It may not be
given a retroactive effect unless it is so provided expressly or by necessary implication and
no vested right or obligations of contract are thereby impaired.

2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable
for the deficiency tax because the income from the projects came from the “Offshore
Portion” as opposed to “Onshore Portion”. It claims all materials and equipment in the
contract under the “Offshore Portion” were manufactured and completed in Japan, not in
the Philippines, and are therefore not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with government corporations NDC
and Philphos. In the contracts, the prices were broken down into a Japanese Yen Portion (I
and II) and Philippine Pesos Portion and financed either by OECF or by supplier’s credit. The
Japanese Yen Portion I corresponds to the Foreign Offshore Portion, while Japanese Yen
Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore Portion.
Marubeni has already paid the Onshore Portion, a fact that CIR does not deny.)

CIR argues that since the two agreements are turn-key, they call for the supply of both
materials and services to the client, they are contracts for a piece of work and are indivisible.
The situs of the two projects is in the Philippines, and the materials provided and services
rendered were all done and completed within the territorial jurisdiction of the Philippines.
Accordingly, respondent’s entire receipts from the contracts, including its receipts from the
Offshore Portion, constitute income from Philippine sources. The total gross receipts
covering both labor and materials should be subjected to contractor’s tax (a tax on the
exercise of a privilege of selling services or labor rather than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that not all its work was performed
in the Philippines because some of them were completed in Japan (and in fact
subcontracted) in accordance with the provisions of the contracts. All services for the
design, fabrication, engineering and manufacture of the materials and equipment under
Japanese Yen Portion I were made and completed in Japan. These services were rendered
outside Philippines’ taxing jurisdiction and are therefore not subject to contractor’s tax.

Petition denied.
Tiu vs CA – January 20, 1999

The constitutionality and validity of EO 97-A, that provides that the grant and enjoyment of the
tax and duty incentives authorized under RA 7227 were limited to the business enterprises and
residents within the fenced-in area of the Subic Special Economic Zone (SSEZ), was questioned.

Nature of the case: A petition for review to reverse the decision of the Court of Appeals
which upheld the constitutionality and validity of the E.O. 97-A.

Facts of the case: The petitioners assail the constitutionality of the said Order claiming that
they are excluded from the benefits provided by RA 7227 without any reasonable standards
and thus violated the equal protection clause of the Constitution. The Court of Appeals
upheld the validity and constitutionality and denied the motion for reconsideration. Hence,
this petition was filed.

Issue: WON E.O. 97-A violates the equal protection clause of the Constitution

Arguments: Petitioners contend that the SSEZ encompasses (1) the City of Olongapo, (2) the
Municipality of Subic in Zambales, and (3) the area formerly occupied by the Subic Naval
Base. However, EO 97-A, according to them, narrowed down the area within which the
special privileges granted to the entire zone would apply to the present “fenced-in former
Subic Naval Base” only. It has thereby excluded the residents of the first two components
of the zone from enjoying the benefits granted by the law. It has effectively discriminated
against them, without reasonable or valid standards, in contravention of the equal
protection guarantee.

The solicitor general defends the validity of EO 97-A, arguing that Section 12 of RA 7227
clearly vests in the President the authority to delineate the metes and bounds of the
SSEZ. He adds that the issuance fully complies with the requirements of a valid
classification.

Decision: Panganiban J., The Court held that the classification was based on valid and
reasonable standards and does not violate the equal protection clause.

The fundamental right of equal protection of the laws is not absolute, but is subject to
reasonable classification. If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently from another. The
classification must also be germane to the purpose of the law and must apply to all those
belonging to the same class.
Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all
members of the same class.

Ruling: Petition denied. The challenge decision and resolution were affirmed.
JOHN HAY PEOPLES ALTERNATIVE COALITION vs. LIM
G. R. No. 119775, October 24, 2003

FACTS: R.A. No. 7227 otherwise known as the "Bases Conversion and Development Act of
1992," which was enacted setting out the policy of the government to accelerate the sound
and balanced conversion into alternative productive uses of the former military bases under
the 1947 Philippines-United States of America Military Bases Agreement, namely, the Clark
and Subic military reservations as well as their extensions including the Camp John Hay
Station in the City of Baguio. It created public respondent Bases Conversion and
Development Authority2 (BCDA), and the Subic Special Economic [and Free Port] Zone
(Subic SEZ). Also the said law granted the Subic SEZ incentives ranging from tax and duty-
free importations, exemption of businesses therein from local and national taxes.

On August 16, 1993, BCDA entered into a Memorandum of Agreement and Escrow
Agreement with private respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld
Internationale Group, Inc. (ASIAWORLD), preparatory to the formation of a joint venture for
the development of Poro Point in La Union and Camp John Hay as premier tourist
destinations and recreation centers. Four months later, BCDA, TUNTEX and ASIAWORD
executed a Joint Venture Agreement whereby they bound themselves to put up a joint
venture company known as the Baguio International Development and Management
Corporation.

Meanwhile, the Baguio City government passed a number of resolutions in response to the
actions taken by BCDA in their MOA and as owner and administrator of Camp John Hay. One
of which is Resolution No. 255, seeking and supporting the issuance by then President
Ramos of a presidential proclamation declaring an area of 288.1 hectares of the camp as a
SEZ in accordance with the provisions of R.A. No. 7227.

On July 5, 1994 then President Ramos issued Proclamation No. 420 which established a SEZ
on a portion of Camp John Hay, and in effect, granted tax exemptions pursuant to R.A. No.
7227 to Subic SEZ extends to other SEZs.

The petitioners now allege that nowhere in R. A. No. 7227 is there a grant of tax exemption
to SEZs yet to be established in base areas, unlike the grant under Section 12 thereof of tax
exemption and investment incentives to the therein established Subic SEZ. The grant of tax
exemption to the John Hay SEZ, petitioners conclude, thus contravenes Article VI, Section 28
(4) of the Constitution which provides that "No law granting any tax exemption shall be
passed without the concurrence of a majority of all the members of Congress."

On the other hand, respondents contend that by extending to the John Hay SEZ economic
incentives similar to those enjoyed by the Subic SEZ which was established under R.A. No.
7227, the proclamation is merely implementing the legislative intent of said law to turn the
US military bases into hubs of business activity or investment. They underscore the point
that the government's policy of bases conversion can not be achieved without extending
the same tax exemptions granted by R.A. No. 7227 to Subic SEZ to other SEZs.

ISSUE: Whether or not Proclamation No. 420 (particularly Sec. 3) is unconstitutional since it
provides for national and local tax exemption and grants other economic incentives to the
John Hay SEZ

RULING: Yes. The SC ruled in favor of the Petitioners.

It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was granted by
Congress with tax exemption, investment incentives and the like. There is no express
extension of the aforesaid benefits to other SEZs still to be created at the time via
presidential proclamation.

While the grant of economic incentives may be essential to the creation and success of SEZs,
free trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained.
The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension
of the same to the John Hay SEZ finds no support therein. Neither does the same grant of
privileges to the John Hay SEZ find support in the other laws specified under Section 3 of
Proclamation No. 420, which laws were already extant before the issuance of the
proclamation or the enactment of R.A. No. 7227.

More importantly, the nature of most of the assailed privileges is one of tax exemption. It is
the legislature, unless limited by a provision of the state constitution, that has full power to
exempt any person or corporation or class of property from taxation, its power to exempt
being as broad as its power to tax. Other than Congress, the Constitution may itself provide
for specific tax exemptions, or local governments may pass ordinances on exemption only
from local taxes.

The challenged grant of tax exemption would circumvent the Constitution's imposition that
a law granting any tax exemption must have the concurrence of a majority of all the
members of Congress. In the same vein, the other kinds of privileges extended to the John
Hay SEZ are by tradition and usage for Congress to legislate upon. If it were the intent of the
legislature to grant to the John Hay SEZ the same tax exemption and incentives given to the
Subic SEZ, it would have so expressly provided in the R.A. No. 7227.

Thus, the second sentence of Section 3 of Proclamation No. 420 is hereby declared NULL
AND VOID and is accordingly declared of no legal force and effect.
Coconut Oil Refiners Association, Inc. vs BCDA
July 29, 2005

Facts: This is a Petition to enjoin and prohibit the public respondent Ruben Torres in his
capacity as Executive Secretary from allowing other private respondents to continue with
the operation of tax and duty-free shops located at the Subic Special Economic Zone (SSEZ)
and the Clark Special Economic Zone (CSEZ). The petitioner seeks to declare Republic Act
No. 7227 as unconstitutional on the ground that it allowed only tax-free (and duty-free)
importation of raw materials, capital and equipment. It reads:
The Subic Special Economic Zone shall be operated and managed as a separate customs
territory ensuring free flow or movement of goods and capital within, into and exported out of
the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free
importations of raw materials, capital and equipment. However, exportation or removal of
goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine
territory shall be subject to customs duties and taxes under the Customs and Tariff Code and
other relevant tax laws of thePhilippines [RA 7227, Sec 12 (b)].
Petitioners contend that the wording of Republic Act No. 7227 clearly limits the grant of tax
incentives to the importation of raw materials, capital and equipment only thereby violating
the equal protection clause of the Constitution.
He also assailed the constitutionality of Executive Order No. 97-A for being violative of their
right to equal protection. They asserted that private respondents operating inside the SSEZ
are not different from the retail establishments located outside.

Issue: Whether or not Republic Act No. 7227 is valid on the ground that it violates the equal
protection clause.

Decision: The SC ruled in the negative. The phrase ‘tax and duty-free importations of raw
materials, capital and equipment was merely cited as an example of incentives that may be
given to entities operating within the zone. Public respondent SBMA correctly argued that
the maxim expressio unius est exclusio alterius, on which petitioners impliedly rely to support
their restrictive interpretation, does not apply when words are mentioned by way of
example.
The petition with respect to declaration of unconstitutionality of Executive Order No. 97-A
cannot be, likewise, sustained. The guaranty of the equal protection of the laws is not
violated by a legislation based which was based on reasonable classification. A classification,
to be valid, must (1) rest on substantial distinction, (2) be germane to the purpose of the
law, (3) not be limited to existing conditions only, and (4) apply equally to all members of
the same class. Applying the foregoing test to the present case, this Court finds no violation
of the right to equal protection of the laws. There is a substantial distinctions lying between
the establishments inside and outside the zone. There are substantial differences in a sense
that, investors will be lured to establish and operate their industries in the so-called ‘secured
area and the present business operators outside the area. There is, then, hardly any
reasonable basis to extend to them the benefits and incentives accorded in R.A. 7227.
Arturo Tolentino v. Secretary of Finance and Commissioner of Internal Revenue
G.R. No. 115455; October 30, 1995
Mendoza, J.:

FACTS: The present case involves motions seeking reconsideration of the Court’s decision
dismissing the petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise
known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all,
have been filed by the several petitioners.
The Philippine Press Institute, Inc. (PPI) contends that by removing the exemption of the
press from the VAT while maintaining those granted to others, the law discriminates against
the press. At any rate, it is averred, “even nondiscriminatory taxation of constitutionally
guaranteed freedom is unconstitutional”, citing in support of the case of Murdock v.
Pennsylvania.

Chamber of Real Estate and Builders Associations, Invc., (CREBA), on the other hand, asserts
that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as
covered or exempt without reasonable basis and (3) violates the rule that taxes should be
uniform and equitable and that Congress shall “evolve a progressive system of taxation”.

Further, the Cooperative Union of the Philippines (CUP), argues that legislature was to
adopt a definite policy of granting tax exemption to cooperatives that the present
Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT
would, therefore, be to infringe a constitutional policy.

ISSUE: Whether or not, based on the aforementioned grounds of the petitioners, the
Expanded Value-Added Tax Law should be declared unconstitutional.
RULING: No. With respect to the first contention, it would suffice to say that since the law
granted the press a privilege, the law could take back the privilege anytime without offense
to the Constitution. The reason is simple: by granting exemptions, the State does not
forever waive the exercise of its sovereign prerogative. Indeed, in withdrawing the
exemption, the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. The PPI asserts that it does not really matter that
the law does not discriminate against the press because “even nondiscriminatory taxation
on constitutionally guaranteed freedom is unconstitutional.” The Court was speaking in that
case (Murdock v. Pennsylvania) of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on
the exercise of its right. The VAT is, however, different. It is not a license tax. It is not a tax
on the exercise of a privilege, much less a constitutional right. It is imposed on the sale,
barter, lease or exchange of goods or properties or the sale or exchange of services and the
lease of properties purely for revenue purposes. To subject the press to its payment is not to
burden the exercise of its right any more than to make the press pay income tax or subject it
to general regulation is not to violate its freedom under the Constitution.
Anent the first contention of CREBA, it has been held in an early case that even though such
taxation may affect particular contracts, as it may increase the debt of one person and
lessen the security of another, or may impose additional burdens upon one class and release
the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor
can it be said that it impairs the obligation of any existing contract in its true legal sense. It is
next pointed out that while Section 4 of R.A. No. 7716 exempts such transactions as the sale
of agricultural products, food items, petroleum, and medical and veterinary services, it
grants no exemption on the sale of real property which is equally essential. The sale of food
items, petroleum, medical and veterinary services, etc., which are essential goods and
services was already exempt under Section 103, pars. (b) (d) (1) of the NIRC before the
enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted
exemption to these transactions while subjecting those of petitioner to the payment of the
VAT.

Finally, it is contended that R.A. No. 7716 also violates Art. VI, Section 28(1) which
provides that “The rule of taxation shall be uniform and equitable. The Congress shall evolve
a progressive system of taxation”. Nevertheless, equality and uniformity of taxation mean
that all taxable articles or kinds of property of the same class be taxed at the same rate. The
taxing power has the authority to make reasonable and natural classifications for purposes
of taxation. To satisfy this requirement it is enough that the statute or ordinance applies
equally to all persons, firms, and corporations placed in similar situation. Furthermore, the
Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall “evolve a progressive system of
taxation.” The constitutional provision has been interpreted to mean simply that “direct
taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized.”
The mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
G.R. No. 168056 September 1, 2005

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED
VINCENT S. ALBANO, Petitioners, vs. THE HONORABLE EXECUTIVE SECRETARY EDUARDO
ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR PURISIMA;
and HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.,
Respondent.

Facts: Petitioners ABAKADA GURO Party List challenged the constitutionality of R.A. No.
9337 particularly Sections 4, 5 and 6, amending Sections 106, 107 and 108, respectively, of the
National Internal Revenue Code (NIRC). These questioned provisions contain a uniform
proviso authorizing the President, upon recommendation of the Secretary of Finance, to
raise the VAT rate to 12%, effective January 1, 2006, after any of the following conditions
have been satisfied, to wit:

. . . That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any
of the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 ½%).

Petitioners argue that the law is unconstitutional, as it constitutes abandonment by

Congress of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of
the 1987 Philippine Constitution. They further argue that VAT is a tax levied on the sale or
exchange of goods and services and cannot be included within the purview of tariffs under
the exemption delegation since this refers to customs duties, tolls or tribute payable upon
merchandise to the government and usually imposed on imported/exported goods. They
also said that the President has powers to cause, influence or create the conditions provided
by law to bring about the conditions precedent. Moreover, they allege that no guiding
standards are made by law as to how the Secretary of Finance will make the
recommendation. They claim, nonetheless, that any recommendation of the Secretary of
Finance can easily be brushed aside by the President since the former is a mere alter ego of
the latter, such that, ultimately, it is the President who decides whether to impose the
increased tax rate or not.
Issues:

1. Whether or not R.A. No. 9337 has violated the provisions in Article VI, Section 24, and
Article VI, Section 26 (2) of the Constitution.
2. Whether or not there was an undue delegation of legislative power in violation of
Article VI Sec 28 Par 1 and 2 of the Constitution.
3. Whether or not there was a violation of the due process and equal protection under
Article III Sec. 1 of the Constitution.

Discussions:

Basing from the ruling of Tolentino case, it is not the law, but the revenue bill which is
required by the Constitution to “originate exclusively” in the House of Representatives, but
Senate has the power not only to propose amendments, but also to propose its own version
even with respect to bills which are required by the Constitution to originate in the House.
the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must
come from the House of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the local needs
and problems. On the other hand, the senators, who are elected at large, are expected to
approach the same problems from the national perspective. Both views are thereby made to
bear on the enactment of such laws.

In testing whether a statute constitutes an undue delegation of legislative power or not, it is

usual to inquire whether the statute was complete in all its terms and provisions when it left
the hands of the legislature so that nothing was left to the judgment of any other appointee
or delegate of the legislature.

The equal protection clause under the Constitution means that “no person or class of
persons shall be deprived of the same protection of laws which is enjoyed by other persons
or other classes in the same place and in like circumstances.”

Rulings:

1. R.A. No. 9337 has not violated the provisions. The revenue bill exclusively originated
in the House of Representatives, the Senate was acting within its constitutional
power to introduce amendments to the House bill when it included provisions in
Senate Bill No. 1950 amending corporate income taxes, percentage, excise and
franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain any
prohibition or limitation on the extent of the amendments that may be introduced by
the Senate to the House revenue bill.
2. There is no undue delegation of legislative power but only of the discretion as to the
execution of a law. This is constitutionally permissible. Congress does not abdicate its
functions or unduly delegate power when it describes what job must be done, who
must do it, and what is the scope of his authority; in our complex economy that is
frequently the only way in which the legislative process can go forward.

3. Supreme Court held no decision on this matter. The power of the State to make
reasonable and natural classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of property, the
rates to be levied, or the amounts to be raised, the methods of assessment, valuation
and collection, the State’s power is entitled to presumption of validity. As a rule, the
judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.
MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. v. DEPARTMENT OF FINANCE
SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND
REVENUE DISTRICT OFFICER, BIR MISAMIS ORIENTAL, G.R. No. 108524. November 10, 1994

FACTS: Petitioner is engaged in the buying and selling of copra in Misamis Oriental. The
petitioner questions Revenue Memorandum Circular 47-91 issued by the respondent, in
which copra was classified as agricultural non-food product effectively removing copra as
one of the exemptions under Section 103 of the NIRC.

Section 103a of the NIRC states that the sale of agricultural non-food products in their
original state is exempt from VAT only if the sale is made by the primary producer or owner
of the land from which the same are produced and not by any other person or entity.
Section 103b states the sale of agricultural food products in their original state is exempt
from VAT at all stages of production or distribution regardless of who the seller is - which the
petitioner enjoys. The reclassification had the effect of denying to the petitioner this
exemption when copra was classified as an agricultural food product.

Petitioner filed a motion for prohibition.

ISSUE: Whether the Circular is valid.

RULING: Yes. The Court first stated that the CIR gave the circular a strict construction
consistent with the rule that tax exemptions must be strictly construed against the taxpayer
and liberally in favor of the state.

The Court also stated that the Circular is not discriminatory and in violation of the equal
protection clause. Petitioner likened copra farmers / producers, who are exempted from
VAT and copra traders, which the Court disagreed.

Lastly, petitioners argued that the Circular was counterproductive which the Court answers
that it is a question of wisdom or policy which should be addressed to respondent officials
and to Congress.
THE COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
LINGAYEN GULF ELECTRIC POWER CO., INC. and THE COURT OF TAX APPEALS,
respondents.

FACTS: The respondent taxpayer operates an electric power plant serving the adjoining
municipalities of Lingayen and Binmaley, both in the province of Pangasinan, pursuant to the
municipal franchise granted it by their respective municipal councils, under Resolution Nos.
14 and 25 of June 29 and July 2, 1946, respectively. Bureau of Internal Revenue (BIR)
assessed against and demanded from the private respondent deficiency franchise taxes and
surcharges for the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts
from March 1, 1948 to December 31, 1954 as prescribed in Section 259 of the National
Internal Revenue Code, instead of the lower rates as provided in the municipal franchises.
Respondent submits that R.A. No. 3843 is unconstitutional insofar as it provides for the
payment by the private respondent of a franchise tax of 2% of its gross receipts, while other
taxpayers similarly situated were subject to the 5% franchise tax imposed in Section 259 of
the Tax Code, thereby discriminatory and violative of the rule on uniformity and equality of
taxation. Court of tax Appeals ruled in favor of respondent.

ISSUE: Whether or not Section 4 of R.A. No. 3843, assuming it is valid, could be given
retroactive effect so as to render uncollected taxes in question which were assessed before
its enactment.

HELD: YES. Appealed decision was affirmed.

RATIO: A tax is uniform when it operates with the same force and effect in every place
where the subject of it is found. Uniformity means that all property belonging to the same
class shall be taxed alike The Legislature has the inherent power not only to select the
subjects of taxation but to grant exemptions. Tax exemptions have never been deemed
violative of the equal protection clause. It is true that the private respondents municipal
franchises were obtained under Act No. 667 of the Philippine Commission, but these original
franchises have been replaced by a new legislative franchise, i.e. R.A. No. 3843.

Given the validity of said law, it should be applied retroactively so as to render uncollectible
the taxes in question which were assessed before its enactment. The question of whether a
statute operates retrospectively or only prospectively depends on the legislative intent. In
the instant case, Act No. 3843 provides that “effective … upon the date the original
franchise was granted, no other tax and/or licenses other than the franchise tax of two per
centum on the gross receipts … shall be collected, any provision to the contrary
notwithstanding.” Republic Act No. 3843 therefore specifically provided for the retroactive
effect of the law.
Kapatiran ng mga Naglilingkod sa Pamahalaan v Tan GR No 81311 June 30, 1988

FACTS: EO 372 was issued by the President of the Philippines which amended the Revenue
Code, adopting the value-added tax (VAT) effective January 1, 1988. Four petitions assailed
the validity of the VAT Law from being beyond the President to enact; for being oppressive,
discriminatory, regressive and violative of the due process and equal protection clauses,
among others, of the Constitution. The Integrated Customs Brokers Association particularly
contend that it unduly discriminate against customs brokers (Section 103r) as the amended
provision of the Tax Code provides that “service performed in the exercise of profession or
calling (except custom brokers) subject to occupational tax under the Local Tax Code and
professional services performed by registered general professional partnerships are exempt
from VAT.

ISSUE: Whether the E-VAT law is void for being discriminatory against customs brokers

RULING: No. The phrase “except custom brokers” is not meant to discriminate against
custom brokers but to avert a potential conflict between Sections 102 and 103 of the Tax
Code, as amended. The distinction of the customs brokers from the other professionals who
are subject to occupation tax under the Local Tax Code is based on material differences, in
that the activities of customs partake more of a business, rather than a profession and were
thus subjected to the percentage tax under Section 174 of the Tax Code prior to its
amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If
the Association did not protest the classification of customs brokers then, there is no reason
why it should protest now.
Sison vs Ancheta
GR No. L-59431, 25 July 1984

Facts: Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as
taxpayer, alleges that "he would be unduly discriminated against by the imposition of higher
rates of tax upon his income arising from the exercise of his profession vis-a-vis those which
are imposed upon fixed income or salaried individual taxpayers. He characterizes said
provision as arbitrary amounting to class legislation, oppressive and capricious in character.
It therefore violates both the equal protection and due process clauses of the Constitution
as well asof the rule requiring uniformity in taxation.

Issue: Whether or not the assailed provision violates the equal protection and due process
clauses of the Constitution while also violating the rule that taxes must be uniform and
equitable.

Held: The petition is without merit.

On due process - it is undoubted that it may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to
amount to the confiscation of property from abuse of power. Petitioner alleges arbitrariness
but his mere allegation does not suffice and there must be a factual foundation of such
unconsitutional taint.

On equal protection - it suffices that the laws operate equally and uniformly on all persons
under similar circumstances, both in the privileges conferred and the liabilities imposed.
On the matter that the rule of taxation shall be uniform and equitable - this requirement is
met when the tax operates with the same force and effect in every place where the subject
may be found." Also, :the rule of uniformity does not call for perfect uniformity or perfect
equality, because this is hardly unattainable." When the problem of classification became of
issue, the Court said: "Equality and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation..." As
provided by this Court, where "the differentation" complained of "conforms to the practical
dictates of justice and equity" it "is not discriminatory within the meaning of this clause and
is therefore uniform."
Villanueva v City v Iloilo
GR No L-26521, December 28, 1968

FACTS: On September 30, 1946, the Municipal Board of Iloilo City enacted Ordinance 86
imposing license tax fees upon
tenement houses. The validity of such ordinance was challenged by Eusebio and Remedios
Villanueva, owners of four tenement houses containing 34 apartments. The Supreme Court
held the ordinance to be ultra views. On January 15, 1960, however, the municipal board,
believing that it acquired authority to enact an ordinance of the same nature pursuant to the
Local Autonomy Act, enacted Ordinance 11, Eusebio and Remedios Villanueva assailed the
ordinance anew.

ISSUE: Does Ordinance 11 violate the rule of uniformity of taxation?

RULING: No. The Court has ruled the tenement houses constitute a distinct class of property
and that taxes are uniform and equal when imposed upon all property of the same class or
character within the taxing authority.
The fact that the owners of the other classes of buildings in Iloilo are not imposed upon by
the ordinance, or that tenement taxes are imposed in other cities do not violate the rule of
equality and uniformity. The rule does not require that taxes for the same purpose should be
imposed in different territorial subdivisions at the same time. So long as the burden of tax
falls equally and impartially on all owners or operators of tenement houses similarly
classified or situated, equality and uniformity is accomplished. The presumption that tax
statutes are intended to operate uniformly and equally was not overthrown therein.
PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN
24 SCRA 789
GR No. L-22814, August 28, 1968

"The classification made in the exercise of power to tax, to be valid, must be reasonable ."

FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under protest, to
the City of Butuan, and collected by the latter, pursuant to its Municipal Ordinance No. 110
which plaintiff assails as null and void because it partakes of the nature of an import tax,
amounts to double taxation, highly unjust and discriminatory, excessive, oppressive and
confiscatory, and constitutes an invlaid delegation of the power to tax. The ordinance
imposes taxes for every case of softdrinks, liquors and other carbonated beverages,
regardless of the volume of sales, shipped to the agents and/or consignees by outside
dealers or any person or company having its actual business outside the City.

ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?

HELD: Yes. The tax levied is discriminatory. Even if the burden in question were regarded as
a tax on the sale of said beverages, it would still be invalid, as discriminatory, and hence,
violative of the uniformity required by the Constitution and the law therefor, since only sales
by "agents or consignees" of outside dealers would be subject to the tax. Sales by local
dealers, not acting for or on behalf of other merchants, regardless of the volume of their
sales, and even if the same exceeded those made by said agents or consignees of producers
or merchants established outside the City of Butuan, would be exempt from the disputed
tax.
It is true that the uniformity essential to the valid exercise of the power of taxation
does not require identity or equality under all circumstances, or negate the authority to
classify the objects of taxation. The classification made in the exercise of this authority, to be
valid, must, however, be reasonable and this requirement is not deemed satisfied unless: (1)
it is based upon substantial distinctions which make real differences; (2) these are germane
to the purpose of the legislation or ordinance; (3) the classification applies, not only to
present conditions, but, also, to future conditions substantially identical to those of the
present; and (4) the classification applies equally to all those who belong to the same class.
ORMOC SUGAR COMPANY, INC., plaintiff-appellant, vs. THE TREASURER OF ORMOC CITY,
THE MUNICIPAL BOARD OF ORMOC CITY, HON. ESTEBAN C. CONEJOS as Mayor of Ormoc
City and ORMOC CITY, defendants-appellees. G.R. No. L-23794. February 17, 1968. 20 SCRA
739.

FACTS: The Municipal Board of Ormoc City passed Ordinance No. 4, imposing "on any and all
productions of sugar milled at petitioner's, municipal tax of 1% per export sale. Petitioner
paid but were under protest.

Petitioner filed before the CFI contending that the ordinance is unconstitutional for being in
violation of the equal protection clause and the rule of uniformity of taxation, aside from
being an export tax forbidden under Section 2287 of the Revised Administrative Code. It
further alleged that the tax is neither a production nor a license tax which Ormoc City its
charter and under Section 2 of Republic Act 2264, or the Local Autonomy Act, is authorized
to impose; that it also violates RA 2264 because the tax is on both the sale and export of
sugar.

ISSUE: Whether the ordinance is valid.

RULING: NO. The SC held that it violates the equal protection clause for it taxes only sugar
produced and exported by petitioner and none other. Even though petitioner, at the time of
the enactment of the ordinance, was the only sugar central in Ormoc, the classification
should have been in terms applicable to future conditions as well. The taxing ordinance
should not be singular and exclusive as to exclude any subsequently established sugar
central, of the same class as petitioner, for the coverage of the tax.

Though, petitioner can be refunded, they are not entitled to interest because the taxes were
not arbitrarily collected as the ordinance provided a sufficient basis to preclude
arbitrariness, the same being then presumed constitutional until declared otherwise.
British American Tobacco Corporation v. Finance Secretary Camacho, BIR Commissioner
Parayno (2009)

Doctrine: A levy of tax is not unconstitutional because it is not intrinsically equal and uniform
in its operation.The uniformity rule does not prohibit classification for purposes of taxation

Facts:

 British American Tobacco filed a Motion for Reconsideration for the Court’s decision
in 2008
 Petitioner interposes that the assailed provisions:
(1) violate the equal protection and uniformity of taxation clauses of the Constitution,

(2) contravene Section 19,[1] Article XII of the Constitution on unfair competition, and

(3) infringe the constitutional provisions on regressive and inequitable taxation.

 Petitioner further argues that assuming the assailed provisions are constitutional, it is
entitled to a downward reclassification of Lucky Strike from the premium-priced to
the high-priced tax bracket.
 Lucky Strike reiterates in its MR that the classification freeze provision violates the
equal protection and uniformity of taxation clauses because older brands are taxed
based on their 1996 net retail prices while new brands are taxed based on their
present day net retail prices.

HELD: Petition is denied

 Without merit and a rehash of petitioner’s previous arguments before this Court
 The rational basis test was properly applied to gauge the constitutionality of the
assailed law in the face of an equal protection challenge
The classification is considered valid and reasonable provided that: (1) it
rests on substantial distinctions; (2) it is germane to the purpose of the law;
(3) it applies, all things being equal, to both present and future conditions;
and (4) it applies equally to all those belonging to the same class.
 The classification freeze provision was inserted in the law for reasons of practicality
and expediency.
o since a new brand was not yet in existence at the time of the passage of RA
8240, then Congress needed a uniform mechanism to fix the tax bracket of a
new brand.
o The current net retail price, similar to what was used to classify the brands
under Annex “D” as of October 1, 1996, was thus the logical and practical
choice
 The classification freeze provision was in the main the result of Congress’s earnest
efforts to improve the efficiency and effectivity of the tax administration over sin
products while trying to balance the same with other State interests
ABAKADA Guro Partylist v. Purisima (G.R. NO. 166715)
Date: July 13, 2018

Facts: RA 9335 or Attrition Act of 2005 was enacted to optimize the revenue-generation
capability and collection of the BIR and the BOC. The law intends to encourage their officials
and employees to exceed their revenue targets by providing a system of rewards and
sanctions through the creation of Rewards and Incentives Fund and Revenue Performance
Evaluation Board.

The Boards in the BIR and BOC to be composed by their respective Commissioners, DOF,
DBM, and NEDA, were tasked to prescribe the rules and guidelines for the allocation,
distribution and release of the fund, to set criteria and procedures for removing service
officials and employees whose revenue collection fall short of the target; and further, to
issue rules and regulations. Also, the law tasked the DOF, DBM, NEDA, BIR, BOC and the CSC
to promulgate and issue the IRR of RA 9335, subject to the approval of the Joint
Congressional Oversight Committee created solely for the purpose of approving the
formulated IRR. Later, the JCOO having approved a formulated IRR by the agencies, JCOO
became functus officio and ceased to exist.

Petitioners, invoking their right as taxpayers, filed this petition challenging the
constitutionality of RA 9335 and sought to prevent herein respondents from implementing
and enforcing said law.

Petitioners assail, among others, the creation of a congressional oversight committee on the
ground that it violates the doctrine of separation of powers, as it permits legislative
participation in the implementation and enforcement of the law, when legislative function
should have been deemed accomplished and completed upon the enactment of the law.
Respondents, through the OSG, counter this by asserting that the creation of the
congressional oversight committee under the law enhances rather than violates separation
of powers, as it ensures the fulfillment of the legislative policy.

Issue: Whether the creation of the congressional oversight committee violates the doctrine
of separation of powers under the Constitution

Ruling: YES. The Joint Congressional Oversight Committee in RA 9335 having approved the
IRR formulated by the DOF, DBM, NEDA, BIR, BOC and CSC on May 22, 2006, it became
functus officio and ceased to exist. Hence, the issue of its alleged encroachment on the
executive function of implementing and enforcing the law may be considered moot and
academic.
This notwithstanding, this might be as good a time as any for the Court to confront the issue
of the constitutionality of the Joint Congressional.

Congressional oversight is not unconstitutional per se, meaning, it neither necessarily

constitutes an encroachment on the executive power to implement laws nor undermines
the constitutional separation of powers. Rather, it is integral to the checks and balances
inherent in a democratic system of government. It may in fact even enhance the separation
of powers as it prevents the over-accumulation of power in the executive branch.

However, to forestall the danger of congressional encroachment “beyond the legislative

sphere,” the Constitution imposes two basic and related constraints on Congress. It may not
vest itself, any of its committees or its members with either executive or judicial power. And,
when it exercises its legislative power, it must follow the “single, finely wrought and
exhaustively considered, procedures” specified under the Constitution, including the
procedure for enactment of laws and presentment. Thus, any post-enactment congressional
measure such as this should be limited to scrutiny and investigation. In particular,
congressional oversight must be confined to the following:

(1) scrutiny based primarily on Congress‘ power of appropriation and the budget hearings
conducted in connection with it, its power to ask heads of departments to appear before
and be heard by either of its Houses on any matter pertaining to their departments and its
power of confirmation and

(2) investigation and monitoring of the implementation of laws pursuant to the power of
Congress to conduct inquiries in aid of legislation.

Any action or step beyond that will undermine the separation of powers guaranteed by the
Constitution. Legislative vetoes fall in this class.

Legislative veto is a statutory provision requiring the President or an administrative agency

to present the proposed implementing rules and regulations of a law to Congress which, by
itself or through a committee formed by it, retains a “right” or “power” to approve or
disapprove such regulations before they take effect. As such, a legislative veto in the form of
a congressional oversight committee is in the form of an inward-turning delegation designed
to attach a congressional leash (other than through scrutiny and investigation) to an agency
to which Congress has by law initially delegated broad powers. It radically changes the
design or structure of the Constitution‘s diagram of power as it entrusts to Congress a direct
role in enforcing, applying or implementing its own laws.

Administrative regulations enacted by administrative agencies to implement and interpret

the law which they are entrusted to enforce have the force of law and are entitled to
respect. Congress, in the guise of assuming the role of an overseer, may not pass upon their
legality by subjecting them to its stamp of approval without disturbing the calculated
balance of powers established by the Constitution. In exercising discretion to approve or
disapprove the IRR based on a determination of whether or not they conformed with the
provisions of RA 9335, Congress arrogated judicial power unto itself, a power exclusively
vested in this Court by the Constitution.

From the moment the law becomes effective, any provision of law that empowers Congress
or any of its members to play any role in the implementation or enforcement of the law
violates the principle of separation of powers and is thus unconstitutional. Under this
principle, a provision that requires Congress or its members to approve the implementing
rules of a law after it has already taken effect shall be unconstitutional, as is a provision that
allows Congress or its members to overturn any directive or ruling made by the members of
the executive branch charged with the implementation of the law.
COMMISSIONER ON INTERNAL REVENUE vs. FORTUNE TOBACCO CORPORATION

Doctrine: The higher tax rule only applies during the transition period. To implement the higher
tax rule on Jan. 1, 2000 would violate the rule of uniformity since brands belonging to the same
category would be imposed with different taxes.

Background facts:

 Under our tax laws, manufacturers of cigarettes are subject to pay excise taxes on
their products.
o Prior to Jan. 1, 1997 – excise taxes on these products were in the form of ad
valorem taxes pursuant to the 1977 Tax Code.
o Beginning Jan. 1, 1997, RA 8240 took effect and a shift from ad valorem to
specific taxes was made. Sec 142(c) of the 1977 Tax Code, as amended by RA
8240 provides:
“The specific tax from any brand of cigarettes within the next
three 3 years of effectivity of this Act shall not be lower than the
tax [which] is due from each brand on October 1, 1996: Provided,
however, That in cases where the specific tax rates imposed in
paragraphs (1)-(4) hereinabove will result in an increase in excise
tax of more than 70%, for a brand of cigarette, the increase shall
take effect in two tranches: 50% of the increase shall be effective
in 1997 and 100% of the increase shall be effective in 1998.
xxx
The rates of specific tax on cigars and cigarettes under
paragraphs (1), (2), (3) and (4) hereof, shall be increased by
twelve percent (12%) on January 1, 2000.”
 To implement RA 8240, the CIR issued Revenue Regulation No. (RR) 1-97 whose
Section 3(c) and (d) echoed the above-quoted portion of Section 142.
 The 1977 Tax Code was later repealed by RA 8424 (1997 Tax Code), and Sec. 142 as
amended by RA 8240 was renumbered as Sec. 145.
 This time, to implement the 12% increase in specific taxes mandated under Section
145 of the 1997 Tax Code, the CIR issued RR 17-99:
“Sec. 1. New Rates of Specific Tax – The specific tax rates imposed
under the ff. sections are hereby increased by 12% and the new
rates to be levied, assessed, and collected are as follows…
Provided, however, that the new specific tax rate for any
existing brand of cigars [and] cigarettes packed by machine,
distilled spirits, wines and fermented liquors shall not be lower
 than the excise tax that is actually being paid prior to January 1,
2000.”

Facts:

 Pursuant to these laws, Fortune Tobacco Corporation paid in advance excise taxes
for 2003 (P11.15B), and for the period covering Jan. 1-May 31, 2004 (P4.90B).
 June 2004: Fortune Tobacco filed an administrative claim for tax refund with the CIR
for erroneously and/or illegally collected taxes. It also filed a judicial claim for tax
refund w/ the CTA.
 CTA 1st Division ruled in favor of Fortune Tobacco and granted its claim for refund.
CTA en banc affirmed the CTA decision and denied CIR’s MR. CIR filed a petition for
review on certiorari.
 The parties’ arguments:

Fortune Tobacco CIR

 Primary basis for the claim for
refund: CIR’s unauthorized
administrative legislation.
 By including the Sec 1 of RR 17-99,
CIR went beyond the language of
the law and usurped Congress’
power.
 Said proviso requires the payment of
the excise tax actually being paid
prior to Jan. 1, 2000 if this amount is
higher than the new specific tax
rate, i.e., rates of specific taxes
imposed in 1997 for each category of
cigarette, plus 12%.
 Section 145(c) of the 1997 Tax Code,
as written, imposes a 12% increase on
the excise tax rates provided under
sub-paragraphs (1)-(4) only; it does
not say that the tax due during the
transition period shall continue to be
collected if the amount is higher
than the new specific tax rates.
 The “higher tax rule” applies only to
the 3-year transition period to offset
the burden caused by the shift from
ad valorem to specific taxes.
 The inclusion of the proviso was
made to carry out the law’s intent
and is well within the scope of his
delegated legislative authority.
 CTA’s strict interpretation of the law
ignored Congress’ intent to increase
the collection of excise taxes (as
shown by the adoption of the
“higher tax rule” during the
transition period) by increasing
specific tax rates on sin products.
 Sec 145(c) categorically declares that
the excise tax from any brand of
cigarettes w/in the 3-year transition
period shall not be lower than the
tax which is due from each brand on
Oct. 1, 1996.
 No plausible reason why the new
specific tax rates due beginning Jan.
1, 2000 should not be subject to the
same rule as those due during the
transition period.
Issue:

WON the rule of uniformity of taxation was violated by the proviso in Sec 1, RR 17-99 – YES

Held:

 Following stare decisis, the ruling in CIR v. Fortune Tobacco (2008) applies in this case.
The SC upheld Fortune Tobacco’s tax refund claims after finding invalid the proviso in
Sec 1 of RR17-99.
o By adding the qualification in Sec 145 stating that the tax due after the 12%
increase becomes effective shall not be lower than the tax actually paid prior
to Jan. 1, 2000, RR 17-99 effectively imposes a tax which is the higher amount
between the ad valorem tax being paid at the end of the 3-year transition
period and the specific tax under par. C, sub-paragraph (1)-(4), as increased by
12% – a situation not supported by the plain wording of Section 145 of the Tax
Code.
o The qualification is conspicuously absent as regards the 12% increase to be
applied on cigars and cigarettes packed by machine, among others, effective
on Jan. 1, 2000.
o The proviso in Sec 1 of RR 17-99 clearly went beyond the terms of the law it
was supposed to implement.
 Raising government revenue is not RA8240’s sole objective. The shift from ad
valorem (based on the value of the goods) to specific taxes (based on the volume of
the goods produced) was intended to curb the corruption in the imposition of the
former. Imposing specific taxes would prevent price manipulation and also cure the
unequal tax treatment created by the skewed valuation of similar goods.
 The Constitution requires that taxation should be uniform and equitable. Uniformity
in taxation requires that all subjects or objects of taxation, similarly situated, are to
be treated alike both in privileges and liabilities.
 Illustration of the violation of the rule of uniformity of taxation by the proviso in Sec
1, RR 17-99:
o Consider 3 brands of cigarettes, all classified as lower-priced cigarettes
(P5/pack net retail price) under the 1997 Tax Code. Though the brands all
belong to the same category, the said proviso authorized the imposition of
different and grossly disproportionate tax rates. It effectively extended the
qualification stated in the the 1997 Tax Code that was supposed to apply only
during the transition period:
“The excise tax from any brand of cigarettes w/in the next 3 years
from the effectivity of RA 8240 shall not be lower than the tax,
which is due from each brand on Oct. 1, 1996.”
 o In the process, the CIR also perpetuated the unequal tax treatment of similar
goods that was supposed to be cured by the shift from ad valorem to specific
taxes.
 The 1997 Tax Code’s provisions on excise taxes have omitted the adoption of certain
tax measures. These omissions reveal the legislative intent not to adopt the higher
tax rule; they are not simply unintended lapses in the law’s wording.
BUREAU OF CUSTOMS EMPLOYEES ASSOCIATION (BOCEA), represented by its National
President (BOCEA National Executive Council) Mr. Romulo A. Pagulayan,Petitioner, v. HON.
MARGARITO B. TEVES, et al. (G.R. No. 181704; December 6, 2011).

FACTS: Former President Gloria Macapagal-Arroyo signed into law R.A. No. 9335. RA [No.]
9335 was enacted to optimize the revenue-generation capability and collection of the
Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). The law intends to
encourage BIR and BOC officials and employees to exceed their revenue targets by
providing a system of rewards and sanctions through the creation of a Rewards and
Incentives Fund (Fund) and a Revenue Performance Evaluation Board (Board). It covers all
officials and employees of the BIR and the BOC with at least six months of service,
regardless of employment status.

Contending that the enactment and implementation of R.A. No. 9335 are tainted with
constitutional infirmities in violation of the fundamental rights of its members, petitioners
directly filed the present petition before this Court against respondents.

BOCEA asserted that in view of the unconstitutionality of R.A. No. 9335 and its IRR, and their
adverse effects on the constitutional rights of BOC officials and employees, direct resort to
this Court is justified. BOCEA argued, among others, that its members and other BOC
employees are in great danger of losing their jobs should they fail to meet the required
quota provided under the law, in clear violation of their constitutional right to security of
tenure, and at their and their respective families prejudice.

Respondents countered that R.A. No. 9335 and its IRR do not violate the right to due
process and right to security of tenure of BIR and BOC employees. The OSG stressed that the
guarantee of security of tenure under the 1987 Constitution is not a guarantee of perpetual
employment. R.A. No. 9335 and its IRR provided a reasonable and valid ground for the
dismissal of an employee which is germane to the purpose of the law. Likewise, R.A. No.
9335 and its IRR provided that an employee may only be separated from the service upon
compliance with substantive and procedural due process. The OSG added that R.A. No. 9335
and its IRR must enjoy the presumption of constitutionality.

In Abakada, the Court declared Section 12of R.A. No. 9335 creating a Joint Congressional
Oversight Committee to approve the IRR as unconstitutional and violative of the principle of
separation of powers. However, the constitutionality of the remaining provisions of R.A. No.
9335 was upheld pursuant to Section 13of R.A. No. 9335. The Court also held that until the
contrary is shown, the IRR of R.A. No. 9335 is presumed valid and effective even without the
approval of the Joint Congressional Oversight Committee.
ISSUE: Did R.A. No. 9335 and its IRR violate the rights of BOCEAs members to: (a) equal
protection of laws, (b) security of tenure and (c) due process?

HELD: Prefatorily, we note that it is clear, and in fact uncontroverted, that BOCEA has locus
standi. BOCEA impugns the constitutionality of R.A. No. 9335 and its IRR because its
members, who are rank-and-file employees of the BOC, are actually covered by the law and
its IRR. BOCEA's members have a personal and substantial interest in the case, such that
they have sustained or will sustain, direct injury as a result of the enforcement of R.A. No.
9335 and its IRR.

The principle of separation of powers ordains that each of the three great branches of
government has exclusive cognizance of and is supreme in matters falling within its own
constitutionally allocated sphere. Necessarily imbedded in this doctrine is the principle of
non-delegation of powers, as expressed in the Latin maxim potestas delegata non delegari
potest, which means "what has been delegated, cannot be delegated." This doctrine is
based on the ethical principle that such delegated power constitutes not only a right but a
duty to be performed by the delegate through the instrumentality of his own judgment and
not through the intervening mind of another. However, this principle of non-delegation of
powers admits of numerous exceptions, one of which is the delegation of legislative power
to various specialized administrative agencies like the Board in this case.

Equal protection simply provides that all persons or things similarly situated should be
treated in a similar manner, both as to rights conferred and responsibilities imposed. The
purpose of the equal protection clause is to secure every person within a states jurisdiction
against intentional and arbitrary discrimination, whether occasioned by the express terms of
a statute or by its improper execution through the states duly constituted authorities. In
other words, the concept of equal justice under the law requires the state to govern
impartially, and it may not draw distinctions between individuals solely on differences that
are irrelevant to a legitimate governmental objective.

The essence of due process is simply an opportunity to be heard, or as applied to

administrative proceedings, a fair and reasonable opportunity to explain ones side. BOCEA's
apprehension of deprivation of due process finds its answer in Section 7 (b) and (c) of R.A.
No. 9335. The concerned BIR or BOC official or employee is not simply given a target
revenue collection and capriciously left without any quarter. R.A. No. 9335 and its IRR clearly
give due consideration to all relevant factors that may affect the level of collection.

As the Court is not a trier of facts, the investigation on the veracity of, and the proper action
on these anomalies are in the hands of the Executive branch. Correlatively, the wisdom for
the enactment of this law remains within the domain of the Legislative branch. We merely
interpret the law as it is. The Court has no discretion to give statutes a meaning detached
from the manifest intendment and language thereof. Just like any other law, R.A. No. 9335
has in its favor the presumption of constitutionality, and to justify its nullification, there must
be a clear and unequivocal breach of the Constitution and not one that is doubtful,
speculative, or argumentative. We have so declared in Abakada, and we now reiterate that
R.A. No. 9335 and its IRR are constitutional.

DISMISSED.
REPUBLIC OF THE PHILIPPINES et al. v. HONORABLE RAMON S. CAGUIOA et al.

536 SCRA 193 (2007), EN BANC

FACTS: Congress enacted Republic Act (R.A) No. 7227 or the Bases Conversion and
Development Act of 1992 which created the Subic Special Economic and Freeport Zone
(SBF) and the Subic Bay Metropolitan Authority (SBMA). Section 12 of R.A No. 7227 of the
law provides that no taxes, local and national, shall be imposed within the Subic Special
Economic Zone. Pursuant to the law, Indigo Distribution Corporation, et al., which are all
domestic corporations doing business at the SBF, applied for and were granted Certificates
of Registration and Tax Exemption by the SBMA.

Congress subsequently passed R.A. No. 9334, which provides that all applicable taxes,
duties, charges, including excise taxes due thereon shall be applied to cigars and cigarettes,
distilled spirits, fermented liquors and wines brought directly into the duly chartered or
legislated freeports of the Subic Economic Freeport Zone. On the basis of Section 6 of R.A.
No. 9334, SBMA issued a Memorandum declaring that, all importations of cigars, cigarettes,
distilled spirits, fermented liquors and wines into the SBF, shall be treated as ordinary
importations subject to all applicable taxes, duties and charges, including excise taxes.

Upon its implementation, Indigo et al., sought for a reconsideration of the directives on the
imposition of duties and taxes, particularly excise taxes by the Collector of Customs and the
SBMA Administrator. Their request was subsequently denied prompting them to file with
the RTC of Olongapo City a special civil action for declaratory relief to have certain provisions
of R.A. No. 9334 declared as unconstitutional. They prayed for the issuance of a writ of
preliminary injunction and/or Temporary Restraining Order (TRO) and preliminary
mandatory injunction. The same was subsequently granted by Judge Ramon Caguioa. The
injunction bond was approved at One Million pesos (P1,000,000).

ISSUES: Whether or not public respondent judge committed grave abuse of discretion
amounting to lack or excess in jurisdiction in peremptorily and unjustly issuing the injunctive
writ in favor of private respondents despite the absence of the legal requisites for its
issuance

HELD: One such case of grave abuse obtained in this case when Judge Caguioa issued his
Order of May 4, 2005 and the Writ of Preliminary Injunction on May 11, 2005 despite the
absence of a clear and unquestioned legal right of private respondents. In holding that the
presumption of constitutionality and validity of R.A. No. 9334 was overcome by private
respondents for the reasons public respondent cited in his May 4, 2005 Order, he
disregarded the fact that as a condition sine qua non to the issuance of a writ of preliminary
injunction, private respondents needed also to show a clear legal right that ought to be
protected. That requirement is not satisfied in this case. To stress, the possibility of
irreparable damage without proof of an actual existing right would not justify an injunctive
relief.
Indeed, Sections 204 and 229 of the NIRC provide for the recovery of erroneously or illegally
collected taxes which would be the nature of the excise taxes paid by private respondents
should Section 6 of R.A. No. 9334 be declared unconstitutional or invalid.

The Court finds that public respondent had also ventured into the delicate area which courts
are cautioned from taking when deciding applications for the issuance of the writ of
preliminary injunction. Having ruled preliminarily against the prima facie validity of R.A. No.
9334, he assumed in effect the proposition that private respondents in their petition for
declaratory relief were duty bound to prove, thereby shifting to petitioners the burden of
proving that R.A. No. 9334 is not unconstitutional or invalid.

In the same vein, the Court finds Judge Caguioa to have overstepped his discretion when he
arbitrarily fixed the injunction bond of the SBF enterprises at only P1million. Rule 58, Section
4(b) provides that a bond is executed in favor of the party enjoined to answer for all
damages which it may sustain by reason of the injunction. The purpose of the injunction
bond is to protect the defendant against loss or damage by reason of the injunction in case
the court finally decides that the plaintiff was not entitled to it, and the bond is usually
conditioned accordingly.

Whether this Court must issue the writ of prohibition, suffice it to stress that being
possessed of the power to act on the petition for declaratory relief, public respondent can
proceed to determine the merits of the main case. Moreover, lacking the requisite proof of
public respondent‘s alleged partiality, this Court has no ground to prohibit him from
proceeding with the case for declaratory relief. For these reasons, prohibition does not lie.
Manila Electric Company v. Province of Laguna

(G.R. No. 131359. May 5, 1999)

FACTS: MERALCO was granted a franchise by several municipal councils and the National
Electrification Administration to operate an electric light and power service in the Laguna.
Upon enactment of Local Government Code, the provincial government issued ordinance
imposing franchise tax. MERALCO paid under protest and later claims for refund because of
the duplicity with Section 1 of P.D. No. 551. This was denied by the governor (Joey Lina)
relying on a more recent law (LGC). MERALCO filed with the RTC a complaint for refund, but
was dismissed. Hence, this petition.

ISSUE: Whether or not the imposition of franchise tax under the provincial ordinance is
violative of the non-impairment clause of the Constitution and of P.D. 551.

HELD: No. There is no violation of the non-impairment clause for the same must yield to the
inherent power of the state (taxation). The provincial ordinance is valid and constitutional.

RATIO: The Local Government Code of 1991 has incorporated and adopted, by and large, the
provisions of the now repealed Local Tax Code. The 1991 Code explicitly authorizes
provincial governments, notwithstanding “any exemption granted by any law or other
special law, . . . (to) impose a tax on businesses enjoying a franchise.” A franchise partakes
the nature of a grant which is beyond the purview of the non-impairment clause of the
Constitution. Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in
the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public
utility shall be granted except under the condition that such privilege shall be subject to
amendment, alteration or repeal by Congress as and when the common good so requires.
Misamis Oriental vs Cagayan Electric (1990)

Facts: Cagayan Electric Power and light Co, Inc. (CEPALCO) was granted a franchise in 1961
under RA 3247 to install, operate and maintain an electric light, heat and power system in
Cagayan de Oro and its suburbs. In 1973, the Local Tax Code (PD 231) was promulgated,
where Section 9 thereof providing for a franchise tax. Pursuant thereto, the province of
Misamis Oriental enacted Provincial Revenue Ordinance 19, whose Section 12 also provides
for a franchise tax. The Provincial Treasurer demanded payment of the provincial franchise
tax from CEPALCO. CEPALCO paid under protest.

Issue: Whether CEPALCO is exempt from the provincial franchise tax.

Held: Local Tax Regulation 3-75 issued by the Secretary of Finance in 1976 made it clear that
the franchise tax provided in the Local Tax Code may only be imposed on companies with
franchise that do not contain the exempting clause, i.e. “in-lieu-of-all-taxes-proviso.”
CEPALCO’s franchise i.e. RA 3247, 3571 and 6020 (Section 3 thereof), uniformly provides that
“in consideration of the franchise and rights hereby granted, the grantee shall pay a
franchise tax equal to 3% of the gross earnings for electric current sold under the franchise,
of which 2% goes to the national Treasury and 1% goes into the treasury of the municipalities
of Tagoloan, Opol, Villanueva, Jasaan, and Cagayan de Oro, as the case may be: Provided,
that the said franchise tax of 3% of the gross earnings shall be in lieu of all taxes and
assessments of whatever authority upon privileges, earnings, income, franchise and poles,
wires, transformers, and insulators of the grantee from which taxes and assessments the
grantee is hereby expressly exempted.
Casanovas v Hord
GR No. 3473, March 22, 1907

FACTS: In January 1897, the Spanish Government, in accordance with the provisions of the
royal decree of May 14, 1867,
granted J. Casanovas certain mines in the Province of Ambos Camarines. They were so
considered by the Collector of Internal Revenue and were by him said to fall within the
provisions of Section 134 of Act 1189 which imposes an annual tax and an ad valorem tax on
all valid perfected mining concessions granted prior to April 11th, 1899. The Commissioner,
JNO S. Hord, imposed upon these properties the tax mentioned in Section 134, which
Casanovas paid under protest.

ISSUE: Is Section 134 valid?

RULING: No, the concessions granted by the Government of Spain to the plaintiff, constitute
contracts between the parties; that
section 134 of the Internal Revenue Law impairs the obligation of these contracts, and is
therefore void as to them.
The deed constituted a contract between the Spanish Government and Casanovas.
Furthermore, the section conflicts with Section 60 of the Act of Congress of July 1, 1902,
which indicate that concessions can be cancelled only by reason of illegality in the procedure
by which they were obtained, or for failure to comply with the conditions prescribed as
requisites for their retention in the laws under which they were granted. The grounds were
not shown nor claimed in the case.